Buying Property Abroad While Strong Dollar Deals Last

Plus: A sample portfolio for buying abroad with your IRA

I retired when I was 49. I did it by seizing a “second-chance opportunity” much like one that I see playing out today.

In 1991, my employer offered an amazingly generous early retirement plan. In order to incentivize people to retire, they added five years onto your age, five years onto your employment time, lifelong health insurance, and large, lump-sum cash incentives.

It was the deal of a lifetime… but I had to miss out. I was too young to be eligible, even with those added years.

As time went by, those early-retirement offers got weaker and weaker, until they were almost no incentive at all. By the year 2000, they were only slightly better than being canned.

But then something amazing happened in 2001. We merged with a competitor and created a company with over 29,000 employees.

Unexpectedly, the clock was wound back to 1991. Once again the company offered add-ons for age and employment, offered the lifetime health, drug, and dental insurance, and tacked on an extra year’s salary on top of everything.

It was a once-in-a-lifetime reprieve… one that I never thought I’d see. I signed up, and retired… there’s no way I was going to press my luck and let this pass by.

And sure enough, after that opportunity, the offers once again got weaker and weaker. Today, they don’t even offer a fixed pension anymore.

That 2001 retirement package was my one, single opportunity, and as it turns out, it never returned.

If I hadn’t acted—if I’d waited for one that was just a little better—I’d regret it to this day.

Right Now, That Same “Second Chance” Scenario Is Playing Out Before Our Eyes In The International Property Market

On Dec. 31, 2001, the U.S. dollar was in a commanding position. Dollar-holders had the world at their feet with the dollar at a peak. Even the euro was worth less than the all-powerful dollar at that time, and properties around the world, in dollar terms, were at bargain-basement levels.

But then, just like my company’s retirement plan, the U.S. dollar took a nosedive. By 2004, it had sunk dramatically. I felt it had to turn around, but it didn’t… by 2008, it was far lower. It looked like the dollar was on its way to oblivion.

Those who didn’t (or couldn’t) act in 2001 were left on the sidelines for a long time, as their buying power diminished year after year.

Then, dramatically—13 years after the peak—an amazing turnaround occurred. It took everyone by surprise.

The dollar soared. The turnaround started slowly, but then really spiked starting in mid-2014.

Today, the dollar is at its highest point since that memorable day at the end of 2001.

What Does The Dollar’s Power Mean To The Property Buyer?

As I write this letter, properties in Brazil are trading for 60% less than when I sold my house there in 2010. This is a bargain of historic proportions.

In Colombia the discount is 41%… in Chile, an amazing 33% in one of the world’s highest-performing countries. Mexico is now trading at 30% off, and I’m personally exploring the beaches of Puerto Vallarta, Mazatlán, and Ensenada looking for good buys.

In Europe, the currency discount is now standing at 24%, bringing the sun-washed coasts of Portugal and Spain back into affordable territory.

Here are a few real-world examples.

In Medellín’s upscale El Poblado sector, a two-bed, two-bath condo is on offer for US$157,000 at today’s exchange rates (460 million pesos). An apartment of this value would have cost US$249,000 just last year… it would have been US$261,000 in 2013.

That’s over US$104,000 less than the past two years.

I found a similar apartment in Santiago, Chile’s sought-after Providencia district. It has two beds, two baths, and about 1,200 square feet (110 square meters). At today’s exchange rate, the asking price is US$225,300 (155 million pesos).

Just last year, an apartment of this value would sell for US$292,000… which is an amazing US$66,700 currency discount in just a year.

A classy apartment in Fortaleza, Brazil is selling today for US$133,000 in the popular Aldeota residential sector. This is US$202,000 less than an apartment of this value would have cost in 2010.

Interested in coastal Europe? In Lagos, Portugal, I found an attractive two-bedroom apartment for just US$255,500 at today’s exchange rate (230,000 euros). A year ago, this would have been US$319,400… almost US$70,000 more.

This situation is too big to ignore if you’re even remotely considering a purchase overseas.

How Long Can These Exchange Rates Hold? When Will This “Discount” End?

Over the past few weeks, the dollar has been backing away from its high in many markets… so the discounts are already beginning to erode.

But frankly, that could change. The dollar could turn around, regain its upward momentum, and go even higher. There is no guarantee that today’s prices are the best we’ll ever see.

No one can predict what future exchange rates will be. This is not only because they’re hard to predict when considering economic factors, but they’re also subject to governmental manipulation as a means to affect external trade.

Personally, I think the benefits of seizing today’s discounts outweigh the risks that the exchange rates will become even more favorable.

I was hoping exchange rates would get just a little better in 2001 before buying in Spain, and I was left behind. So my advice is to act now if you see a good deal, while the good deals are on the table.

Do these graphs indicate that we’ve hit the peak Do these graphs indicate that we’ve hit the peak
Do these graphs indicate that we’ve hit the peak? No one really knows…
Charts © 2015 by Prof. Werner Antweiler, University of British Colombia, courtesy of Pacific Exchange Rate Service (http://fx.sauder.ubc.ca/plot.html).

Here’s The Bottom Line If You’re At All Interested In Buying Abroad…

If you’re just toying with the idea of maybe… someday down the road… buying something abroad… then you can consider this an interesting milestone in the currency world.

But if you’re the least bit serious about buying a property overseas, then now is the time to do something positive about it.

If you don’t, you may find that a rare opportunity has passed you by.

…And This Is What You Can Do About It

I’ve just booked my travel to attend the Global Property Summit. It takes place on March 14–16, 2016, in Panama City. During the event our collective real estate contacts from around the world will be assembled in one place at the same time.

In other words, you can see the best of the world’s currency bargains under one roof.

Real Estate Guru Lief Simon has put a good program together, that not only brings opportunities to the table, but also teaches you what you need to know before buying property abroad.

So you’ve really got two options if you want to see today’s record-setting bargains up close.

  • You can travel to a dozen or so countries, seek out English-speaking agents, learn the facts about markets, appreciations, and returns…
  • Or you can let the experts from those dozen or so countries come to you… make their case… and show you what they have to offer.

All kidding aside, letting the experts come to you is the best use of your time and money if you’re ready to seriously look at what’s out there.

Don’t miss this opportunity.

Follow this link to see what’s included and sign up… I look forward to seeing you there.

Follow this link to get the whole backstory on the Global Property Summit.

Lee Harrison
Editor, Overseas Property Alert

 

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Letters To The Editor

Lee,
I enjoy your work and have been following you and Lief for a while. I would like to take the next step, and I wonder if the US$240,000 I have in one of my IRA is enough to obtain a diversified enough portfolio of investments, and allow me to realize about a 10% net return on my investment?

If so, where would you start and what would the mix look like?

Thanks!
Todd

First, an IRA of US$240,000 is certainly enough to deploy in order to obtain international currency and portfolio diversification. Even a savings account with US$500 gets a foot into the international door.

But the 10% is harder to come up with in a diversified portfolio, but we’ll give it a try.

I don’t know what Todd has invested elsewhere, so all I can do is tell you what I would do if someone dropped US$240k in my lap tomorrow and asked me to invest it.

My goal here would be to obtain the best mix of geographical, currency, and category diversity that I could, while still earning a decent return.

Also, I’d want to maximize the current exchange rate advantage available to dollar-holders in certain markets.

I’d start with a residential property investment. My choice would be Medellín, Colombia (where I already have two such investments). The properties in prime areas are appreciating nicely, and rental returns are good. You’ll need to stay within the best areas of El Poblado to get top performance. Expect about 7.5% return on a monthly furnished rental, plus around 8% or more capital appreciation per year.

Next I’d find a good agricultural investment, that’s producing income, and also offering me title to the land that’s producing the crop. The best deal I’ve seen recently is a lime plantation in Panama, where you can buy a hectare starting at US$39,000, with a return (over 20 years) of 18% annually, not counting the land appreciation.

Finally, I’d want a cash savings vehicle, to get further currency diversity and banking presence. In Colombia, you can by a 90-day term deposit that pays between 4% and 5% interest, along with a number of other products. But I’d also turn to Uruguay, to gain a presence in its notable financial services sector. Here you can get 9% interest on a two-year note denominated in pesos.

Here’s how I’d break it down:

  • Apartment in El Poblado: US$150,000, 7.5% return plus 8% capital gain
  • Lime plantation in Panama: US$39,000 for one hectare, 18% annual return over 20 years
  • Cash account in Colombia: US$20,000, 4% annual interest for 90 day note
  • Cash account in Uruguay: US$31,000, 9% annual interest for two year note

As an aside, Uruguayan pesos and Colombian pesos are extremely cheap right now when using dollars, so I’d also expect a long-term currency gain on those investments.

As to timing, I’d get set to move the money (to Uruguay and Colombia) as soon as possible after the Fed raises interest rates, possibly in December. The dollar should get stronger at that time, at least temporarily.

Have a question? You can write to Lee here.

 

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