April 9, 2010
Fortaleza, Brazil
PLUS:
- One Facebook Follower Asks For Help Finding Panama Travel Deals...
- "The French Hate Americans, Dude!"...
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Dear Live and Invest Overseas Reader,
The idea of investing in real estate, especially preconstruction real estate, along the north coast of Brazil has been receiving a lot of attention over the last handful of years. The argument in favor goes like this:
Brazil is self-sufficient for energy, has a rapidly growing middle class, will host the World Cup in 2014 and the Olympics in 2016, and boasts miles and miles of sandy beaches.
What more could a real estate investor want?
I looked at Brazil before all the recent frenzy, back in 2003 and 2004. After a couple of trips, I decided that, while an argument could be made for why to invest in real estate in this country, I could identify far easier places to make money buying, holding, and selling property.
While you could find opportunities in Brazil, I concluded that the average investor was better off looking elsewhere.
The only reasons to put in the time and energy required to deal with all the hassles involved with buying in this market (more on this in a minute) are if you are prepared to invest heavily...or if want to spend time in the country yourself.
The barriers to investment are simply too many to bother with for a single investment or two. Even if your return from a single buy is great in percentage terms, your real payout isn't enough to compensate time spent.
You have language issues, as Portuguese doesn't come as naturally to most of us as Spanish...and Spanish won't really help you communicate in this country. On one trip, I went to look at a development where the developer who spoke English wasn't available for the first part of the visit. I resorted to speaking in English to his wife, who spoke to me in French (which I understand better than Portuguese). We did fine, but this is no way to conduct serious business.
In addition, you have currency issues. Unlike in many Latin American markets, where real estate prices are set in U.S. dollars, real estate in Brazil is priced in reais. This means you have a currency risk on top of whatever real estate risks you're assuming. That isn't necessarily a bad thing and, of course, can work to your advantage, certainly if you're prepared to buy in cash and can time your purchase to take advantage of currency fluctuations in your favor.
However, if you're buying on terms and therefore signing on to make monthly payments over an extended period of time on a pre-construction purchase, for example, you're opening yourself up to the potential for big disappointment and maybe big cash flow troubles. When you make the buy, you have no idea, in fact, how much your payments will be each month throughout the term of the loan in your home currency.
Since the beginning of 2009, the real has strengthened against the U.S. dollar by 30%, moving from about 2.3 reais to US$1 to 1.78 reais to US$1 (in 16 months). If you've been making payments over this time using U.S. dollars, your cost has increased.
On the other hand, you could simply have bought reais in January 2009 and held onto them to make a 30% gain. In other words, you could have enjoyed a very appealing level of return without having jumped through the hoops required to invest in Brazil real estate.
Those hoops include getting a local tax ID number. Getting the number isn't a big deal, but being required to file tax returns each year even if you don't have any income in Brazil can be.
Opening a bank account in Brazil in your own name is virtually impossible. And make sure you register your investment funds when they enter the country or you may not be able to take them out again.
If you're an American, you have another hurdle. You must obtain a tourist visa before arriving in the country. Again, on the face of it, not such a big deal. However, you'll have to ship your passport off to a Brazilian embassy while they process your visa application, an inconvenience or maybe worse if you travel regularly (unless you have two passports).
On the other hand, you can apply for a five-year multi-entrance visa. Get this, and you don't have to worry about the visa issue for a while.
Of course, all these issues and nuisance factors aside, people are investing in Brazil. A colleague whose judgment I respect has bought three pre-construction apartments in Forteleza.
I've given you my take on why you should or shouldn't think about investing in real estate in Brazil. Later today, I'll be sharing my colleague's take on this question, based on his ongoing firsthand investment experience in this market, with Members of my
Global Property Investor's Marketwatch service. If you're a
Marketwatch Member, watch your in-box this afternoon.
Lief Simon
Editor's Note: If you're not a
Global Property Investor's Marketwatch Member yet,
become one here now in time to receive Lief's follow-up report on the Brazil market later today.
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"I am traveling to
Panama very soon. In the next week. Looking at property.
"So I have been trying to find great flight fares.
"I would like to come to one of your group meetings. Perhaps in Panama soon!
"Can you turn me on to some flight specials? Last time I had a return ticket from Seattle to Panama for 700 Canadian dollars.
"The Canadian dollar is almost on par, so I feel this would be an excellent opportunity for investment.
"I live on Vancouver Island, but traveling from anywhere is no problem.
"I was checking all-inclusives in Mexico to fly from there, with no luck yet.
"This can get very frustrating, so I would love some help...as I am a paid member and all!"
-- Tricia C., Canada, on Facebook
After a little research, Panama Editor Rebecca Tyre suggests:
"You could fly American Airlines from Seattle to Panama City for US$640, including taxes, round-trip.
"Or, better, if your schedule is flexible enough, Continental Airlines is offering a seat sale today from Houston to Panama City for US$199 round-trip, not including taxes. Tickets must be purchased by Midnight tonight Central Time for travel this Saturday, April 10, returning Monday or Tuesday.
"A flight from Miami to Panama City on Continental currently costs just US$244. Las Angeles to Panama City is US$400.
"Setting out from the East Coast, you could fly Copa Airlines (Panama's airline, with a great customer service record) from Washington Dulles to Panama for just US$238 round-trip, not including taxes."
"
The French hate Americans, dude.
"What is the cheapest, safest, most stable nation you recommend?"
-- Robert T., United States
Au contraire, dear reader. I lived in
Paris for four years. No one ever gave any indication of hating me. I was welcomed by my neighbors and made many friends.
Ecuador is cheap but maybe not so stable, depending how you interpret that idea.
Belize is stable but not as cheap.
France is safe, but its currency is not stable (that is, it makes for an exchange risk depending where you're earning your income).
Panama is safe and stable. Panama City is no longer cheap, but elsewhere in the country sure can be.
Uruguay is super safe and stable but not as cheap as it used to be.
