“If I Had It All To Do Over Again…”
“If you had to start over at this point in your life, rebuild all your net worth again, knowing what you know now, what would you do?”
We enjoyed a long weekend in Medellin, Colombia, Lief, me, and the kids. Saturday night, a local friend, a young expat who’s been living in Medellin for three years, came by for drinks. It was he who posed the question to Lief.
Lief didn’t hesitate with his reply:
“If I had to start over today,” Lief said, “I’d scrape together whatever nest egg I could, and I’d invest in a rental property, something that would generate enough cash flow to pay my bills. I’d live as cheap as I could and put aside every dollar of rental cash flow I could until I had accumulated enough to purchase a second rental property…and so on.
“After I’d built a small portfolio of cash-flowing rental investments, I’d make an agricultural buy—timber, say, though that is a very long-term investment. You can get much nearer-term yields from coconuts, coffee, cocoa, and bamboo, all of which I’m either already invested in or looking at closely right now.
“If it were just me, I’d continue living super-cheap, saving every possible dollar for additional cash-flowing investments. However, it’s not just me. My lovely wife makes sure that at least some of my income is diverted into non-cash flow-producing investments—like summer vacations and new living room furniture,” Lief continued with a smile in my direction.
“Where would you make your first buy?” our friend wondered next.
“If I were making the first investment of my career right now,” Lief replied, “I’d be shopping in Panama City or here in Medellin. Both are good markets for generating rental cash flow.”
“I want to get rich,” our young friend interjected. “Where could I make more money quicker? In Panama City or Medellin?”
Lief and I looked at each other.
“It’s not easy to get rich quick investing in foreign real estate,” I offered. “Frankly, I don’t believe it’s easy to get rich quick investing in anything, but focusing your investment efforts on foreign property means adopting a long-term perspective.”
“Right,” Lief agreed. “It’s very possible to realize an immediate return from a foreign property investment. That’s one reason I recommend rental properties—you can get a cash return right away. However, rental cash flow isn’t going to make you rich, at least not quickly. And the return from an agricultural investment is even less immediate. It takes 20 years to realize the return from an investment in teak, for example. So you’re making those kinds of buys for different reasons—for diversification and, mostly, to build legacy wealth.
“But none of this is a formula for getting rich in a year or two or even three, thinking realistically. Global property investing is a way to get rich slowly. However, it’s real wealth, not paper wealth. It might take you five or seven years or longer to build a portfolio. I’ve been at this for more than two decades now. I’ve built wealth, yes, but I didn’t do it quickly.
“When I was closer to your age,” Lief continued for our young friend, “I shared your eagerness. Like you, I wanted to get rich quick. That thinking led to the biggest mistakes of my investment career. I think of those now as my ‘greed’ buys, and they cost me big-time.
“Now I’m not tempted by the idea of striking it rich or hitting it big time. Now I’m very happy to buy for a reasonable annual return. I look for a minimum of 5% to 8%.”
“Is that what you’d be looking for in Panama City or Medellin if you bought today?” our friend asked.
“One reason I like those markets is because it’s possible in both of them to beat my minimum return expectation. Buy the right thing for the right price in either city, and you could see annual cash flow of 10% to 15%. In today’s world, that’s nothing to sneeze at.”
“Where do you see bigger upside potential?” our friend continued.
“I see Medellin as a market for steady growth. Property values have appreciated in the three years since we invested here, and I believe they will continue to do so, but, again, at a slow, steady rate.
“Panama City, on the other hand, is a boom town. It has seen one boom, which was followed by the slowdown of 2008/2009. Now I think we’re leading up to another boom. About two years ago, prices in Panama City began appreciating again, slowly. When the Canal expansion project is finalized, though, I think we’ll see another pop. This will happen in 2015, and not only Panama City but the entire country will benefit. The Canal expansion is a big deal.
“I see more dramatic upside potential in Panama than in Medellin for two other reasons, as well. First, Medellin is still suffering from the Escobar Factor. This misperception will continue to keep the average foreign retail investor away for some time. We still get readers asking about Noriega in Panama, so Medellin’s got a ways to go before it will shed this stigma.
“The other reason Panama offers more upside is because it’s still the Wild West. Real estate in Panama, including in Panama City, is a cowboy’s marketplace. In Medellin, on the other hand, the real estate industry is more developed, more sophisticated, and more controlled. Prices in Panama are all over the place. It’s impossible to say what something ‘should’ cost. It’s a free-for-all. That kind of chaos creates opportunity.”