There is no denying the investment potential of Brazil. But while most people have focused on the country’s stock market — or even real estate to a lessor extent — there are other exciting opportunities available for investors. Ronan McMahon has discovered one such opportunity that potentially offers investors high yields, and the chance to join the green revolution. For more on this, read the following article from McMahon.
The stretch of coast in northeast Brazil around the city of Fortaleza is a kite-surfing mecca. The wind blows almost every day, drawing kite-surfers from around the world. You may not care for kite-surfing, but you might have a lot more in common with these guys than you think…. You could, in fact, harvest this wind for profit instead of for fun.
I’m talking about turning this wind into the most exciting income opportunity I’ve seen in a long time…an annualized yield of 18.8%.
As a location to generate wind energy, this part of Brazil has it all. Its booming economy is fueling demand for energy. The country has an energy independence strategy and policy framework that’s the envy of the world. Most importantly, the wind blows consistently, as wind energy is notoriously difficult to store.
If you think this opportunity is just for major energy companies or funds, you’re wrong.
Here’s how it works. You buy a piece of land suitable for the generation of wind power and lease it to an intermediary who erects and pays for the turbines and then sells the energy to the energy company. Your cut is 1.5% of the value of the energy generated, plus an additional fee for the rental of the land that isn’t tied to the value of energy generated.
Doesn’t sound like much, but your cut from one turbine could be as high as $1,500 per month. One turbine can generate $100,000 worth of electricity every month in this part of Brazil. You’re locked in for 20 years, after which the turbines are removed and the land is returned to you in the condition the intermediary found it. All you need to do over these 20 years is cash your checks.
This idea was originally developed by the power company to utilize vast tracts of land held by Brazilians that they weren’t using themselves. The power company has conducted wind surveys along the coast, so it can make accurate projections as to how much power can be generated from a particular site…and, crucially, you can get its projections, and a letter of intent, before you buy a parcel of land.
The power company knows how much power a windmill will generate in a specific area, it knows how much it can sell that power for, and it knows how many windmills it can put up on your site. From that, the company can calculate what 1.5% of the power generated will be worth…and that’s your cut.
If you think a yield of 18.8% is too good to be true, you are also wrong.
In Brazil, where you’ll earn up to 13% interest per year on fixed, one-year bank deposits, an income opportunity paying out 18.8% a year isn’t so strange. And for a non-Brazilian investor, it’s a huge opportunity. Capital has a value here.
These potential wind farm sites are typically located two-and-a-half hours or more from the city of Fortaleza. Yields don’t stack up on more expensive land near the city. One 185-acre site I know about is exactly this distance from the city. This site has more than a mile of beautiful beachfront and the asking price is $2 million. The projected annual return from wind power based on that price is 18.8%.
The downside is that you do need to bring the land through the permitting process and, although you can sometimes negotiate special terms, you typically don’t start getting paid until the wind farm is in operation. Figure on this taking 12 to 18 months.
The risk with these wind investments is that the price of energy might go down (not likely any time soon, especially with the growing local demand, and the potential for energy-independent Brazil to export its surplus power), and that the wind will stop blowing (for the likelihood of that, just ask the kite-surfers who have been drawn here from as far away as Europe for the past 40 years).
This type of land has historically been bought for long-term land banking by Brazilians who figure that infrastructure and services will come, and the land will have increased capital value in 20 years. But now, while you’re waiting, your land throws off an income of 18.8% a year.
Click here to read more of Ronan’s articles about international real estate investment.