Global Asset Protection Through Real Estate Diversification
Why Real Estate Is The Best Asset Protection Tool
I missed out on the Great Recession. In fact, since I moved abroad in 2001, those recession years actually produced my highest income.
My home in Punta del Este, Uruguay, jumped in value during the U.S. housing crash, as did our beach house in Brazil. My Brazilian reais jumped almost 39% against the U.S. dollar, and my Uruguayan peso-denominated CDs paid over 9%, while the pesos themselves also gained in value.
Meanwhile, during the depths of the recession, I bought a foreclosure condo in Arizona.
I don’t mean to give the impression that Brazil and Uruguay are better bets for investment than the United States. I don’t know if that’s true… or how long it will remain true if it is.
In fact, when the Brazilian market flattened unexpectedly a couple of years ago, that cheap condo in Arizona jumped almost 73% in value. So in this case, the Scottsdale market outperformed both Brazil and Uruguay.
I like to sound brilliant as much as the next guy. But, in all honesty, I’ll have to reluctantly admit that my good fortune was not a result of any special talent on my part.
In fact, I didn’t accurately predict any of those economic swings.
The reason I came though the recession as I did was because I was internationally diversified.
Benefits Of Being Internationally Diversified
I could write a 50-page paper on the benefits of international diversification. But here are a few down-to-earth examples that I’ve taken advantage of personally.
Residency: Owning property often qualifies you for residency (I’ve obtained residency in three foreign countries). Having a foreign residency means there’s another place you can call home, if you ever choose to. This provides a great feeling of security.
Banking: Residency also opens the door to the country’s banking and financial services network. This allows you to keep some of your funds securely outside your home country and may also give you the chance to diversify outside your home currency.
Retirement fund security: I know that my retirement funds in the United States can be the target of lawsuits and creditors. This won’t happen if you’re in a company-sponsored plan. But those IRA funds are at risk. Today, half of my retirement funds are invested abroad. They’re in properties, foreign banks, and foreign investments in a number of countries. So, while my IRAs in the United States could be attacked, I’ll always have a backup nest egg abroad to live on.
Insulation from lawsuits: Lawsuits are a huge problem in the United States, where we have 5% of the world’s population and 90% of its lawsuits. As with my retirement funds, having property and assets abroad insulates at least part of your life savings from American lawsuits.
Investment opportunities: Two-year CDs in my bank in Uruguay pay 9%. In Colombia, my savings account generally pays between 4% and 6%. So my savings are not only in another country, but they’re earning a rate of interest that I can’t get back home.
Why Real Estate Does The “Diversity” Job So Well
Among the significant number of tools employed to achieve offshore diversity and asset protection, real estate is my favorite. Here’s why:
You don’t have to report it to the IRS. While my foreign bank accounts must be reported to the Treasury Department, there’s no reporting requirement for real estate. This means it can be more private than most any other vehicle.
It produces significant income. Real estate is one vehicle that can actually produce income. My rental apartment in Medellín produces enough to live on in Medellín. Aside from income, the property usually appreciates in value.
It has its own intrinsic value. Unlike paper money, stocks, or electronic funds, your property has its own intrinsic value. So, as we like to say, the value can’t go to zero.
It gives you a brand-new life experience. Diversifying your life experience is not a financial issue, it really enhances the quality of your life. Having a home overseas—even part time—is like getting an entire second life experience in a single lifespan.
Granted, precious metals—physically held by you—are also nonreportable to the IRS, and they also have intrinsic value. But you can’t live on a gold coin, and you can’t rent it out to produce an income.
I don’t believe that real estate should be your only diversity or asset protection tool. But it’s easy to see why it’s my favorite.
Efficiency And Good Planning
Today I’m fairly diversified. I’d give myself a “C+”. Maybe not what it could be, but a whole lot better than having all my eggs in one basket.
But it took 10 years to reach this level of diversity.
I’d have been much better off if I’d had a plan to begin with. I’d have been quicker about it, and more importantly, I could have accessed some of the world’s moneymaking opportunities sooner.
How To Get Started Today
If I had it to do over again, I’d invest three days in Lief Simon’s Global Asset Protection and Wealth Summit.
Why? Because Lief will have the world’s top experts on offshore diversification in attendance.
You’ll meet bankers, offshore strategy experts, real estate professionals, developers, and experts in the world of offshore metals acquisition and storage. Not to mention tax, currency, foreign residency, and asset protection experts.
The only reason I’d attend is because these guys are not academics, and this is not simply a training exercise. It’s action-oriented.
So you can actually come away with an offshore bank account… or you can start down the path to residency… or you can invest in real estate… or buy rare and strategic metals with your own private offshore storage.
In other words, you can actually get something done.
But, most importantly, you can come away with a plan, a plan tailored to your own personal needs and preferences, a plan that will let you wade into these waters at your own pace and expand in accordance with your own timetable.
The Global Asset Protection and Wealth Summit is money well spent.
To learn more about the agenda for the event—along with what it costs and all applicable discounts—follow this link to see the specifics for the Global Asset Protection and Wealth Summit.
Editor, Overseas Property Alert
You Can’t Afford The Risk Of Not Diversifying Globally
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 (Sept. 09, 2011)