Island Paradise Day 38

When we first arrived here I wrote about how there are so many new homes in Utila just sitting empty. Some of it is for the reasons I expressed: people did not know what they were getting into (re living in the tropics), or they built on speculation (just before the crash of 2008), expecting to sell at a profit, and they are still waiting for that. But now that we have been here awhile we have a better understanding of the other reasons why there are so many houses here sitting empty most of the time.

Utila is such a unique and special place that many people who come here just want to stay. It was how I felt 11 years ago, and it is how I feel now. However, if you want to stay here as a renter, even though there are lots of empty houses here, the rental possibilities are really slim. No one wants to rent to you long term because people who own homes here want to come here themselves off and on throughout the year – because they love it too! So most owners are only willing to do short term rentals. If a person wants to stay here long term, they often have no choice but to buy.

There are a lot of homes for sale on Utila – homes built before the crash when people thought (as did I back then) that Utila would become the next Roatan. Prior to 2007 people were making 25% a year on real estate here, so when the crash came, it came hard. Many people had numerous pieces of property here that they bought on speculation, only to get stuck with them for the 11 years since the crash. The market is picking up here, but prices are no better than they were then - and the next crash is just around the corner.

Used homes are overpriced as people selling them want to recoup not only what they paid, but their 10% real estate commission, and all the costs they have incurred in the past 11 years. Unfortunately that is a goofy notion, and not how value is determined. Value is determined by what a prudent buyer is willing to pay in an open market, and any prudent buyer can see that it is cheaper to build here right now than to pay the unrealistic prices owners want for their used homes. Thus, people who want to stay here on the south shore long term have no prudent choice except to buy a lot and build.

For example, you can pick up this half acre lot with 100 feet of white sandy beach here at Jack Neal for about $120,000 U.S. (based on the most recent sale here just a short time ago).



Building a modern, island style home will set you back only $80-$100 a square foot. So for $220,000 you can build a beautiful new 1000 square foot home. The cheapest used home on the south shore is $250,000 and it has a smaller lot and a pile of bat shit on the deck.

The temptation to buy a lot and build increases even more when you compare what $220,000 buys elsewhere. One of the homes I own in Oliver (the one I rent to my son) we considered moving into for retirement. It would sell for $340,000 and it is a 50 year old 850 square foot house in need of renovation. An ocean front home in a small community within an hour of an international airport in Mexico, would set us back $350,000. Additionally, if I were to actually find a place to rent here and my rent were $1200/month and we were to stay until we are both collecting our Canada Pension Plan and Old Age Security (12 years from now), we would have spent $172,800 on rent.

So (stay with me here) if I spent $220,000 on building a house here and bought an ATV, a boat, and a boat slip, I would be out about $260,000. If then, in 12 years, I wanted to go back to Canada, I could sell my home. I don't need to try to sell it for what I paid...I only need to be able to sell it for $87,200. Obviously I would WANT to try to get my original investment back - but for it to make financial sense, I do not NEED to get my initial investment back. Anything more than $87,200 would be gravy. Why you ask? Because if I pocketed $87,200 at the end of 12 years, I would be out no more money than I would have been had I rented. ($260,000 minus the $172,800 = $87,200). So since I KNOW I could unload my property quickly for $87,200 (and likely a lot more than that), the real deciding factor becomes: would I want to stay here for 12 years?

The idea of this daily part of my blog called “Island Paradise” was about comparing reality to “the Caribbean dream.” And what we are learning is that most of the inconveniences of being here – like the walk into town and the dysfunctional kitchen would be solved if we built our own place. We could simply buy an ATV and a boat; buy a boat slip on the lagoon; build a house with a more functional design; fumigate monthly; and install solar panels on the house so that we could run the air conditioner all night. That would end the air conditioning wars; end the inconvenience of walking to town; end the Neptune's ferry rides; end the power outages; and end the bugs…

Indeed, what we are learning about the dream versus reality is that the dream is pretty dreamy.

P.S. For those of you math geniuses...yes, I have considered the fact that there is inflation and if I spend $260,000 on a house here, that is $260,000 that is not invested elsewhere, and is not necessarily growing at the same rate here as it would have had I invested it in the stock market or a more traditional housing market...but, I decided to keep the numbers simple for the sake of readers who are not into that level of detail. Besides, at the rate I am going with my day trading ventures, and with the current market volatility and a looming housing bubble in Canada and the U.S...that may not be so relevant.