Coordinating A Planned Real Estate Investment With Local Currency

What Are You Waiting For?

A reader wrote in a couple of weeks ago asking about coordinating a planned real estate investment with the ups and downs of the local currency in the country where he was shopping. He was referring to Colombia, as we had recently written about the U.S. dollar strengthening against the Colombian peso just as we planned to send more money to this country for the renovation of our apartment in Medellin.

I don’t believe you can try to time currency markets, not in the long-term and not in the short-term either, which is why I generally don’t pay as much attention to currency movements as I do property values. The problem with trying to time currency markets, even short-term, in the context of real estate investing, is that it’s impossible to know which way any currency is going to move on a day-to-day basis. And, meantime, while you’re trying to time the currency, the property market is moving, too.

Certainly, if you know that you’re interested in a particular market and the local currency takes a sudden hit, as it has over the last few weeks in Colombia, you should move some money in anticipation of making a buy. However, waiting for the currency to do what you want it to do, you run the risk of missing out on a good buy…just because the time isn’t “right” from a currency point of view. You can’t time when you’ll find the piece of property that you’re searching for…unless you don’t allow yourself to begin looking until the currency moves to where you want it.

I’d much rather lock in a good deal on a property than worry too much about a few percentage points on a currency move that may or may not happen according to my timeline.

Over the years, I’ve seen people miss out on great opportunities because they were trying to time one thing or another–currency fluctuations…the stock market…

I’ve heard this often recently…that someone is waiting for the stock market before moving his money into foreign real estate.

Waiting for the stock market to what? Fall further?

I guess they’re counting on a rebound before selling so they can maximize their potential investment capital. I can think of three instances, though, where the guys in question have lost considerable amounts of potential investment capital waiting for stock market rebounds that may or may never come. Meantime, I can also think of a number of good property investment opportunities that have, in fact, come and gone.

One real estate investor I met about six years ago at a conference I was hosting in the Dominican Republic came up to me to introduce himself and tell me his story. He’d gone to Costa Rica six years prior to another conference to look at real estate opportunities in that country. Following that conference, he’d shopped in Costa Rica for four years only to conclude that prices had risen too much, too fast. He took Costa Rica off his list, resigning himself to the fact that the market had passed him by while he’d been waiting for the “best” deal.

After that false start in Costa Rica, he turned his attention to the Dominican Republic. He’d been researching the market in the DR for two years when I met him. I asked what he’d bought so far in the Dominican Republic. Nothing, he explained. Again, he was waiting for the right, best deal.

Had he bought anything he’d come across when he’d first gotten off the plane in the Dominican Republic two years before our conversation…and I mean just about any piece of property with clean title…he would have realized at least a 25% increase in his property value (probably more) by the time I met him. Fortunately, good deals still abounded when I was there for the conference, and some of the attendees invested and saw good returns.

But, again, this guy still wasn’t ready to pull the trigger. He was still waiting for the right time…

Trying to time a market, waiting…whether for a currency to move your way, for the stock market to improve so you have more capital to play with, for a dip in property values before buying or an uptick before selling…is a risky game.

The Colombian peso reached close to 2,000 against the U.S. dollar this week. I jumped. Did I move too soon? Can’t say yet, of course. Maybe next week the dollar will move up even more versus the peso…

You can’t lose sleep over it…and, most important, you can’t let yourself lose out on a great opp because of it either.

Your underlying decision to make any buy should be based on the value of the investment property at the current exchange rate. We bought our apartment when the peso was around 1,750 to US$1. As the reader who is trying to time this market pointed out, as the peso has now moved from 1,750 to nearly 2,000, my apartment is worth less right now in dollar terms than when I bought it. True…if you consider only the property value in dollar terms based on the purchase price.

But you’ve got to remember the bigger picture. This apartment was a great buy that would have been sold out from under me had I waited to try to time my buy according to some anticipated currency movement. Sure, my dollars are buying maybe 15% more Colombian pesos today than they did when I moved money in July. However, had I waited the intervening three months to make my offer, I’d bet that I would have lost what was, currency exchange notwithstanding, a great deal.

The real point is that my intention is not to sell the apartment immediately, so I don’t care what the exchange rate is today. The value of the peso versus the dollar compared with the value at the time I made my buy is a moot point until I am ready to sell.

And it’s only one factor to consider when trying to evaluate the return on investment overall. I feel much more comfortable basing my buys, therefore, not on predictions for where the currency may be moving but on an underlying understanding of the market fundamentals at work.

Lief Simon

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