Invest in America or Overseas
San Diego , CA · Member since 2018 · 21 posts · 4 votes
I'm looking to invest around 300k on a beach villa in the Dominican Republic ( Gated Expat/ tourist community or buy something in the US. I can't afford anything else in Southern California where i live.
Any suggestions, strategies, other areas in the US i should look into?
Obviously it depends on your objectives, the deals on both sides, ..., which we know nothing about. When it comes to international investing, buying a villa in the Dominican Republic isn't very exotic in that many Americans have done it before. You'd still need to know what they're doing. Also, be aware and beware of the sargassum risk. It's a deal breaker for me (mind you, Florida is at risk too).
I'm not sure what you've been looking at abroad but, especially today, investing overseas is in many instances much more profitable and less risky than in the US, where you also run all the risks that you mentioned.
If the profitability and the risks would be similar, it could be argued that it's better/easier to invest in your own backyard so I totally understand where you're coming from. However, that's not the case. I could write a novel about this but let me ask you two questions instead:
1. Don't we think investing in the US is risky with high interest rates, historically low affordability and cash flows and high prices inflated by 15 years of artificially free money that's gone for good? Have we forgotten the 2008 global financial crisis that wouldn't happen in foreign countries where properties are bought with cash and the risk of foreclosures is 0? The whole financial freedom through real estate movement/model has been created on the back of artificially low interest rates following the Global Financial Crisis and that model won't work anymore for most unless interest rates or real estate prices in the US drop dramatically and most economists think they won't and for good reason. The low rates were an anomaly and totally unnecessary, as today's reality shows that the economy can boom without them and created that inflation scare that nobody wants to see again.
2. Is it smart to have your job, all your real estate, stocks and everything in one single country and at the whim of a single government? Is that (financial) freedom? Haven't we learned from Covid that the freedoms we take for granted can be taken away from us in a heartbeat if we depend on one single country? Isn't diversification a basic principle of building and keeping wealth? Many of the wealthiest and most successful Americans own a huge amount real estate overseas. In Mexico alone, a country I know particularly well, it's billions and billions of dollars. Do we think all these people are stupid?
In any case, it's great that you made those comments . They are really useful in that they help everyone realize that investing internationally is a matter to be taken seriously and isn't akin to a walk on the beach. Although having to inspect beautiful beaches across the world is part of my investing routine. Poor me! ;-)
If you do invest internationally, it can be helpful to have the right team. Because, as you seem to have found out by yourself, as the best deals generally don't show up in plain sight for everyone to see, as is the often the case in the US too. So, if you still want to find something overseas that would fit within for objectives, feel free to reach out and I'll be happy to help if I can.
How did you jump from "I can't find anything in my back yard" to "I'll invest in the DR"?
Investing abroad adds a significant level of complication and risk. The list is huge, but includes things like monetary risk, legal differences, government corruption risk, management risk, supply chain issues, insurance practices, utilities, tax differences, banking differences, etc. You will also need to understand how to file taxes properly, potentially in both locations, and you will probably need to travel there from time to time, most likely when you do NOT want to go there. (This will be a business, not a relaxing vacation on the beach.) Investing in another state carries some of these same risks but to a much lesser degree.
Every time I've looked at something abroad the risk / profit trade-off seems imbalanced vs. what I can do within the US. I'd rather make a ton of money in the US and vacation when and where I want. Once you have more than enough income stream from the US, taking some riskier gambles abroad may make sense.
Obviously it depends on your objectives, the deals on both sides, ..., which we know nothing about. When it comes to international investing, buying a villa in the Dominican Republic isn't very exotic in that many Americans have done it before. You'd still need to know what they're doing. Also, be aware and beware of the sargassum risk. It's a deal breaker for me (mind you, Florida is at risk too).
I'm not sure what you've been looking at abroad but, especially today, investing overseas is in many instances much more profitable and less risky than in the US, where you also run all the risks that you mentioned.
If the profitability and the risks would be similar, it could be argued that it's better/easier to invest in your own backyard so I totally understand where you're coming from. However, that's not the case. I could write a novel about this but let me ask you two questions instead:
1. Don't we think investing in the US is risky with high interest rates, historically low affordability and cash flows and high prices inflated by 15 years of artificially free money that's gone for good? Have we forgotten the 2008 global financial crisis that wouldn't happen in foreign countries where properties are bought with cash and the risk of foreclosures is 0? The whole financial freedom through real estate movement/model has been created on the back of artificially low interest rates following the Global Financial Crisis and that model won't work anymore for most unless interest rates or real estate prices in the US drop dramatically and most economists think they won't and for good reason. The low rates were an anomaly and totally unnecessary, as today's reality shows that the economy can boom without them and created that inflation scare that nobody wants to see again.
2. Is it smart to have your job, all your real estate, stocks and everything in one single country and at the whim of a single government? Is that (financial) freedom? Haven't we learned from Covid that the freedoms we take for granted can be taken away from us in a heartbeat if we depend on one single country? Isn't diversification a basic principle of building and keeping wealth? Many of the wealthiest and most successful Americans own a huge amount real estate overseas. In Mexico alone, a country I know particularly well, it's billions and billions of dollars. Do we think all these people are stupid?
In any case, it's great that you made those comments . They are really useful in that they help everyone realize that investing internationally is a matter to be taken seriously and isn't akin to a walk on the beach. Although having to inspect beautiful beaches across the world is part of my investing routine. Poor me! ;-)
If you do invest internationally, it can be helpful to have the right team. Because, as you seem to have found out by yourself, as the best deals generally don't show up in plain sight for everyone to see, as is the often the case in the US too. So, if you still want to find something overseas that would fit within for objectives, feel free to reach out and I'll be happy to help if I can.
How did you jump from "I can't find anything in my back yard" to "I'll invest in the DR"?
Investing abroad adds a significant level of complication and risk. The list is huge, but includes things like monetary risk, legal differences, government corruption risk, management risk, supply chain issues, insurance practices, utilities, tax differences, banking differences, etc. You will also need to understand how to file taxes properly, potentially in both locations, and you will probably need to travel there from time to time, most likely when you do NOT want to go there. (This will be a business, not a relaxing vacation on the beach.) Investing in another state carries some of these same risks but to a much lesser degree.
Every time I've looked at something abroad the risk / profit trade-off seems imbalanced vs. what I can do within the US. I'd rather make a ton of money in the US and vacation when and where I want. Once you have more than enough income stream from the US, taking some riskier gambles abroad may make sense.
In San Diego I'm renting 2 homes out, but I can't afford to buy another Investment here. I'll more than likely move overseas for a year to live in the property and then rent it out. I won't buy and rent immediately but In a year or two I'll more than likely rent the home out.
Obviously it depends on your objectives, the deals on both sides, ..., which we know nothing about. When it comes to international investing, buying a villa in the Dominican Republic isn't very exotic in that many Americans have done it before. You'd still need to know what they're doing. Also, be aware and beware of the sargassum risk. It's a deal breaker for me (mind you, Florida is at risk too).
I'm not sure what you've been looking at abroad but, especially today, investing overseas is in many instances much more profitable and less risky than in the US, where you also run all the risks that you mentioned.
If the profitability and the risks would be similar, it could be argued that it's better/easier to invest in your own backyard so I totally understand where you're coming from. However, that's not the case. I could write a novel about this but let me ask you two questions instead:
1. Don't we think investing in the US is risky with high interest rates, historically low affordability and cash flows and high prices inflated by 15 years of artificially free money that's gone for good? Have we forgotten the 2008 global financial crisis that wouldn't happen in foreign countries where properties are bought with cash and the risk of foreclosures is 0? The whole financial freedom through real estate movement/model has been created on the back of artificially low interest rates following the Global Financial Crisis and that model won't work anymore for most unless interest rates or real estate prices in the US drop dramatically and most economists think they won't and for good reason. The low rates were an anomaly and totally unnecessary, as today's reality shows that the economy can boom without them and created that inflation scare that nobody wants to see again.
2. Is it smart to have your job, all your real estate, stocks and everything in one single country and at the whim of a single government? Is that (financial) freedom? Haven't we learned from Covid that the freedoms we take for granted can be taken away from us in a heartbeat if we depend on one single country? Isn't diversification a basic principle of building and keeping wealth? Many of the wealthiest and most successful Americans own a huge amount real estate overseas. In Mexico alone, a country I know particularly well, it's billions and billions of dollars. Do we think all these people are stupid?
In any case, it's great that you made those comments . They are really useful in that they help everyone realize that investing internationally is a matter to be taken seriously and isn't akin to a walk on the beach. Although having to inspect beautiful beaches across the world is part of my investing routine. Poor me! ;-)
If you do invest internationally, it can be helpful to have the right team. Because, as you seem to have found out by yourself, as the best deals generally don't show up in plain sight for everyone to see, as is the often the case in the US too. So, if you still want to find something overseas that would fit within for objectives, feel free to reach out and I'll be happy to help if I can.
Thank You! If I do buy I'll be sure to reach out. I appreciate this information
You're making some interesting points. Note that, if you want to invest internationally, it doesn't have to be in Latin American, although there definitely are interesting opportunities there. We're in 2024 so I'm not sure in what looking at what happened in the 1990s is that relevant, when circumstances have completely changed. Of course, almost nobody would or should invest in Venezuela or Argentina (although I know people who are bullish on Argentina following the election of president Millei) so I'm not sure how relevant they are in the conversation.
As to Mexico, its economy is performing much better than its American counterpart. Its unemployment rate is much lower. Like everywhere else, inflation is on the higher side but that's because of real economic growth, not because the Mexican central bank has artificially maintained interest rates at a low level like the FED has. Speaking of Mexico's currency, it's been one of, if not the best performing currency in the world over the last couple years and has beaten the US dollar to the punch. So much so that it's been now dubbed the super peso and it's causing headaches to Mexican developers who sell in US dollars and have their costs in pesos.
The reality is that you actually don't necessarily need to spend a ton of time understanding international real estate to invest internationally, although doing so would definitely increase your success, of course. I started sharing my experience investing overseas in the BP forums around 2017 I believe. At the time, many people were telling me that I was crazy investing in places like Mexico. But then, as short-term rentals became ever more popular, Americans tourists started thinking wait a second "We're paying so much for staying for a week at that short-term rental. How much does the property cost?" And many of them ended up buying some pre-construction condo before they even left the country. The rest is history. Most of them have made like bandits.
I see your point about diversification. And, yes, focusing on one basket could work better for building wealth but only provided that you choose the right basket. Most people can't and nobody has a crystal bowl so diversification is most often the best strategy. Tell all those who lost their shirt in US real estate in 2007 - 2008 that they shouldn't have diversified and watch their reaction. And then, ironically, you quote Warren Buffet who made his fortune in stocks, not real estate.
Like Warren Buffet, I believe that the US is the land of opportunity but I believe that, in the US, investing in the stock market is vastly superior, as history has shown. That's what I'm doing and my returns are vastly superior to those of my friends investing in Us real estate and I do much less work for it. The only periods when US real estate can beat US stocks is when money is free or close like it's been in the 15 years following the Great Recession. Why did Buffett go for stocks? When he started investing, interest rates where not artificially low so there was no contest and stocks was the better alternative. After the Great Recession, he could have moved part of his money to real estate to take advantage but he didn't because he understood that it was a temporary and abnormal situation and not a base to change his business model.
So, finally, let's see if US real estate is the right basked to invest in, if one such basket exists. The way it's marketed, you're supposed to make money in four ways: cash flow, capital gains, amortization and tax benefits. With high interest rates, you most often don't get cash flow and it can even be negative. Real estate is supposed to appreciate long term at the rate of inflation so you're not better off over time with just that. And because real estate prices have gone up so much and are properties are as unaffordable as they've ever been, there's a high downside risk and the upside is limited. So all you'd end up with just amortization and tax benefits. The stock market will get you way ahead way quicker.
Interestingly, as I was writing these lines, somebody mentioned on CNBC that the average mortgage interest rate in the US over the long term is 7%. At that rate, US real estate definitely isn't the right basket to create substantial wealth. Of course, you could invest using cash only but then you might as well do that overseas and make significantly more money.
Many are still pinning their hopes on the fact that they can buy today and refinance later at lower interest rates and hope that these rates go back to sub 3% again. But hope isn't a strategy and that's unlikely to happen.
The US has the best stock market in the world. Overseas, the stock market isn't as good and more complicated to invest in and real estate can do very well so I focus on the US stock market and international real estate. By investing and specializing only into these two asset classes, I'm diversified across four quadrants: real estate and stock market, US and international. Depending on the current market conditions, I can lean more or less to any given quadrant and I'm not being held hostage by high interest rates, which, in a historical perspective, aren't actually that high. I think that that approach is vastly superior to investing in US real estate only but, hey, different opinions make for a good market and a forum with interesting conversations.
So, let's see if US real estate is the right basked to invest in. The way it's marketed, you're supposed to make money in four ways: cash flow, capital gains, amortization and tax benefits. With high interest rates, you most often don't get cash flow and it can even be negative. Real estate is supposed to appreciate long term at the rate of inflation so you're not better off over time with just that. And because real estate prices have gone up so much and are properties are as unaffordable as they've ever been, there's a high downside risk and the upside is limited. So all you'd end up with just amortization and tax benefits.
I disagree with everything in this paragraph.
1) I have made four real estate investments this year, all of them cashflowing and I have two more I am about to get into that project immediate cashflow.
2) I never count on the market to deliver appreciation. If I get it, that is icing on the cake. When I used to buy single family I captured equity upon purchase. Now that I am in commercial real estate, everything I invest in is giving me forced appreciation. It's just math, not hope.
3) You mentioned that in the markets you invest in, most properties are bought with cash. Meanwhile, I have access to plenty of leverage. Even if the market only appreciated at the rate of inflation, my equity growth is still beating inflation because I'm conservatively leveraged.
4) It is unlikely single family prices will go down in any meaningful way as evidenced by over 100 years of US housing price data. The only real drop in prices was the GFC and that was created by questionable financing received by people that had no hope of paying off the mortgage. WE don't have that today. Nominal prices in the US, even in a terrible economy, are historically pretty flat. But, then again, I'm not investing in single family. Commercial property uses the income approach, and I know how to raise the income on my properties and the people I invest with do as well.
It sounds like you're a shrewd real estate investor so some of my comments might apply less to you. And, yes, if you've decided to make your career in US real estate, I'm not suggesting you should necessarily abandon ship (although again some diversification might not hurt) and you might as well capitalize on all the knowledge and connections you have gained over time. The thing is, some people can make money in any market if they can find the right opportunities, you can make lots of it but those opportunities don't exist for everyone.
The reality is that, at 7% interest rates and 0 - 3% appreciation, the average investor can't become wealthy quickly with a little bit of cash flow. You can disagree all you want about my opinions but that's plain mathematics and mathematics ultimately tell the truth. Leverage is a good thing at low interest rates and I'm not sure since when merely beating inflation makes you wealthy.
I never wrote that I invest in markets in which most properties are bought in cash, merely that, without leverage, you can get higher returns outside of the US. Mind you, I do invest in such markets but I use leverage in them. In fact, I'm currently borrowing at 1%.