“It's perfect. I'll take it. How much is it?”

So said the Irish hairdresser to the Montenegrin real estate agent.

The agent was touring the young woman through an apartment for sale in the medieval town of Kotor. The woman didn't get past the entryway before making her buy decision. Indeed, she had been ready to invest before boarding the plane from Dublin. She was desperate to take her first step onto the property ladder but didn't qualify for financing at home in Ireland (the “do you have a pulse?” mortgages didn't become common in this country until a year later). No bother. Everyone was buying property abroad. She would, too.

The agent who sold the hairdresser that Kotor apartment told me the story when Lief met him the following week. We, too, were considering an investment in Montenegro.

It was 2004 and that agent (like all real estate agents in the country) was selling properties faster than he could count the commissions. All Europe and a few Americans like us were competing with each other to get into the hottest new property market on the Continent. Unlike the hairdresser, we didn't invest. The math didn't work.

That young woman from Dublin, like too many novice and even many experienced investors, was buying because she was certain the value of what she was buying was going to increase. She didn't bother to ask about the potential for rental yield or try to project the cash flow she could expect.

She (we assume and would have loved to have had a way to confirm), along with multitudes of other global property investors, learned the hard way and only four years later that, when investing in real estate, rising prices are not guaranteed. The 2008 crash wiped out values worldwide and, with them, investors who hadn't run the numbers but had bought for appreciation rather than yield.

Property values move up and down and matter only if you're selling the property. Cash flow can be reliable and is always bankable. Buying for appreciation is chasing paper profits. Buying for cash flow is putting money in your pocket.

What Frank Lloyd Wright Taught Us About Other People's Money

Lief's first real estate purchase was in Chicago. He was renting in a three-flat when the owner sent a notice to all the tenants informing them he was listing the property for sale. It was a Frank Lloyd Wright building. Lief's apartment was big, the layout comfortable. He didn't want to give it up, so, rather than considering where he might move, Lief began figuring out a way to buy the building where he was living. Unfortunately, the people living on the top floor had the same idea and approached the owner with a plan to convert the building into condos so they could buy their apartment. That inflated the price in the seller's mind.

Undaunted, Lief put together a spreadsheet to see if he could make the numbers work for an outright purchase. He'd continue living in his apartment, paying himself rent, and rent out the other two. He calculated that he could charge more for those other units, as the current rents were below market.

Banks were offering special programs for first-time buyers. Lief knew he could get a loan. The question was whether the cash-flow math worked. Would the three apartments generate enough income to support the mortgage?

Using leverage to buy a rental property is a common strategy in the United States. The theory is that the rent pays back the bank, month by month, and covers your other expenses, hopefully with some cash flow left over. Meanwhile, equity builds up as the mortgage gets paid down … while, in theory, the property's value appreciates. How to buy with other people's money (OPM) is the first strategy you learn at any real estate investment seminar.

Lief obtained a mortgage with a loan-to-value ratio (LTV) of 98%. However, it wasn't for the building where he was living. His neighbor's condo plan botched that deal. But the seed had been planted and the spreadsheet created. Lief's math showed him what to do next.

He found a real estate agent and explained his parameters. Today we make buy decisions based on projected rental yields, gross and net. For this first purchase Lief didn't think beyond paying the mortgage.

He spent four months considering dozens of properties and entering the details for each into his spreadsheet. Two-flat buildings never came close to break-even cash flow, though Lief figures he probably could have made the math work for many of the buildings he looked at by increasing his own rent, but he didn't want to do that. Again, his stubbornness paid off (as he likes to point out for Kathleen's benefit). Lief kept active in the market, looking daily at new listings, until he found a property that fit his requirements. It was a building that had come back onto the market after the woman who had signed a purchase contract for it failed to qualify for financing. She was a hairdresser (but not Irish).

The price was good. The location was within the zone Lief had targeted. Most important, the numbers worked. Lief could keep paying himself the same rent and would be able to cover the mortgage even without increasing the rent for the other two apartments.

We met two-and-a-half years later, when, coincidentally, we both were making plans to move to Ireland. We were engaged two-and-a-half months after we met and married two months after that. Then we moved together—Lief from Chicago, Kathleen from Baltimore—to Waterford. The timing was ideal for selling Lief's three-flat. The Chicago market was frothy. He set the price above the going market rate, and the building still sold quickly. He walked away with 80% more than he'd paid less than three years earlier. The leveraged return on Lief's 2% down payment was 3,000%. He had turned $5,000 into $150,000 after closing costs and commissions. And he'd had positive cash flow from rental income every month he had owned the building.

It was an as-good-as-it-gets property investment experience, first because Lief made the buy decision based on cash flow math and second because he was able to leverage the purchase.

Buying with OPM can—as any property investor will tell you—mean an upside, but it comes with risk. It doesn't matter what your property is worth if the cash flow it generates doesn't cover the mortgage. We've known too many U.S. real estate investors who have lost too many properties when market changes collapsed their highly leveraged portfolios.

Even though we've benefited from it, we don't preach the OPM mantra. Twenty-five years of experience across 24 markets worldwide, including the United States, have taught us to respect the fundamentals. We don't buy unless the projected net rental yields translate into cash flow enough to support the investment.

Never Invest for 2% Thinking Appreciation Will Make Up the Difference

After Lief sold that three-flat in Chicago and we made our move to Ireland, we began analyzing Irish real estate markets looking for investment opportunities. At the time (1999), most rental properties in this country were generating net yields of 2% or less. Dismal. But the Irish didn't care. Property values across the country had been appreciating 10% a year or more for years, and the Irish expected that to continue indefinitely.

They were investing and reinvesting using OPM. Banks were lending easily (though not yet at 2005 levels, when 110% LTV mortgages—the extra 10% to cover the “stamp duty” required at closing—were being handed out like chocolate buttons to tykes at Christmas). Investors were subsidizing mortgage payments out of pocket because rents weren't doing the job. They saw it as a sensible ongoing investment in the windfall appreciation they were certain would come.

In 2008, Irish property values fell 50% and more, depending on the region of the country, almost overnight. Most of those 110% LTV-financed properties were returned to the bank. Didn't seem so clever any longer to top-up mortgage payments out of pocket.

Leverage isn't always a good idea and, when investing overseas, it isn't always—or at least not always easily—available. In Part II, we'll detail your realistic financing options, but you should understand as you set out to start and then grow your global cash flow portfolio that OPM isn't always an option. Sometimes that's for the best.

Ignore Gross Returns Because It's Only the Net That Matters

The math is the same whether you're calculating the rental yield for a property in Arizona or Argentina. The expenses, though, can be different, and this is the second critical factor to take into account when projecting cash flow from a property investment overseas. Calculate what your return will be gross and then ignore that figure. Only the net matters.

In Ecuador, for example, the tenant pays the homeowner's association (HOA) fee on top of the rent. Some countries impose a withholding tax on gross rental income when it's paid; you recover any overpayment by filing an annual tax return. And management fees for short-term rentals can range from 15% to 35% and more, depending on the market.

A gross rental yield of 25% sounds great until you calculate the expenses and find that it nets to 3% after backing out management splits, building fees, and other higher-than-typical expenses for that particular property. Looking only at the top-line return, you could dismiss a gross rental yield of 12% that nets to 6% in the same market.

Nondollar Cash Flow Can Fund Local Adventures

The third difference between buying real estate for cash flow in the United States and buying real estate for cash flow overseas is that often the cash flows in a different currency. Like OPM, this is a potential upside and also a potential risk.

In 2015, we went shopping for a rental apartment on Portugal's Algarve coast. After eight years of economic crisis, this country was at a bottom and we perceived turning the corner. After exploring several beach towns and villages, we focused on Lagos, where we toured six properties and liked one in particular for its location, undervalued price, and motivated seller. Our math, based on data from the real estate agent and our own market research, projected a net annual return of 8%. Our general net yield expectation from a rental anywhere is 5% to 8%. We made an offer and proceeded with the purchase.

Other apartments we looked at in Lagos projected as good or better net rental yields and came with similarly appealing price tags. We chose the apartment we did because we agreed we would be happy owning it even if it didn't rent well or at all. When you're buying, rental projections are just that. You don't know what your yield will be until you begin earning it.

The apartment we bought was in the center of the town, on a winding, cobblestoned, pedestrian-only street, with easy access to shops and restaurants, and it had a rooftop terrace with an ocean view. We could use the place for personal vacations, we told ourselves as we stood on the roof looking out at the sea, in addition to or even instead of renting it out. And we did. During the four years we owned the property, we visited four times. During those stays, we withdrew some of the euro cash accumulated from apartment rent paid into our Portugal bank account and used that money to cover our expenses. It was like a series of free holidays in a fifteenth-century town on Europe's sunny southern coast. In addition to vacation mad money, the rental cash flow covered all expenses associated with the apartment and left us with a nice-sized and steadily growing euro nest egg.

The rental return met our 8% projection the first year and hit our 5% to 8% mark each of the four years we owned it, based on the original purchase price. The problem, if you want to call it that, was that markets across Portugal, including in Lagos, appreciated quickly after this country turned its crisis corner. During a visit to Lagos four years after our purchase, a friend in the local real estate industry suggested we think about selling our apartment.

“I'm certain you could get more than twice what you paid,” he told us.

We didn't believe him, but two other local agents concurred. Calculated on the much higher valuation, our net rental return was less than 3%. At that yield, we're sellers rather than buyers.

All real estate in the Algarve appreciated over the four years we owned our Lagos apartment, but our apartment more than doubled in value. Part of the reason was the location and the type of property. It worked as a rental, but it was also comfortable for full-time living. In addition, the place had a charm factor that set it apart. It wasn't one of the cookie-cutter beach-resort condos you find along this coast. That je ne sais quoi element was part of the reason we bought in the first place. It's not a data point you can enter into your spreadsheet when shopping, but it is something to remember when comparing properties for potential purchase. Building a portfolio of cash-flowing properties overseas is a chance to make money and build wealth, yes, but it's also a chance to improve your lifestyle. Remember that—sometimes even prioritize that—when making investment choices.

The exchange rate between the euro and the U.S. dollar didn't move much over the four years we owned the property in Portugal, but it could have. This is another reason it's better to buy in places where you want not only to make money but also to spend time. We were happy to spend the euros we were earning locally, meaning we were insulated against potential currency downside. It didn't matter to us if the euro lost ground on the dollar, because we weren't converting our euros into dollars. We were spending and accumulating them in euroland.

Likewise, when we sold that apartment, we kept the proceeds in euros, ready for a next EU investment.

The Currency Factor

That said, when investing in real estate that trades hands in something other than your base currency, you need to be prepared for the potential consequences. If timing is on your side, a fluctuating currency exchange rate can boost your total home currency return. If not, it can erode it.

We have had both experiences over the 25 years we've been investing in real estate overseas. We invested once in a hard money loan with (that is, we lent money to) a developer in Australia who was offering an annualized return of 12% for an 18-month term. When we made the investment, the U.S. dollar was strong against the Aussie dollar. Over the course of the 18 months that we held the investment, the U.S. dollar weakened. As a result, after the loan had been repaid, our total return in U.S. dollar terms was 12% plus an additional 30%, thanks to the currency movement. Nice surprise upside, right?

On the other hand, when we invested in Medellín, Colombia, in 2011, the Colombian peso was at an historic high against the U.S. dollar. Today, the situation is reversed. While our apartment in that city is worth more than three times what we paid for it in peso terms, it's worth about twice as much in dollar terms. That matters, though, only if we sell and convert the resulting pesos into dollars. We have no need to sell and so continue watching the property's value appreciate while waiting for the peso to rebound.

Market values move up and down. Currency exchange rates fluctuate in cycles. Cash flow carries you through, meaning that cash-flow math is the key to success.

However, This Is Not Only About the Money

When investing for cash flow overseas, you want to make buy decisions based on the cash-flow math, but you also want to remember the big picture. This is an investment strategy, yes, but, more important, it's a lifestyle. So, before you begin considering where or what to buy, ask yourself what you want your life to look like. That's the place to start. What life objectives are you hoping to achieve? For the best outcome, you want to marry those with your investment goals.

Fundamentally, the real advantage of this strategy is diversification of your portfolio and assets but also of your life, your retirement, and your legacy.

We are living at a time that presents the opportunity to take the investor's profit agenda, combine it with the live-better-for-less agenda of the retiree, and transfer it overseas. You have a chance right now to use overseas real estate as both an investment vehicle and a program for a new and better life, both immediately and longer term in retirement. Overseas real estate amounts to the surest strategy for creating and preserving legacy wealth while simultaneously reinventing your life and rescuing your retirement. Many options exist for where to buy to make money while also making a new life, and, thanks to our Age of the Internet, it is possible today to seize these opportunities easily and cost-effectively to build a new life while staying in real-time touch with family, friends, business concerns, and investment portfolios from the old one.

The best case is when you are able to find a piece of real estate in a place where you want to spend time, short term on vacation and long term in retirement, that also holds out the potential for cash flow and an investment return. This perfect storm of objectives should be your ultimate goal. A holiday home on the coast of Panama can become little more than a headache and a carrying cost if you ultimately decide you can't abide life in the tropics.

Could You Really Do This?

The reasons to diversify your investment portfolio and your lifestyle to include cash-flowing real estate overseas have never been more compelling than they are right now. But, you may be thinking, who does this, really? Isn't this a strategy of the jet set? No, it's not.

Lief comes from middle-class Phoenix, Kathleen from middle-class Baltimore. We started our overseas real estate adventures with next-to-nothing. Lief made that first property investment we told you about in Chicago using a $5,000 gift from a family member. Over the decades that we've been living this life, we've met countless others who also have built adventure-filled lives that include cash-flow-generating real estate holdings overseas, and we can't think of one of them we'd describe as jet set. These are all regular folks.

The idea of diversifying your investments, your assets, your life, and your future overseas can seem intimidating, even paralyzing. Could you really do it? Based on more than 25 years of experience, we can tell you confidently that the answer to that question is yes.

The two most common reasons for resisting the idea of investing in real estate overseas can be a general uncertainty about how to go about it and a more specific concern about the cost. Can the average investor or retiree really afford to pursue this strategy? Again, yes. You could get started with as little as $50,000 to $100,000 of working capital, sometimes less.

How can you be sure something won't go wrong? You can't. There are risks, and, as with any kind of investing, nothing is guaranteed. Don't let that deter you. What's the option? To do nothing? To keep your assets, your retirement, and your future all at home, all in one place? Would that be safer or more prudent? No.

You must diversify, both your investments and your life. It's a necessity of the world we're living in. Here's your chance to do that while creating healthy and steady cash flow to fund an adventure-filled lifestyle in retirement or starting right now.

We're here to walk you through it.