Private Islands – An Outlandish Investment?

Investing in private islands — it sounds like the kind of thing reserved for Hollywood movies and fairy stories. But in today’s investment market there are many ways to grow your money and private islands are more widely available than you might think. Much of the world is still up for grabs, after all! While it may certainly take more capital than making an investment in a standard ETF, if you have a big chunk of change to put in, investing in private islands might help you get a lot more money out. Plus of course, there’s the cachet of it. Who doesn’t want to be the guy with his own island?

Who Does It?

Some of the richest men on earth have been investing in private islands over the past decade. Aga Khan, estimated to be worth $800 million, bought Bell Island in the Bahamas for $100 million in 2009. No private island has ever sold for more. Johnny Depp and Leonardo DiCaprio both invested in islands in 2004, with Depp purchasing one of the Exuma Islands and DiCaprio buying Blackadore Caye in Belize. These were much smaller investments — $3.5 million for Depp and $2 million for DiCaprio. It’s not nothing, but it’s not $100 million either.

Investing in private islands is of course not a new idea. Richard Branson bought Necker Island in the Virgin Islands in 1979, for only $305,770. Now of course, it is worth much more! The island can be hired for $56,000 a night. Aristotle Onassis bought Skorpios Island in Greece in the 1960s for $22,083. Now it is reportedly worth $200 million. That’s quite a return on Onassis’s investment! Perhaps it was Onassis who inspired The Beatles to consider buying a private Greek island in 1967, although the dream never came to pass.

How Much Do Private Islands Cost?

As can be seen from celebrity examples, private islands can vary a lot in value. At the moment, though, it’s pretty much a buyer’s market.

Assuming that any investor looking to buy an island has a million dollars or so on hand, there’s a good deal of choice. Many private islands currently on the market cost less than this. In Canada and Nova Scotia, islands can be acquired for as little as $50,000. Islands of this sort can be purchased as private retreats, and asking prices have fallen considerably since their peak levels before the financial crisis. As a result, there has been double the interest in private islands in 2014 as there was in 2011.

private islands

Picture courtesy: pintrest.com

But are Private Islands Sound Investments?

You may think that islands off the coast of Canada are the cheapest for a reason — and you’d be right. If you want an island purely for the cachet of ownership, or to use as a private hideaway, then an island off Nova Scotia is the best value for money. As an investment, though, these islands will not show the largest return on the funds put in. This is largely due to the fact that in order to get money back from an island investment, the island needs to be developed. Most people invest in islands in order to turn them into tourist resorts. Tourists are not flocking to holiday off the chilly coasts of Nova Scotia.

Unsurprisingly, then, the parts of the world where islands generate most interests are warm sunny places like the Bahamas. The Bahamas is also very close to the USA, meaning the American elite are always looking to buy, rent and holiday there. Innocence Island, which has its own runway and airport, was auctioned off at only $17 million. This was an amazing buy since the original asking price was $55 million and the island is in prime position to be turned into a resort! The US auction house CBRE Auction Services then auctioned off The Big Grand Cay Archipelago Estate in the Bahamas, and sold for an undisclosed price. The listing was $11.5 million. Brokers noted that the demand seen in this auction showed that the private islands market was on its way back up. People want these islands because they know they can transform them into their own pieces of (lucrative!) paradise. Darby Island, Saddleback Cay, and Goat Cay, all in the same region, were auctioned off in the same year.

There are many reasons Bahamian islands draw interest, as well as their location. The Bahamas are stable politically and open to foreign ownership. More importantly perhaps, they are very tax friendly, require no personal income tax, corporate income tax, capital gains tax, estate tax, inheritance tax…the list goes on.

The Bahamas are a tax haven. If you buy an island there, your investment will be practically tax-free.

 

private islands

Tax Haven

So how do I go about buying private islands?

Obviously, there are many elements to consider before buying an island. Nothing is ever as easy as it sounds. When an island is cheap, it may mean several things for your investment. Firstly, it might be more expensive to bring in workers and materials from the mainland. You may have to install power systems, which could cost from $15,000 to $80,000. You may need your own plant to generate drinkable water from sea water, which could cost a further $100,000. It’s always worth checking how inhabitable your island is before you buy it! A very cheap island which will cost you a huge amount before you can use it is no longer a very cheap island.

Islands also suffer from other issues, outside of electricity and fresh water. They may be difficult to reach, or may suffer from hurricanes. Check the meteorology of your island’s area before buying anything. If your island turns out to be too expensive to turn into a tropical paradise, you won’t be pulling in $56,000 a night like Branson.

Things to consider before buying private islands

Do:

Look at lots of different websites and listings. You should be sure you’re getting a good price that’s market-compatible.
Think about what you want to do with your island before purchasing.
Consider the most profitable places for tourism.
Consider how inhabitable the island already is, and take these possible costs into account as well as the asking price itself.

Don’t:

Buy an island in Nova Scotia because it’s cheap and expect to use it as a holiday paradise!
Buy too quickly without shopping around.
Purchase an island that’s poorly connected as regards transport links, or has no power, if you can’t then afford to fix these issues.

With all that understood, though, it remains true that the market for private islands is currently very good if you plan carefully and bid wisely. And it’s never been easier to bid. Websites such as Private Islands Online provide you with estate listings at your fingertips. Given the current housing market, some of the islands listed are cheaper than buying a house! Johnny’s Cay in the Bahamas, for example, can currently be purchased for $5,995,000. Other Bahamian islands are up for grabs from $4,000,000. Islands in Ontario are currently available for $289,000, which would currently barely buy you a 5 bedroom house in the South of England. It depends on what you want your investment to do for you — but if you think about all the factors carefully, investing in private islands could certainly be an interesting and rewarding use of your money.