March 19, 2010
Panama City, Panama
PLUS:
- A Fellow Reader Encourages: "Don't Pass Up Any Opportunity For A New Lifestyle In A New Country!"...
- "Kathleen, Good Luck With Your New Book!"...
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Reef, Ruins, Rivers, and Rain Forest...
Plus Easy Residency and Tax-Free Living
Little English-Speaking Belize Is Escape
and Safe Haven for Both You and Your Money
It's time to come see for yourself!
Join Kathleen Peddicord, Lief Simon, the Live and Invest Overseas staff, and all our top in-country contacts, experts, friends, and resources in Belize for our
Live & Invest in Belize Conference scheduled for June 21-22 at the Radisson Ft. George Hotel in Belize City.
The first 25 VIP Attendees enjoy a two-night free stay in the country...along with other important advantages.
Full details here.
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Dear Live and Invest Overseas Reader,
A reader wrote this week to say, "I want to diversify into international real estate, but I just can't justify it because I'm getting yields from property investments in the United States that are as good as I could get overseas, and the transaction costs in the United States are lower."
That is one way to look at it.
On the other hand, if you're into residential rentals in the States and in the States only, for example, the risks are not insignificant, given both the current market climate and the lack of portfolio diversification.
Over the years, many readers have told me similar stories. They had great portfolios of rental houses or apartments, they explain. All their properties were returning at breakeven cash flow or better. So they'd been systematically expanding their holdings within their target markets.
Then, in some cases seemingly overnight, the local market where they'd been investing shifted. Maybe the economy for the entire city turned, with jobs being lost and people moving away. Maybe the demand for local housing changed, with new neighborhoods opening up and fewer people wanting to be in the neighborhoods where the investors held their rentals.
The end of these stories is always the same. The investors lost everything, sometimes walking away from mortgages they could no longer cover. Once even just some of their rentals weren't occupied, they couldn't make their loan payments, setting off a domino effect that eventually affected their entire portfolios.
The fundamental problem is lack of diversification. All the holdings in each case were in single cities or regional markets. When bad times hit, the portfolios were wiped out. Even if these investors had diversified regionally within the United States, their portfolios overall could have been less at risk...at least until the recent U.S.-wide real estate market collapse.
On the commercial side, U.S. triple net lease properties are earning net yields between 6.5% and 8.5%. And you can find higher cap rates with lower quality locations. Of course, these kinds of property investments come with high costs of entry, with prices starting typically at around US$1 million. Even with bank financing you're looking at an investment of a couple of hundred thousand dollars. In addition, many of these properties are in what I consider risky locations. Sure, you may have a lease with a well-known national company, but that doesn't mean there's no risk of the business at your location closing. As many of these properties are purpose-built for a specific business, finding another one to take the space can take time.
I'm not saying you shouldn't include residential rentals or triple net lease properties in the States in your portfolio. These can still be good ways to earn respectable yields. What I am saying is that you shouldn't exclude international real estate from your portfolio because you think you'll net 1% or 2% less outside the States after transaction costs have been factored in.
Furthermore, remember the other side of your total return--potential capital gains, which can be dramatically greater in developing and emerging markets than you can expect them to be in the United States (especially right now).
Yes, transaction costs for real estate in many countries are higher than they are in the States. Leverage isn't available in most global markets (which can be a good thing in the long run in terms of risk but increases cash requirements). And you'll have to spend time and money traveling to the places where you invest (on the plus side, this is a chance to write off vacation expenses).
But you've got to keep the big picture in sight. The idea is to build your wealth in a manner that protects it long term.
International real estate can do that while also giving your family a layer of protection should things go south back home.
Lief Simon
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Kathleen Peddicord's new book How To Retire Overseas hits bookstores in the United States today!
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Or order copy online here.
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"Kathleen, this is in response to
your dispatch earlier this week.
"If you are a person who can adapt to new situations without grumbling and complaining, then your move to a new country will be much easier. If you are willing to try new foods, different ways of doing things, etc., then you will adapt much easier. Prepare for some exciting surprises.
"My experiences living in Turkey, Italy, the Bahamas, the West Indies, and Brazil have for the most part been positive. I do not regret any of those moves and am looking forward to living in other cultures and learning other languages still.
"While living in Brasilia, where a friend and I started an English-speaking group in 1972 that met once each a week for breakfast at one of the local hotels. Even though we moved from Brasilia 18 years ago, that group is still active and continues meeting each week. When we settled here in Florianopolis (a small island off the southeast coast of Brazil) in 2003, we started an English-speaking group here, too. We meet every Wednesday for lunch at one of the local restaurants, and every Friday night we have a Happy Hour at one of the many 'feet-in-the-sand' bars on the beach. (Beautiful sunsets!) And our group always commemorates 4th of July and Thanksgiving with an elaborate meal.
"In most countries, you will nearly always find a group of expats like the one we're part of in Florianopolis. Some expat groups are smaller than others, but they are always willing to help newcomers.
"My point is, don't pass up any opportunity for a new lifestyle in a new country."
-- Ken L., Brazil
"Good luck with
your book, Kathleen. I appreciate your insights. You are providing valuable services for those of us considering the big move!"
-- Joanne V., United States 