The U.S. is, without a doubt, the easiest place in the world to live. You can buy a new, oversized hot-water heater on New Year’s Day from Sears (I did this for an apartment building I owned in Chicago years ago), you can have a pizza delivered to your house at 1 a.m. (assuming you live in the delivery zone … my in-laws don’t), and you can find real estate for sale easily and buy it with little or no money down … right now with a mortgage at the lowest rates seen in this country in more than 30 years.
Leveraging an investment in real estate in the U.S. (with bank financing, for example) allows you to turn the typical (historical) average of 4% to 5% annual appreciation in property prices into returns of 15% a year. And this is much safer than leveraging an investment in the stock market. Stocks can (and, as we have seen recently, do) drop quickly and can even go to zero. Real estate typically loses value more slowly and generally won’t become worthless altogether. Although you won’t hear much from me about specific investment opportunities in U.S. real estate, I want to make the point that you shouldn’t ignore this market completely … especially if you are new to real-estate investing in general.
Why do I focus outside U.S. markets? Three reasons:
1. I am generally looking for gross returns of better than 15%. The returns I quoted above are gross — before transaction fees, realtor and attorney costs, for example. And on my latest “closed position” (my condo in Spain), I netted (after all transaction costs excluding income taxes) 24% annually on the property … plus 10% from the appreciation of the euro against the dollar during the time I held the investment. And all that without the hassle of renters. Granted, I had to make a few trips to Spain — the first one to find the property, a second to check on progress (this trip wasn’t really necessary, but it was a convenient excuse to spend some time in the sun), and a third to close the sale. I got to take the trips … and then I got to write off the expense against the capital gains.
2. I’m looking for diversification — a hedge against the dollar and against U.S. investment markets.
3. I recognize that a property investment outside the States provides a form of asset protection. You aren’t likely to be sued for your real-estate assets in a foreign country. It’s too great a hassle for the person bringing suit. My goals for the first half of this year are to purchase an apartment in Buenos Aires (expecting a 100% gain in three years), a leaseback property in France (expecting annualized leveraged net returns of 23% for nine years), and an apartment in Paris to rent out and for future personal use. Which leads me to an important point: The U.S. isn’t the only place in the world where you can leverage a real-estate investment. Banks in France and Spain give loans to non-residents. You can also borrow from a bank in Ireland and the U.K … probably Italy as well, but I haven’t researched that market recently. Europe is an excellent market for rental investment. The supporting infrastructure — for buying, renting, management, etc. — is strong. In the resort areas especially, you’ll not want for rental traffic.
Easy access to and from the U.S. And you can find an English-speaking realtor and management company in most markets. There’s something else that I want to bring to your attention, because it represents a particular opportunity that you might be interested in. I just received an update from the developer of Norome, a resort rental development on Lake Apoyo in Nicaragua that I am very familiar with. Two Phase 1 units have come back into inventory — and I don’t expect them to remain available for long. Phase 1 has been sold out since mid-November, when Phase 2 was launched. A two-bedroom unit in Phase 2 is priced at $119,900; the first five units of Phase 2 are being offered with a $5,000 discount. However, right now, the developer is offering the two Phase 1 units that have come back into inventory at the old price of $109,900 (including upgrades that were priced as extras in Phase 1).
In other words, $5,000 less than the Phase 2 discounted price. The two newly available lots are 10 and 19. I’d be interested in lot 19 if I hadn’t already bought a unit (lot 14). Lot 19 is in the upper section and has better views. The upper lots of Phase 2 carry a $10,000 premium. (In other words, a two-bedroom unit on an upper lot in Phase 2 is priced at $129,900.) For more general information on the development, go to: http://www.InternationalLiving.com/Norome/etr/
Editorial Note: Lief Simon, is Editor of Global Real Estate Investor. He lives and works in Ireland and the United States. Lief holds a Master’s Degree in International Management from Thunderbird; he has owned real estate in Europe, Central America, and North America; and has lived on five continents. These days, when stock-market returns are unreliable at best, diversifying your portfolio to include international real estate may prove the smartest, most profitable, move you can make. Click here for more information: http://www.agora-inc.com/reports/REL/WRELD105/