10 things you need to know about buying Real Estate in the Virgin Islands
There are currently some amazing properties for sale on St. John. If you’ve been dreaming of owning a home on the island but wondered what that looks like, here is a quick summary of some key points you should know about investing in Real Estate in the US Virgin Islands.
1. St. John is a United States Territory
The US Virgin Islands are a territory of the United States of America. Individuals born in the territory are US Citizens, and those who move here from the states retain their US Citizenship status. The laws and rights pertaining to real estate and property ownership are identical to the Continental US.
These protections should give buyers a tremendous amount of comfort when comparing to similar destinations, where your rights are NOT the same, for example, the British Virgin Islands.
2. Lending is Available
Because we are a US territory, the lending practices are very similar to those in the states. Conventional federally backed mortgages (i.e., Fannie/Freddie, FDA, VA loans) and first-time home buyer benefits, for example, are all available to qualified buyers. Similarly, rates are paralleled with the prime rate set by the Federal Reserve. If you are considering a purchase of property in the US Virgin Islands, it’s a great idea to contact a mortgage broker in advance who specializes in USVI loans for to explore your pre-qualifications. The following are a few of the lenders who process mortgage loans in the USVI:
www.firstlibertyvi.com www.mcbvi.com www.leewardislandmortgage.com
3. The Virgin Islands National Park –
This stunning National Park covering approximately 70% of the island is a lesser-known part of the US National Park Service. Along with parks like Yellowstone, Acadia, and the Grand Canyon, the VINP is forever protected by the Government, keeping its stunning beaches, pristine tropical forests, and notably the underwater reefs from being developed. The Park creates a vibe on island that is unseen at almost any other tropical destination, with no hotels or development on most of the beaches, and an unusual and incredible benefit of absolutely no soliciting on the beach –
The VINP prohibits selling trinkets or anything for that matter while you relax with your family. The Park’s presence has a profound effect on Real Estate on the island; it keeps demand high by limiting the supply, and preserving a lot of what people love about the St. John. Because of this, the market on the island has tremendous stability and is not subject to the big swings in values experienced by other markets.
4. Income Producing
Nearly all homes and condos on St. John have a high probability to be income producing. Much like the high demand for Real Estate, there is a substantially higher demand for rentals. Short- and long-term rentals generate very real income, with most homes in the average price point on island having the potential of grossing hundreds of thousands in annual income. You can see how the rentals we manage perform by checking rates and availability.
5. Square Footage is Somewhat Irrelevant
On St. John, outdoor living is a way of life. Because of this, many homes are smaller than what you might expect on the mainland. However, with so much outdoor space, ultimately, interior square footage has little impact on value. Additionally, a 3,500 square foot home can be far less valuable than 1,500 square foot property because the smaller home offers a better layout and living space not taken into consideration in the square footage. Simply, we recommend that you give less focus to that metric when considering a home.
6. Location, Location, Location (Nah) à View, Construction Quality, Access
The famous real estate saying, “Location, Location, Location” does not apply here. On St. John, the entire island is an amazing location, and the driving factors are the views, construction quality, and ease of access. The view from a property is the number one driving force behind its value. Simple homes with amazing views can garner a higher price than a fine home with limited views. Construction type and quality are the next important factor. Masonry homes tend to price higher than wood frame construction. There are many expertly built and designed homes on island, but the details of the quality of the construction also have a significant impact. It is important to purchase a strongly built home on an island for the long-term protection of your asset. It should be noted that some wood homes are very sturdy and should NOT be ruled out, such as Cliffhanger, which has proven itself over and over. The final important factor is access to the property. The roads can be a bit challenging on island, and the ability to get to a home, be it on a dirt road or direct access, can greatly affect value. Always consider this when assessing properties.
7. Contracts, Inspections, Stamp Taxes, Negotiations
Buyers will find comfort and familiarity with the buying process. Our contracts look very similar to the ones you may see in the States. They are easy to understand and can be signed electronically. Our contracts include familiar provisions and protections such as inspection contingencies, and we can easily add additional contingencies that a buyer requests. The differences in the process include escrow deposits, time frames, and a stamp tax. Escrow deposits are typically 6 to 10% of the purchase price and due within 10 days of going under contract. They are, of course, fully refundable by the terms of the contract. Stamp taxes are a government collection on closings. They range from 2 to 3.5% depending on the value of the sale and are typically negotiated items, with the payment of the tax split equally between buyer and seller as the most common scenario. Negotiations are also similar to typical practice in the states; a buyer will make an offer, and the seller may choose to counter-offer or accept, and vice versa until a deal has been achieved. Again, this can all happen remotely and electronically with ease.
8. Attorneys
Attorneys close all deals and handle all aspects of the arrangement of title work in the US Virgin Islands. You will need to hire a USVI based attorney to assist once you have identified and contracted a property. They will prepare and file the deed, prepare closing statements, assist with formation of LLC’s or advise on taking title, and other relevant actions required to close. In the grand scheme of transactions, this is a fairly minor expense and will provide buyers and sellers with the comfort that the transaction is fully legal and properly handled.
9. Surveys
To obtain title insurance, an “As Built Survey” must be conducted. This document shows where the improvements are located on the lot, and identifies any title concerns, such as encroachments, set back violations, or other issue affecting the boundary of a property. This is another expense that is worth every penny to ensure that your investment is protected and safe.
10. EDC - MAJOR Tax Breaks and Business Ownership
The Economic Development Commission (EDC) is a US Government sanctioned program that seems too good to be true, but it’s not! The EDC offers a unique and attractive tax incentive program for companies located in the USVI. One of the eligibility requirements is that you must own a home here, which is why this is so relevant to Real Estate. Below are some of the benefits your business can reap if eligible for the EDC program:
· 90% reduction in corporate income tax
· 90% reduction in personal income tax
· 100% exemption on gross receipt tax
· 100% exemption on business property tax
· 100% exemption on excise tax payments