13
Where a Strong Dollar Creates Opportunity

If you're holding U.S. dollars, you have a window of opportunity right now to take advantage of super-charged buying power in key overseas markets. The dollar's current strength is creating irresistible bargains in some countries where real estate trades in the local currency. We refer to this temporary distortion (no one can predict how long it will last but you can be sure it won't continue forever) as a “currency discount.” It's a metric we watch closely, and it amounts to a big, bold “Buy!” signal.

The difference of a percentage point or two in the rate at which one currency is able to buy another isn't going to change your lifestyle day to day, but, when buying property, even 1% can start to look like real money.

To put the current opportunity into perspective, the U.S. dollar is up a whopping 83% versus the Brazilian real, for example, since 2011.

Strong Dollar Buy #1: Brazil

Brazil is perhaps the world's best beachfront buy. How many places worldwide can you buy on the beach for $100,000 or less? That's the potential in Brazil, where beachfront property is not only super cheap but also ultra in demand. That bargain-priced beach house or apartment could earn you a double-digit net yield from rental.

Part of the reason beachfront can be so affordable is the country has so much of it, so you need to be discriminating. Don't settle for just any of Brazil's beaches. Research the rental demand and who your buyer might be when you decide you'd like to sell. Brazil has a huge internal tourism market fueled by its fast-growing middle class. The best buy is one that could appeal to both the local and also the expanding foreign-tourist demand. We like Fortaleza because it checks this box and its beaches are world-class.

Culturally, Brazil is one step beyond Latin America. The lifestyle and the language are more unfamiliar than elsewhere in the region and therefore more exotic and romantic. In parts, the climate is warm year-round; elsewhere changing, with seasons opposite those in the Northern Hemisphere. Culturally, Brazil is Germanic in the south, with French and Dutch influences up north.

One downside to Brazil can be its renowned bureaucracy. You might hear stories of foreign investors unable to get their money out of Brazil when trying to take their exits. Invariably, in our experience, these investors were either ignorant of or chose to ignore the process for registering investment funds when they brought theirs into the country. You need to follow the rules, filing the proper paperwork, to be sure you can repatriate your funds when you sell. The country's currency controls shouldn't put you off, but you must take the associated process seriously.

Historically, Americans and Canadians needed a visa to enter Brazil as a tourist. This was an annoying process that cost time and money. In July 2019, Brazil dropped all visa requirements for Americans and Canadians, making it that much easier for us to visit the country. Also, in 2019, Brazil introduced a new realestate-for-residency option. In Northeast Brazil, the region of the country we like best for a cash-flow investment, the minimum purchase to qualify for permanent residency is 700,000 reals, which is about $188,000 at today's exchange rate. (Check xe.com for today's exchange rate.)

Brazil is more accessible than it's ever been. This is a long, stretched-out country, and, previously, you had to route through Rio de Janeiro or Sao Paolo in the south to get anywhere in the country, including anywhere in the north. Today it's possible to fly direct from North America and Europe to Brazil's major regional capitals.

Strong Dollar Buy #2: Colombia

When we purchased our apartment in Medellín in 2011 and reported on the experience to our Live and Invest Overseas readers, one wrote in to tell us we were “foolish” to be buying property in Colombia at the then-exchange rate of around 1,800 pesos to US$1. He was going to wait to buy until the exchange rate hit his target of 3,000 to the dollar. More than four years later, the peso finally fell to 3,000 to US$1. However, property values in Medellín had risen 40% or more in the same period. If the guy who'd written in to chastise us was still looking at property in Medellín in 2015, when the exchange rate hit his target, he would have been able to buy a property for maybe 10% less in U.S. dollars than he could have in 2011. Meantime, he'd missed out on four years of cash flow and personal use.

For us, the exchange rate didn't matter. We saw Medellín as a buy, a market we wanted in on. We found and purchased an apartment that we still own. Today it's worth three times what we paid for it in pesos; in U.S. dollars, it's a double. In addition, we have had use of the property all these years and look forward to every chance to return. For our money, Medellín, Colombia, offers the best city living in the Americas. Its El Poblado neighborhood, where our apartment is located, is pretty, clean, safe, and pleasant, with shady streets, upscale shopping, and lots of restaurants, cafes, and parks.

Short-term rental yields in Medellín were an impressive 15% to 18% net when we bought into the market, but that lasted only a few years. Markets always revert to the mean. Today, rental yields in Medellín fall into our target range of 5% to 8% net, but other Colombian markets have stronger cash-flow potential, including Santa Marta on the Caribbean coast.

Property prices in cities across Colombia can be expected to appreciate at a nice clip for the foreseeable future, thanks to the country's growing middle class, and short-term rental yields are strong in many markets due to improving tourism numbers. The clincher right now is that, at the current exchange rate of 3,300 pesos to the dollar (again, check current rates online), you could well be buying at a currency top. Your strong dollar will go far in peso terms, and then the asset could appreciate with the support of a strengthening Colombian peso.

For the record and in case you harbor concerns, Pablo Escobar was killed in 1993, FARC has laid down its weapons, and Colombia has enjoyed one of the strongest economies in Latin America for the past decade.

In addition, Colombia now qualifies as one of the easiest places to obtain residency. You have 17 visa options to choose from, and qualifying requirements are minimal. A friend obtained Colombian residency in less than an hour at the ministry in Bogota following the instructions on the government's website. He managed the process on his own, without the help of an attorney. We don't recommend that approach even if you, like our friend, speak fluent Spanish, but you get the point. Colombia is working hard to make itself as user-friendly as possible for the would-be foreign investor and retiree.

Strong Dollar Buy #3: Euroland

Most American investors and retirees ignore Europe even if that's the part of the world where they'd most like to spend their time and money, assuming they can't afford it. Today's strong dollar creates a window of opportunity in euroland. Paris and Florence might be beyond the typical buyer's budget, but the 24 countries where real estate trades hands in euro are more affordable today than they've been in years.

The euro has been trading in the range of $1.10 to $1.15 since the beginning of 2015. From 2010 until 2015, the exchange rate moved in the range of $1.20 to $1.45. Between the high and the low of those ranges are 24 percentage points of added buying power that your dollars currently enjoy.

We put Portugal and Spain at the top of the list of euro-property investment markets. Other options to consider for euro-based cash flow include France and Italy and capital cities Prague and Budapest; all have strong short-term rental potential.

Depending on your personal agenda, small villages in France and Italy can be irresistible, both in terms of the lifestyle they offer and the cost of buying into it. Markets in parts of rural Italy are so depressed that local mayors are offering old properties in need of restoration for as little as 5,000 euro. At today's exchange rate, that's not much more in dollar terms. These locations would have limited cash-flow potential and small resale pools. Still, if you like the idea of Italian country living and are up for a renovation adventure, this is a moment of opportunity.

Elsewhere in Europe can be a great choice for combining the investment and lifestyle aspects of owning real estate overseas. Busy tourist markets allow you to organize your schedule to spend the off-season in Europe, and then rent the place for cash flow when demand surges. Combine a seasonal rental in Europe with another in another part of the world where the high season is some time of year other than European summer (this would include all of Central America and the Caribbean, where the high season is December through March), and you've created a diversified portfolio that should generate year-round cash flow. Meantime, you've eliminated housing cost from your budget, because you're living in your own properties.

Remember Schengen rules. These allow you to spend only up to 90 days in a rolling 180-day period in most EU countries. This means you can spend up to three months at a time in Europe without going through the process to qualify for legal residency.

..................Content has been hidden....................

You can't read the all page of ebook, please click here login for view all page.
Reset
18.232.169.110