Plus: “You people are nuts… I’m going to look into getting you shut down.”
You hear a lot about currency risk in the world of overseas property investment. In fact, we often mention here that your property’s price—or your rental income—will vary with current exchange rates.
But there’s more to the issue than meets the eye when it comes to foreign exchange rates.
I thought I understood the concepts of currency exchange rates when I first started buying property abroad. But the reality of what they can do only hit home when I experienced a dramatic rise in my cost of living in Uruguay…and a windfall profit when I sold my house in Brazil.
My property taxes in Uruguay went from US$800 to US$1,470 per year, thanks to a weakening dollar. In Brazil, a strengthening U.S. dollar lowered the price of the beachfront house I was buying to around US$62,000…and then just eight months later, a weakening dollar raised the sales price on that same house to about US$110,000.
It was only then that I understood, first hand, the impact of exchange rates on my personal finances.
For this discussion, I’ll assume your base currency is the U.S. dollar, so everything here will be expressed in dollar terms. But the same principle will apply no matter what your base currency is.
Exchange Rates Will Affect More Than Just The Purchase Price
When buying a property in a foreign currency, we all know that the local currency’s exchange rate will affect the sales price in dollar terms.
For example, a house costing 100,000 euros will cost US$133,000 at an exchange rate of US$1.33 per euro and only US$120,000 at US$1.20 per euro.
Generally, a weakening dollar is best for someone who already holds a property that will sell in a foreign currency. Continue reading