Hello BP community, I was wondering if there were many investors out there who have invested in properties abroad. If anyone would like to share some of their experiences I would love to hear about them. I have looked at properties in several countries to include Bolivia, Colombia, Costa Rica, and Panama.
One of the issues I have seen is with the financing aspect of buying a property in another country. For starters it can be difficult to get financed for a property by a bank in another country unless you have an account with some money in it as well as have some account history. I have searched for a US bank that will loan money for a property abroad and have not had much success. The interest rates are a bit higher than what is currently available in the US as well. Currently rates in Colombia are around 12% and Bolivia is 6% which 6% is not terrible it comes with a balloon payment at the end. I thought that the dollar would have more purchasing power in some countries but with real estate that is not always the case.
I look forward to reading whatever anyone has to share on the subject.
Hard to hedge against currency risk especially when you expect to receive income denominated in $USD. I am thinking of specially Columbia which has a relatively strong Peso at the moment which is experiencing a weakening this year. How would plan to hedge this risk? You have to have really strong foresight into projected inflation and future central bank actions and interest rate conditions. Even the best economists have a hard time predicting inflation and currency movements in the short term (less than five years)...something to think about.
I work in a Latin America finance group in automotive and manage finance teams in Brazil, Argentina, and Venezuela. A tough place to do business and even tougher to manage risk (political and economic). Most multi-nationals are naturally hedged because they do business in so many countries their assets, liabilities, and cash flows are remeasured in so many currencies the net effect of some currencies moving for and against the US dollar is minimal. You don't have that benefit with a single asset and cash flows. Hedging in the forward market is also usually cost prohibitive.
You bring up some great points. Large transactions in Latin America are (usually) done in dollars. In Colombia (with an "o") is is possible to get loans in dollars. This makes is easier for most since we are talking about 150,000 dollars not 300,000,000 pesos. Most likely I will leverage equity in our US homes to make a purchase so the risk would be to those properties and the property abroad would be owned free and clear (in that country) but I would still incur debt in the US. This would also be a better idea from a tax standpoint since I can claim the interest on those loans on my income tax return. I am not sure I could claim foreign interest and if I could I bet it would be more complicated than doing it through a US bank.
I agree trying to time the exchange rate to be more beneficial is nearly impossible. I exchange money every week and have given up trying to "time" it.
I was involved in Nicaragua investing for a while, amaaazing country!, but same financing problems there. There's not really a solution that I've found other than a) pay cash, b) seller financing if available, or c) high interest loans from that country.
Hey @Ali Boone if I may ask, what were you investing in there? I was looking for an apartment (really we consider them condos) that I would use while there and then renting while I was away. I was thinking something similar to a vacation rental.
I know a few people who are investing in LATAM and they primarily buy pre-construction then sell after the building is complete. Often times builders will sell pre built to get the cash they need to finish or move onto another project at a discount.
a resource for expats is www.internationalliving.com
Real estate, visas, health care. I have lived worked on nz and Australia, great resource :)
Hey @Brian Gibbons Thanks for the resource. You also have some good resources on your profile page.
@Paul S. Back to the Colombia example: If you could get a local bank to issue debt in USD you still have a a liability denominated in USD and an asset denominated in COL (peso). The home or asset is not easily converted to USD unless you use the future prevailing exchange rate, and any cash-flows presumably are going to be denominated in local currency too. Your USD debt may remain neutral based on currency fluctuations but as the peso weakens against the US dollar, your asset is worth less in real terms (USD). Same with cash-flows. The opposite is true for a strengthening against the US dollar. In short, you still have real currency risk despite the borrowing terms.
Originally posted by @Paul Schuw:
Hey @Brian Gibbons Thanks for the resource. You also have some good resources on your profile page.
Sometimes controlling in some countries with leases and options make more sense than buying with cash and getting financing.
I wrote an article about using a lease purchase solution in NZ.
Very interesting thread. I have also considered purchasing in Central America (Panama, Nicaragua or Honduras) or Ecuador. For me I believe it is simply a pipe dream that will never materialize. I have the cash to purchase, I just can't formulate a business plan that makes enough sense. I'm not wild about trying to manage a vacation rental from thousands of miles away.
There was recently a bigger pockets podcast about this not too long ago. In Episode 57 Brandon interviewed Matt Landau about his VR operation in Latin America. It's worth a listen.
@Austin Lee I would say do not give up on your dreams! I can see where it may seem daunting trying to manage a property in a different country but it is not as difficult as it seems. I am managing my US properties while I am in South America for a few years. It can be done. You just have to find a good team that can run the operations while you are away. There are even a bunch of websites that you can use to book and collect payment with.
I would recommend visiting and living in the place you think you want to buy for a while before you actually make the purchase.
You mentioned Ecuador as a potential location and I have considered Bolivia but looking back I would avoid the ALBA counties ( Antigua and Barbuda, Bolivia, Cuba, Dominica, Ecuador, Nicaragua, Saint Lucia, St. Vincent and the Grenadines, and Venezuela) all together. For me stability of the country is one thing that plays in my mind when it comes to choosing a location.
@Evan R. I believe I did listen to that one. I think it was the one where the guest had rentals in Panama. It seemed to be working out well for him.
I have been researching properties in Panama, Honduras, Guatemala, Costa Rica and Belize. Current U.S. banking regulations are making American citizens taboo to overseas banks. The Fed's desire to stop the currency outflow has prompted the imposition of massive regulatory compliance requirements for overseas banks who work with Americans. Now they simply don't want to deal with compliance or it isn't financially worth doing for the small amount of business derived from U.S. clients.
One method to avoid some of the problems is to create a foreign corporation and have the corporation handle the transaction. An attorney/financial planner from the specific country is a must. They know the rules and can help you navigate the system. There are many hoops to jump through which discourages most.
In Belize there are quite a few opportunities for owner financing which could make the process much easier.
We are currently working on a large project in Ambergris Caye, Belize, it is an all equity play because of the financing issues that everyone has spoken of, but we create syndications so that investors who may have less capital or who want to take baby steps with international investing can participate.
The plan is to eventually refinance and return equity to investors once the cash flows from the Project have stabilized (2-3 years of operation), as we have banks who will be willing to loan against the property at that point in times at better rates and terms.
As for currency risk, Belize has a 2:1 unilateral US dollar peg (Belize can decide to un-peg whenever it wants to) and real estate is transacted in US dollars. So there is no currency risk in terms of purchasing power.
I hope this helps.
Eric Tait, Vernonville Asset Management | 1‑877‑668‑3311 | http://www.vernonville.com
@Jarrod Weaver what are some of the resources you are using to research these properties?
@Account Closed the best research starts on the internet, is then followed up with telephone/Skype calls and there's nothing than a quick trip to check things out. NEVER skip the last step! I have found dominant players in every regional market who have valuable knowledge and a willingness to help. Most are ex-pat Americans so they speak English and know what you are looking for. They typically are the go-to source for rental management as well. Bueno suerte!
P.S. If you need help with the language I totally recommend the Pimsleur Approach. It has been more helpful than all the Spanish I took in high school and college by far.
@Jarrod Weaver I agree the last step of actually going to visit or live there is extremely important. I recommend finding a place to rent for a few month in the area you think you want to buy so you can really see how things are there. Short vacations staying in a hotel do not (in my mind) give you a true feel for what the area is really like.
@Eric Tait where could I fond out more about the project you guys are working on?
Has anyone here given thought to Dubai. Year-round sun. Amazing capital appreciation and best of all...no taxes.
Hey @El Hadi Kadouf I have never considered it. I have been to that region but I never could see my self wanting to visit there, or live there. Not to mention I do not speak the language, so I would be at a disadvantage.
I have been involved in Southern Baja for 20+ years. Fantastic returns, just don't check your brain at the border. Do things the right way, deal with the right people and you can do well.
Have been handling several investment for my foreign clients as well managing their vacation rentals.. is all about knowing the country and I have 25 years of ground work ...Guatemala is a destination little look after but soon to be on the radar for expat and relocation.. Tourism is up 12 % since last year, House Hunter International are just producing episode in Lake Atitlan.... if anybody interested in great investment opportunity will be happy to inform you..
I am an investor (with other partners) in Mexico, on the Caribbean coast. Financing is also tough to get in Mexico. However, the prices are still very low in Tulum, where we own our property, and where real estate is starting a real boom. I would borrow money from friends and family and invest there again in a heartbeat, as I know the value of this property/ land will be much higher in one year.
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