Famed investor Jim Rogers said of beachfront “they ain’t making any more of it”. In the case of residential or office space, supply reacts with a multi-year lag. So, what happens when a growing swell of cash and investors in hot emerging markets chase a finite or slow-reacting supply? Prices and value appreciate at an accelerated rate…far faster than the economy or other assets.
With real estate, you can invest a relatively small amount of money to control a large asset. In parts of north-east Brazil for example, I’ve seen the value of some condos increase by 60% in two years. Better still, you could control this condo over the two year period with an investment of just 20% of the purchase price.
Real estate is also a great way to protect hard-won capital. Your asset is real, productive and has a use. You certainly can’t print any more of it. Historically, land has been one of the best hedges against inflation and turmoil. People will always need somewhere to live. Price bubbles may come and go… and come again. Meantime, your real estate always retains an intrinsic value.
Today, the best real estate opportunities are outside of the US. The great growth phase of the US economy is over (for now at least). Investors are concerned about where growth will come from, the security of their investments, and the value of their paper assets.
Things are different outside America’s borders. There are real growth opportunities. In fact, there’s a full spectrum of opportunities to profit. These range from high-growth frontier markets…to overseas powerhouses such as Brazil…to places so cheap that they represent true long-term value.
Brazil, for example, is now a middle class country. Half the population now falls into the middle class bracket. Last year, the country created 2.5 million jobs. Credit and mortgage finance is opening up. As soon as people move into that middle class category, they become consumers. That includes putting themselves in the market for a shiny new condo. And the 2.5 million new working folks need to work somewhere…an office, a factory, or maybe even a Starbucks!
Think about what this means: a surge in demand for these categories of real estate. We know from what we have seen elsewhere that this means prices should rise— as should the income you derive from these assets. There has been a flood of money into the stock markets of these new powerhouses. Some markets seem expensive. Yet prices of real estate may not reflect this. You can bet on these powerhouses effectively at a lower valuation.
Buying international real estate has five major advantages right now:
- You retain control. You can buy, sell, rent, or develop, according to your schedule and your requirements.
- You can generate a cash flow in another currency. This is a great way to diversify your portfolio towards appreciating currencies such as the Brazilian real.
- It’s a great inflation hedge. Real estate is better than just cash flow in another paper currency. It’s a hard asset. That means it retains a value independent of any paper currency’s nominal value.
- Real estate has multiple uses. Land you buy can be used for agriculture or forestry while you wait for the people, the tourists or industry to come. The new middle classes in China, Brazil and India are eating more meat (which means more land is needed to grow feed such as corn). They also need wood for construction and furniture in their new homes.
- Real estate investing is fun. Your real estate investment can double as a personal retreat, part-time residence, or vacation getaway.You can enjoy it while it’s appreciating in value…generating rental returns…and safeguarding your net worth.