Building A Diversified Global Property Investment Portfolio

“Kathleen, 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?”

–Todd R., United States

I put this question to both of our resident global property investing experts, Lief Simon and Lee Harrison. Below I share Lee’s answer. Lief’s response to follow…

From Overseas Property Alert Editor Lee Harrison:

First, an IRA of US$240,000 is certainly enough to deploy to obtain international currency and portfolio diversification. A savings account with US$500 gets a foot into the international door, so, in fact, you’ve got a nice getting-started lump sum.

That said, a 10% net return on investment is harder to come up within a diversified portfolio. However, I’ll give it a try.

I don’t know what you have invested elsewhere, so all I can do is tell you what I would do if someone dropped US$240,000 in my lap tomorrow and asked me to invest it.

My goal 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). Properties in prime areas of this city are appreciating nicely, and rental returns are good. You’d want to stay within the best areas of El Poblado to get top performance. Expect about a 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, one that’s both producing income and giving me title to the land that’s growing the crop. The best deal I’ve seen recently is a lime plantation in Panama. With this investment, you can buy a hectare starting at US$39,000 for a return (over 20 years) of 18% annually.

Finally, I’d want a cash savings vehicle, to give me 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. I’d also look 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 invested for 7.5% return plus 8% capital gain
  • Lime plantation in Panama: US$39,000 for 1 hectare returning 18% annually over 20 years
  • Cash account in Colombia: US$20,000 invested in a 90-day note for 4% annual interest
  • Cash account in Uruguay: US$31,000 invested in a two-year note for 9% annual interest

As an aside, Uruguayan pesos and Colombian pesos are extremely cheap right now for the investor with U.S. dollars. Convert U.S. dollars to investments in either of those countries, and you could expect a long-term currency gain on top of any investment return.

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.

How To Get Started As A Global Property Investor

“Kathleen, I live in San Diego, California. Long story short, I need your honest opinion. I wanted to invest in a property in Medellín. I have been there four times, and I absolutely love the environment. I also travel all over and feel that this place has so much potential.

“I want to buy a property in Medellín specifically for rental. Your opinion would really help me in deciding, because I believe you will tell me the truth. I am currently talking to three different agents, but it is very hard to believe them wholeheartedly seeing as they have something to gain from my purchase.

“So if I was your son, what would you suggest, mom? Invest at home or abroad?

“Once again thanks for your time. Any honest response is much appreciated.”

–Kevin P., United States

The best place in the world to get started as a property investor is the United States. This is for two reasons.

First, U.S. property markets are more efficiently navigated than any other markets in the world, thanks to the Multiple Listing Service.

Second, leverage is more easily possible and possible to a greater degree in the United States than anywhere else in the world, as well.

As a result of those two things, you can make a first property investment in the United States with little money down and feeling confident that you’re paying what you should be paying.

In addition, probably better to get your feet wet in a market you’re familiar with and that’s closer to home. This will increase your chances of buying right and make any ongoing management requirements easier.

After you have a little experience under your belt, then a small apartment in Medellín earning, say, 8% yield while appreciating in value and providing diversification could be a great next step.

Then you could build and diversify further from there.

That’s my best mom advice for the just-starting-out property investor.

Good luck.

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