Currency Diversification Through Foreign Real Estate

It is often the case that foreign property buyers make their purchases using the coin of the realm, and then rent it out for part of the year …

It is often the case that foreign property buyers make their purchases using the coin of the realm, and then rent it out for part of the year to acquire an income stream in local currency. This is a good bet, especially when the world is in such clear financial trouble and one can never guess where the next safe haven investment will be. Expats are fond of using rental income to fund their vacation time in their chosen foreign location in places like Brazil and Colombia. In Medellin, Colombia, part-time rentals net an average yield of 8% after expenses, which can help offset costs when the owners are in town. For more on this continue reading the following article from International Living.

When you buy international real estate you can generate income in another currency.

All your eggs aren’t in one basket. If the value of your dollar goes down, for example, you might be very happy to have an income stream in Brazilian reais…or Colombian pesos.

Diversification…particularly in turbulent times…is just plain common sense.

If you only want to use your home abroad for part of the year…you could use your rental income from the rest of the year to fund your lifestyle when you visit.

The city of Medellin, Colombia is a place where you could do this.

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Medellin is an extremely pleasant place to spend time, especially the leafy high-end area of El Poblado. This is a great place to sip coffee or enjoy a nice meal in the shade next to one of the many streams that babble down the hillside.

Bright sunshine and temperatures in the low 70s are typical of the weather you can expect year-round. This area is convenient. Compact. I got around mostly by foot. At 5,000 feet, the altitude is comfortable and the sunshine fresh on your face.

This area of El Poblado is upper middle class. Even in this prime area, 190 million Colombian pesos ($102,000) could buy you a 1,000-square-foot condo with views to the valley and outside space.

Because the price is low…even with modest rents, yields could be strong.

Real estate here is priced in the Colombian peso. While some foreign owners quote rents in euros or dollars, the main rental market is priced in pesos. As with buying in any non- dollar denominated market, you are exposed to exchange rate fluctuations.

(In Brazil members of Real Estate Trend Alert have done well on the currency side of the equation on top of the asset appreciation we have enjoyed. But let me be clear on one thing: I’ll leave foreign exchange predictions to others. That’s not my beat.)

Yields in Medellin from short-term rentals are strong. If you buy a unit here and make it available for short-term rental, you could net 8%.

This means that your 190 million peso condo could generate more than 1.3 million pesos ($700) a month in income after you have paid your bills (excluding any income tax liability). Short-term rental demand is strong from visiting expats. Or, you could rent long-term to a visiting executive from the resources industry.

Foreign investment in Colombia doubled the first half of last year versus the previous year. The major resource players are flooding back in as Colombia becomes more stable. Wealthy Colombians are keeping more of their money in the country. I saw this first-hand last year at the beach resorts near Santa Marta, where Colombians from Medellin, Bogota…and Colombians living in the U.S….were snapping up pre-construction condos.

Eight years ago they were buying in Panama and Miami. Now they are keeping their pesos in places like Medellin.

This article was republished with permission from International Living.


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