While the rest of the world has seen negative economic numbers ever since the global financial crisis began, the numbers coming out from Brazil have been mostly positive. Not many years ago, some economists questioned the “B” in the BRIC acronym (Brazil, Russia, India and China), but lately Brazil has become the favorite BRIC investment country for many investors. Today, many leading economists forecast Brazil to be among the 5 richest countries by GDP by year 2020. To no surprise, the positive international coverage Brazil is getting has also caught the attention of many foreign real estate investors.
This article tries to give some tips of how to invest wisely in Brazilian real estate. Many foreign property investors have a weak knowledge of Brazil and subsequently many times make bad investment decision. Here are three solid tips for making sure you make a solid Brazilian real estate investment:
Cheap is not always the best
Many foreigners still believe Brazil to be a third world country, and expect prices for real estate in Brazil to be very low. It is not uncommon for foreign property investors to buy a property in Brazil mainly using a low sales price as a buying criterion. In reality though, Brazil has a strong economy and the domestic market in Brazil is extremely strong. Properties in the prime areas are not cheap anymore, but do offer excellent and solid long-term investment potential.
Like anywhere else in the world, location of a property is fundamental for making a good property investment. A property in Brazil that enjoys a good location is guaranteed to produce stable rental incomes, and will also be easy to re-sell in the future. Due to lower land costs, a property in a less popular area might sell for 20-30% less, but most likely will be a bad investment as it will not generate any rental income and will be difficult to resell.
Properties that sell very cheaply are virtually always located in deserted areas with little infrastructure. Unless your only criterion is buying purely for personal holiday usage, and you don’t mind being in a remote and empty area, it is worth paying a bit more for a property in Brazil.
There is more to Brazil than beachfront
Brazil has a very long coastline, of almost 7500km, full of stunning beaches. As a result, most foreigners have a “pre-set” image that it only makes sense to buy beachfront property in Brazil. What most foreigners don’t realize is that, while there are many beaches in Brazil, many of them are completely deserted and have no or very little infrastructure. Development will eventually take place, but many areas will remain deserted for a very long time, while other already popular areas will continue to grow in popularity.
In most of the popular tourist areas in Brazil, very few beachfront properties are for sale, as there is virtually no more beachfront land available for creating new real estate developments. However, many of the properties a bit off the beach are providing excellent rental income, because the area is hugely popular with Brazilian tourists.
For investment purposes, it only makes sense to buy a property in an area with an influx of clients, whether it is for rental or re-sale purposes. Very few clients are interested in renting or buying a property in a location with no infrastructure like bars, restaurants and other amenities which are necessary for enjoying a vacation. Hence, for making a good investment, choose the location wisely and don’t focus too much on a beachfront location.
Forget about payment terms
During the booming years a few years back, when investors bought overseas property for flipping, a lot of attention was given to payment terms. Good payment terms can indeed provide more leverage and potentially a greater ROI, but by making this a top criterion for making a Brazil property investment, is a sure way to get the fundamentals wrong.
Remember this: the only way to make a profit on real estate investment in Brazil is to find a buyer who is prepared to buy the property from you, for more money than you initially paid for the property. If the location is not right for the new buyer, or the build qualities are not what the new clients expects, it won’t matter what your payment terms might have been when you bought the property. There is a difference between actually making a profit, and only making a profit on paper.
Brazil is a big country, and in order to make a solid Brazilian real estate investment, it is fundamental to choose the location carefully. In order to make a profit on any property, the property has to offer the buyer the qualities and experiences he is willing to spend his hard earned money on. This can be accomplished in two ways:
- The location is right for the buyer, and
- The property itself appeals to the buyer.
Whether an investor is after rental income or capital gains from a property in Brazil, the two above very basic points have to be met.
Properties in Brazil in prime locations are still very cheap compared to most other countries, and the more the Brazilian economy grows, the more rental rates and subsequently rental returns will increase for Brazilian properties in good locations. Brazil real estate can provide excellent and solid long-term investment potential, but it is imperative to base a purchase decision based on an understanding of the real market dynamics in Brazil.