A Journey of a Thousand Miles

My wife and I have been traveling to Barbados regularly from 2010-2016, staying at my wife’s grandfather’s property. During one of our visits in 2011, we noticed condos going up for sale at a price of 500K USD for one unit. Fast forward to 2018, and we were the proud owners of two units in Barbados, a journey that started from regular visits to becoming million-dollar property owners.

From Visitor to Investor

This blog post will share our journey of how we transitioned from being regular visitors to Barbados to becoming property owners and running a successful rental business, TS Barbados Rentals. We will delve into the financial strategies we employed, the challenges we faced, and the lessons we learned along the way.

The Opportunity Knocks: 2011 vs. 2018

In 2011, we inquired on new condos we had seen being built and were going up for sale. Although the price tag of 500K USD per unit was too steep for us at the time, by 2016 we had the opportunity to stay in one of those units. We liked the units so much we enquired if more condos were being built. The was a second building with the condos being build and the price for one unit had dropped to 250K USD. Seizing the opportunity, we decided to purchase two units in our holding company named TSG Toronto Holdings Inc for the tax benefits which include:

1. Tax Benefits: One of the primary benefits of holding real estate in a holding company is the tax advantages. Profits made by the holding company, including rental income, may be subject to a lower corporate tax rate compared to personal tax rates. Also, in some jurisdictions, properties held within a holding company may be eligible for tax deductions and credits that are not available to individual property owners.
2. Limited Liability: A holding company provides a layer of protection between the real estate assets and the individual owner. This means that the individual’s personal assets are protected from any liabilities associated with the property. If there is any debt or legal issue related to the property, it will be limited to the assets of the holding company and will not affect the personal assets of the individual.
3. Estate Planning: Holding real estate within a holding company can be beneficial for estate planning purposes. It allows for easier transfer of assets to heirs as shares of the company can be distributed without the need to transfer the title of the property.
4. Flexibility in Profit Distribution: Holding companies provide flexibility in how profits are distributed among shareholders. This can be particularly advantageous for tax planning purposes, allowing for more efficient distribution of income.
5. Asset Protection: Holding companies can offer better protection of the real estate asset. If the individual owner faces bankruptcy or personal legal issues, the real estate asset held within the holding company is usually protected from personal creditors.
6. Ease of Sale: Selling the property can be easier as the shares of the holding company can be sold instead of the property itself. This can result in lower transaction costs and may also provide tax advantages.
7. Privacy: Owning real estate through a holding company can provide a level of privacy for the individual owner as the property is listed under the company’s name rather than the individual’s name.

The Financial Strategy: Equity, HELOC, and Mortgage

We financed the purchase by tapping into the equity of our condo that we had bought in 2010, which was coming out of the 2008 housing crash. Because we bought at a depressed time, the equity that we gained 8 years later was significant. We secured a cheap Home Equity Line of Credit (HELOC) that we eventually rolled back into our mortgage a few years later when the interest rate was lower than 2%. As of today’s date, our monthly rate has not changed much, and with the help of our business partner, we were able to buy the properties outright.

The Business Venture: TS Barbados Rentals

In 2018 after the purchase we set up a rental business, TS Barbados Rentals, and for the past five years, we have been earning about 35K USD per year in rent, most of which is profit. The mix of short-term and long-term rentals has worked well for us (especially during the pandemic), and due to the appreciation of the property, we recently sold one of the condos to purchase a large parcel of land on which we are building two more properties, our own personal home and another rental unit.

Question #1: Have you ever thought about turning your regular vacation spot into a profitable investment?

The Equity Gain: A Million-Dollar Milestone

From 2018-2023 we have been on the journey of accumulating over 1 million Canadian dollars in equity through a combination of original condos, land ownership, and ongoing property development. Being able to accomplish this over a 5 year period is a testament to many of the decisions we made that went right. Some of them are:

1. Strategic Financial Decisions: Building such a substantial equity portfolio requires a well-thought-out financial strategy. This involves carefully selecting investment opportunities, managing finances efficiently, and making prudent decisions about where to allocate resources. All of the money we collected went back into the business to continue to provide value to travelers. All the while ensuring maintenance was done on the property so the quality of the stay didn’t go down.
2. Seizing Opportunities: Part of accumulating significant equity often involves recognizing and seizing promising opportunities. Whether it’s identifying undervalued properties, entering emerging markets, or taking calculated risks, the ability to capitalize on favorable conditions and act decisively can result in substantial gains over time. Our idea of waiting until the we could buy 2 properties for the price of one double our investment opportunity.
3. Property Development: Property development can be a lucrative venture, as it allows for value addition to land and can result in increased equity as the properties are completed and appreciated in value. Once completed the properties will be valued at over 1.5 Million dollar’s BBD.

From Regular Visitors to Million-Dollar Property Owners

Our journey from being regular visitors to Barbados to becoming million-dollar property owners and running a successful rental business exemplifies the potential for substantial wealth creation in the real estate sector when approached strategically and with a keen understanding of the market dynamics. It shows than with hard work and a willingness to learn, anyone can achieve the same success we were able to have.

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Disclaimer: The content on this blog is for informational and educational purposes only and should not be construed as professional financial advice. Please consult with a licensed financial or tax advisor before making any decisions based on the information you see here.