Lief and I are in Fortaleza, Brazil, for the first time, trying, with the help of very gracious Portuguese-fluent hosts, to get our heads around what's on offer in this part of the world.
Lief and I both have written about Brazil in the past, based on reports from friends and correspondents with firsthand experience spending time and money in this country. That intelligence has given us pause.
This week's visit has reinforced our fundamental concerns...and, as well, completely changed our minds.
Bottom line, this Brazilian state of Ceara, where Fortaleza lies, holds out tremendous current opportunity for the individual investor, maybe some of the best in the world right now. But this opportunity is not to do with pre-construction beachfront condos (as you may have read elsewhere).
The opportunity here is to do with agriculture and productive land, and, yes, it's viable for even a very small investor. Lief's attention has been grabbed completely. He's preparing a complete report for his Marketwatch subscribers.
Is this also a place you'd want to live? That depends...
This is not a retirement haven. Fortaleza is not cheap, not generally and especially not for those of us with U.S. dollars in our purses. It's not super-expensive, but nothing we've encountered so far qualifies as a bargain.
Brazil in general is not easy to navigate if you don't speak Portuguese. You can muddle your way through with Spanish, but, if you speak only English, I think you'd feel frustrated and isolated living here, not only because of the language hurdle, but also because you'd find precious few fellow expats to pal around with.
So, I say again, this isn't a place I'd recommend for retirement, certainly not for retirement on a budget. If, though, your agenda is a new life of challenge and adventure, come take a look. The beaches (Brazil's trademark attraction) are what you imagine them to be (that is, long, deep, and powder soft). And the economy is booming. The entrepreneur will find opportunity.
Note, though, that, while Brazil's economy is currently the 7th largest in the world, this country is ranked as the 127th most challenging place in the world to do business.
I'm out of time. I'll file fuller reports later in the week. And, again, Lief's complete report on the home-run productive land opportunity we've been shown will be on its way to Marketwatch members later this month.
Kathleen Peddicord
P.S. What else this week?
- You can reinvent your life...start over...enjoy the lifestyle or the retirement you've been dreaming about...this year...no matter what your life looks like right now.
No matter how big (or small) your budget...
No matter your age (you're neither too young nor too old...I promise)...
No matter what else is going on in your life right now (there is no "right" time)...
No matter if you need to continue to earn a living (you can)...
No matter your family circumstances (whether you have school-aged children or parents you're responsible for)...or what your kinfolk think (let them call you crazy)...
No matter your concerns, your fears, your uncertainties...
For years, I day-dreamed about what life might be like in some exotic, foreign clime. From the age of 21, I travelled regularly, all over the world...but, for 14 years, I returned home and rationalized a reason to stay there.
We all need a little push, something to get us started. Once you take the first step, the second is easier, the third easier yet, and soon you have that glorious thing called momentum helping to pull you along.
In my case, the little push came from my employer at the time. The international publishing company I'd been working for nearly 13 years wanted to open an office in Ireland, to take advantage of the business and tax incentives that the Irish government was offering back then. The opportunity presented itself...and, finally, I found the courage to jump.
Today I recognize that one reason I was able to leap when I did was because I had no idea what I was getting myself into. I'd been researching and writing about living overseas for years, yes, but research isn't the same as reality. When my husband and I packed ourselves, our daughter, and our eight oversized suitcases into the SUV that day in Baltimore and made our way to the airport for our overnight flight to Shannon, Ireland, we didn't know what we didn't know. And that was probably a good thing...
- "Granadans," writes Spain Correspondent Susan Rensberger, "like to quote a verse by Francisco A. Izcaza:
"'Give him alms, woman, for nothing could be as sad as to be blind in Granada.'
"Expats have their own refrain: 'I came to Granada for a few days...and I just never left.'
"Granada sits on three hills at the foot of the Sierra Nevada Mountains, overlooking the plains of Andalusia. Built, fought over, and rebuilt by Phoenicians, Romans, Arab Muslims, and Spanish Christians, its crown jewel, the Alhambra, was once the royal palace complex of the Moorish kingdom. Today, the Alhambra attracts more tourists from around the world than any other site in Spain, and the city retains its blend of cultures and international appeal.
"As locals also like to say, 'Anything can happen in Granada.'"...
- Belize is one of my favorite places on earth and one of the world's top offshore havens right now.
That's not to say Belize is perfect. Living here, like anywhere, you'll encounter challenges and frustrations. For example...
- My first visit to the island of Ambergris Caye, Belize, I climbed down the stairs of the eight-seater airplane, grabbed my bag from nearby on the runway where it'd been placed by the pilot who doubled as the landing crew, and carried it with me across the dirt road to the hotel where I had a reservation.
There I was met by the real estate agent who had promised to show me around. He wore shorts, a T-shirt, and no shoes. "Welcome to barefooted paradise," he greeted me. I was 24-years-old.
Ambergris Caye, likewise, was but a young girl...
Also This Week...from Resident Global Real Estate Investing Expert Lief Simon:
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.
