Diversification- Overseas Real Estate

Going Offshore Primer Part 5–The Beauty Of A Hard Asset Overseas

Real estate overseas can fit into your global diversification plan in different ways. You can approach it purely as an investment; you can consider it as a lifestyle; or you can blend the two agendas. Regardless, I’d say that the purchase of a piece of real estate in another country is the single best thing you could do with your money right now.

Real estate overseas is my favorite asset class. Unlike stocks, it doesn’t require daily monitoring. Unlike gold and other metals, it can produce income. And, unless you’re highly leveraged in your investment, you aren’t likely to lose it all.

Considering this as an investment straight up, you have two options for how to make money–through a yield generated by the use of the property or through capital appreciation. An expectation of capital appreciation hasn’t been realistic in most market for the past five years and remains unrealistic in most of the world today. Prices have stabilized in many markets, but you shouldn’t look for great appreciation any time soon most anywhere you might consider making a real estate buy.

That is not to say that the potential for appreciation does not exist anywhere. Medellin, Colombia, from where I write today, is one exception I see. Medellin didn’t experience the value bubble that many other markets around the world saw over the past decade or so. Prices in this city never over-inflated, meaning there’s been no contraction. Values in Medellin have appreciated steadily over the last three years by as much as 20% overall. Prices are still very reasonable on a global scale (in fact, they’re still a bargain on a global scale, especially given what you’re buying), and I expect appreciation to continue as the local economy continues to expand.

Another way to position yourself for appreciation even in a relatively stagnant market is to buy something pre-construction. This strategy saw some people “lose everything” in the United States when markets there turned, because it’s a leveraged play. You place a deposit and don’t have to pay the balance until the property is built. You need to be sure you’ll have the cash to pay in full at completion. If you don’t, you’re relying on a bank loan or the ability to find an end-user buyer quickly. Neither of those was a reliable option at the end of the U.S. housing bubble.

Regardless, in the right market with the right type of property, buying pre-construction can make sense. This is not a strategy I’d recommend (or buy into myself) in most of the world right now, but buying a pre-construction condo-hotel in a strong tourist market, for example, is something I would buy today. You can find these kinds of opportunities in Panama, Colombia, and the Philippines. One reason I like this kind of investment is that it’s turn-key; a condo-hotel comes with full management in place.

If you’re buying purely for lifestyle, the world can be your oyster. A beachfront condo in Ecuador for US$50,000. A pied-a-terre in Paris for US$500,000 or on the Cote d’Azure for US$300,000. A few acres in Belize where you could build a small family retreat or farm for US$100,000.

The fun and adventure that can come with moving to another country or simply owning a vacation home somewhere foreign and sunny may be all the investment return you’re after. Meeting new and interesting people. Experiencing a different culture. Dining on exotic dishes. Expanding your horizons. All of this becomes possible when you make a real estate buy beyond your home borders.

Of course, the best scenario is when you’re able to combine these two agendas…when you identify a real estate purchase that meets both your investment and your lifestyle objectives. Buy an apartment in Prague as a place to visit for vacation and rent it out when you’re not there. This way you can be earning some rental yield while having a “free” place to take a vacation. Or maybe your agenda is related to your plan for retirement. Buying a house, apartment, small farm, or whatever today and renting it out until you are ready to move into it full-time in retirement is a beautiful strategy.

Years ago I knew a French couple who were working this strategy. They didn’t have the capital to buy an apartment in Paris, where they were living, big enough for their family of five. They did, though, have enough to buy an apartment that would suite the two of them when their three girls had moved out. They rented a large apartment for their family and bought the smaller apartment for their “retirement.” The retirement apartment was rented out to cover that mortgage payment. By the time their kids were grown and they were empty-nesters, their retirement pad had been fully paid for.

Lief Simon

Continue Reading: Lief Simon’s Wealth Retreat In Panama