Key Takeaways
- An overreliance on real estate is one of the most common investing mistakes in Jamaica.
- Comparing real estate vs bonds shows that fixed-income investments can offer higher and more stable returns.
- Understanding actual investment performance can help you choose the best investments in Jamaica for long-term growth.
Mistake #1: Believing Real Estate Always Offers Great Returns
Mistake number one is the belief that real estate always offers great returns. While this may be true for real estate developers, it is rarely true for the individual investor seeking to buy and rent real estate.
Let us look at an example that highlights the real performance of a property over time.
A Real Estate Example That Tells a Different Story
A local newspaper reported on a property purchased for J$3.6 million in 1991. By December 2018, the property was valued at J$58 million.
At first glance, this seems like a substantial return. However, the picture changes once you adjust for inflation and currency movements.
- In 1991, J$3.6 million was worth US$352,250.49.
- In 2018, J$58 million was worth US$454,132.03.
This works out to an annual return of 0.95 percent over 27 years. This return is lower than the US inflation rate, which averaged approximately 2 percent over the same period.
If the same amount had been invested at only 2 percent per year, the investor would have had US$601,251.59 in 2018. That is more than 70 percent higher than the inflation-adjusted return of the property.
This example shows why the real estate investment returns can be misleading if they are viewed only in Jamaican dollars, without considering purchasing power or long-term currency shifts.
What the Jamaican Real Estate Market Really Shows
This is just one example. What is happening in the broader market?
The Bank of Jamaica monitors changes in real estate prices. Between 2013 and 2018, their index shows:
- Average annual growth of 3.3 percent for Jamaica.
- Average annual growth of 4.4 percent for Kingston.
This level of growth is similar to what an investor can earn on a short-term repo, which does not require maintenance costs, closing fees, long holding periods, or the risks involved with property management. It also shows that overall property investment returns may not significantly outperform other low-risk investments in Jamaica.
As with any data set, there are exceptions. Some investors may have experienced exceptional returns during unique market periods such as the 1970s or the OLINT crash. However, these outcomes do not represent the typical experience and must still be evaluated against inflation and devaluation.
Does Rental Income Improve the Investment Outcome
Many investors turn to rental income to help improve their returns. To evaluate this properly, we calculate profitability by taking rental income less expenses and dividing it by the value of the property. This is known as the rental yield.
Rental Yield (%) = (Rental Income−Expenses)Property Value100
Listed real estate companies on the Jamaica Stock Exchange provide a good benchmark since buying and renting property is their core business. Their performance shows:
- Average rental yield of approximately 4.1* percent.
- The best performer, Eppley Caribbean Property Fund, with a yield of 5.9 percent and a target yield between 7 and 8.3 percent.
Even at the highest end, these returns remain modest. Most individual investors earn below these levels once repairs, maintenance, property taxes, insurance, vacancy periods, and tenant risk are factored in. Rental property ROI often appears higher in theory than in practice.
Comparing Real Estate and Bonds
If you like the idea of earning income from an asset, you may also appreciate bonds. Bonds are often easier to manage and can provide more predictable income than rental properties. They also offer several advantages.
- There are no legal fees, stamp duty, or transfer taxes.
- Transactions can close in days instead of months.
- Interest payments are predictable and not affected by tenant behavior.
- The investor receives their principal at maturity without further costs.
Bond yields, especially USD denominated bonds and other fixed-income investments, often outperform the average rental return in Jamaica. For investors looking for low-risk investments in Jamaica, bonds can be a more stable and efficient option.
Avoiding Other Common Investing Mistakes
Relying too heavily on real estate is only one of several common investing mistakes. Many people feel comfortable with real estate because it is familiar. However, familiarity is not the same as low risk. We explained this concept in more detail in the article “Familiar Name, Not Familiar Risk”, which explores why being familiar with an asset or organization does not make it safe.
Another frequent issue is diversifying without a clear plan. Some investors simply add different assets to their portfolio without understanding how each one contributes to long-term performance. This was discussed in “A Little Bit of This and a Little Bit of That”, which shows why adding many small positions may weaken a portfolio rather than strengthen it.
Thoughtful diversification, supported by a clear strategy, is essential when building a strong portfolio. This is especially important for investors who want to diversify an investment portfolio beyond real estate and explore some of the best investments in Jamaica for long-term financial stability.
From the Sterling Team
The Sterling team provides financial guidance and investment solutions in US dollars and other hard currencies for individual, corporate, and institutional investors. Our goal is to help you grow and protect your wealth through sound investment strategies and clear financial education.
If you would like Sterling to answer your investment questions in future articles, email us at info@sterlingasset.net.jm or visit www.sterling.com.jm to learn more.
Contact us to take the next step in your financial journey.
*Some returns annualised.
Frequently Asked Questions
What Are The Most Common Investing Mistakes In Jamaica
Common mistakes include relying too heavily on real estate, investing based on familiarity rather than risk, and diversifying without a clear strategy. These behaviours can limit returns and expose investors to unnecessary risk.
How Do Bonds Compare To Real Estate As An Investment
Bonds generally offer more predictable income, lower fees, and greater liquidity than rental properties. They can provide competitive yields without the maintenance, tenant issues, or long holding periods associated with real estate.
How Can Investors Decide Between Real Estate And Other Low-Risk Investments
Investors should compare inflation-adjusted returns, risk levels, liquidity needs, and long-term financial goals. Reviewing real estate vs bonds can help determine which option offers a more stable and suitable source of income.