With another Jamaica Observer Design Week upon us I find myself in reflection mode, on my own journey to property ownership. I am thinking that the formula to create wealth remains the same today as it was at any time. Investing in real estate is one of the principal ways of creating wealth. In fact, it may be easier to own property now more than ever before due to:

• Urban/rural development

• Access to information

• Increase in National Housing Trust (NHT) benefits over the years

• Earnings — families creating non-traditional streams of income

• Relatively low interest rates

My personal journey

The year was 1991. I was a newly minted senior accounting clerk moving to my first job in Kingston. Travelling from St Thomas was a hassle, and in those days, there was no used car market. Nevertheless, armed with my pension contribution refund from my previous employment, I started searching for a car to assist with my daily commute. My managing director at the time got wind of my intention and spoke to me about the prospect of owning a house at Greater Portmore instead of investing in a car. We worked with the ICD group then, and I did not have to join the lines at the National Arena to make the deposit. If you are old enough, you will remember the crowd that converged at the arena with people sleeping overnight in a bid to purchase one of the houses. The transaction concluded at my offices, and I gladly paid the deposit on my first home at the age of 25 with all the money that I had saved along with a pension contribution refund. I had my children early in life (my first when I was 18 and the second and last at age 20) so just imagine how difficult it was for me to take care of them and save at the same time.

I moved to Kingston a few years later. My children were growing and as tempted as I was to move into my Portmore home I was haunted at the prospect of families leaving Portmore at 5:00 am to get to work in Kingston. My children were still adapting to city life. I saw the bus commute as a bigger challenge! The rental rates in Kingston were three times my monthly mortgage but I consciously continued to rent out the house in Portmore and rent a place in Kingston. It was easier for us to manoeuvre city life in terms of work, study, school and ease of transportation. My friends could not understand my decision to pay rent.

I stuck to my budget and drowned out the noise. I was not prepared to explain the pros and cons one more time, so I refused to discuss the matter.

In fact, many in Portmore were making elaborate adjustments to their homes without an architectural plan oftentimes leading to over-build, especially when the structure is not in line with the land/structure standards. The cost of these renovations are often very expensive too and finally and most importantly one can get so much and no more for a property, based on the area and what other houses are selling for. I knew I would not fall in that trap as the more you invest in the property, the less money you will have to buy in an even nicer area. I kept the property in Portmore and only made necessary repairs as I saw my first home as a stepping stone to greater value.

I worked tirelessly, studied hard and soon became a chartered accountant. The children passed their Common Entrance exams and matriculated to high schools. As I progressed through my career, my financial situation improved, and I started to save more. By then the equity in the property had increased and I knew it was time to sell and move on from rental properties. It was an easy sell and I used the proceeds of the sale to deposit on a house at Long Mountain Country Club.

A 30-year mortgage at a certain interest rate was offered by my mortgagor and, like most homeowners, I gladly accepted to benefit from a lower monthly payment and extended duration of the loan. By then the children were heading to universities and cash was tight. I did not take my NHT benefit as the rates were in line with the mortgagor rate so I did not see that as any real benefit.

After a few years, I realised that interest rates were falling, and I met with my mortgage company to discuss refinancing. Typically, homeowners refinance their mortgage in the hopes of reducing their monthly payments and extend the duration of the loan. I took the non-traditional route by increasing my monthly payments and reduced the duration of the loan to 20 years. I went back to the mortgagor a second time and increased my monthly payments and eventually got my mortgage to 15 years. By doing so I saved significantly on interest and was able to pay off the principal at a much faster rate. This propelled my overall net worth as the equity in my home also increased at a faster rate.

With my children’s tertiary education complete and with no mortgage to pay, it was time for me to leverage the situation at year 15 and move up the property ladder once again. Recognising that the housing market had changed rapidly I started researching. There were, in fact, significant shifts in the real estate market and not all properties were appreciating at the same rate. I felt that the home that I had grown to love so much was fast approaching its peak and I knew then that it was time for me to start searching for greater value. It was time to sell and I embarked on the staging process starting with the curve appeal. I advertised when the grass was green, and the poui trees were in full bloom.

A single advertisement was all it took. The house was sold and the keys handed to its new owner. I had made valuable friendships in the community especially on my road. Many a potluck dinner party had been hosted at my home. The camaraderie was second to none, but it was time to move on.

As an FYI, Long Mountain was not my only property! In 2013 I received a call from my son-in-law that he was about to buy a studio but had changed his mind. He wanted me to look at it. One look and based on the location I knew we had to buy.

The biggest factor that real estate investors can use to accelerate the growth of their wealth is leverage. Leverage is the use of borrowed money — to increase the potential return of an investment. Leverage, when used wisely to purchase rental income, is a very powerful tool. I scraped the little cash I had on hand, it was now time to finally take up my NHT benefit.

I then approached the bank for a loan to acquire the little gem. The property (all of 590 sq ft) was located next door to the Prime Minister’s Office (location, location, location). I had constant rental but not enough to cover the mortgage. It was a small sum but I knew with time I would reverse that. Of course, I had the refinancing card in my back pocket to activate when the time was right. It felt like I lived in Manhattan in a posh hotel room after I decorated it! I eventually sold it in 2019 to one of my children.

I eventually settled on a property in the Millsborough area, bought it at pre-construction rate. I decided to make a cash purchase using the proceeds of the sales and some out-of-pocket cash. I moved to my new place in March 2020 after an 18-month wait. The value (three years later) is 60% more. At this moment I am thinking…to sell or not to sell…where next?

Tips from Budget Auntie:

• Hone your negotiation skills — you don’t have to go after the first deal, so shop around and negotiate

• Buy in appreciating area — research

• Work with trusted advisors, seek guidance and tune in to the Jamaica Observer Design Week webinars to get valuable insights

• You can always refinance your mortgage at any stage but the earlier in the life of the mortgage, the better as the aim is to reduce interest

• Consider various finance options — ask your mortgagor for different terms of the loan and determine what you can afford to pay. You don’t have to take a 30-year loan

• You don’t have to pay several months of mortgage payments in advance — don’t pay expenses that are not due

• It’s always wise to have 6-9 months emergency funds on hand

• Be very deliberate and inform your mortgage company that you are paying an amount on principal if you choose to make lump sum payments — this will reduce interest

• Make lump sum payments in the early stage of the mortgage when the interest amounts are higher

• Make your investment sellable — maintain your property

• Know when to cash out

Patricia Henry aka Budget Auntie

Chartered Accountant

E-mail: budgetauntiepat@gmail.com

IG:@budgetauntie