Unlocking real estate for every budget
EXPLORING real estate as an investment goes beyond the conventional path of purchasing a house, according to Peter Thompson, group chief client investment officer at JMMB. In an interview with the Jamaica Observer, Thompson advocates for diversifying investment portfolios by entering the real estate market â€” regardless of the available funds.
“Real estate as an asset is a crucial part of any diversified investment portfolio,” said Thompson while speaking with the Observer.
He highlights the long-term nature of real estate investments, dispelling the notion of a “get-rich-quick scheme”. Instead, he posits real estate as an avenue for building wealth over time, particularly for generational and intergenerational wealth. Thompson underscores real estate’s effectiveness as a hedge against inflation.
“Real estate is not as volatile as other classes; it’s steady,” he said, noting its stability compared to stocks and bonds.
While it sounds like the safest form of investment, for many a direct investment in buying a house might not be realistic at the moment due to insufficient funds. However, Thompson introduces an alternative route through indirect real estate allocation, such as unit trusts.
“You have a small amount of money, and that money is pooled with other small investors. It’s then used to invest in real estate, and you benefit from that real estate growth,” he explained to the Sunday Finance. “You can throw $10,000 or $20,000 a month, nice and easy, with no brokerage fees.”
He emphasises the importance of disciplined investing against income inflation, allowing for increased contributions over time. Highlighting the historical significance of homeownership, Thompson notes that owning a home builds equity with each payment. However, he cautions that investing in real estate requires an initial financial commitment.
“You’re going to be house-poor for a second,” he cautions as the initial costs, including the down payment and closing fees, absorb liquidity.
Considerations such as taxes and insurance should play a crucial role in decision-making. Thompson advises against outright ownership of an investment property initially unless there’s steady income to supplement mortgage payments.
“There’s never an investment that everybody should do,” Thompson notes, emphasising the importance of tailoring investment decisions to individual circumstances.
While acknowledging the upfront challenges Thompson remains optimistic about the long-term potential of real estate investments. Over time rental income may exceed mortgage costs, and property equity can be leveraged for future opportunities. The entry point depends on individual goals, with Thompson suggesting that small investors start with $10,000.
“Stick to your lane initially and then grow over time,” Thompson advises.