Global Real Estate Investing Gone Wrong
True Confessions And Lessons Learned—The Biggest Investment Losers Of Our Career
Sept. 24, 2009
Panama City, Panama
PLUS:
- Cheapest City In Ecuador (But Would You Want To Live There?)...
AND:
- Lucy's Secrets For Finding The Perfect Rental Overseas...
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Distress sales in one of Europe's most popular beach resort areas, where families from all over Europe continue to vie for vacation rentals every year. You can buy here right now at discounts up to 40% off, even with financial incentives including cash back and no money down...
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Simply put, sellers and developers worldwide are more willing than they've been in two decades to negotiate terms of purchase with you.
Learn More here
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Dear Live and Invest Overseas Reader,
"What about Lief's deals that didn't perform as projected?" wonders a reader after reading my report earlier this week on "The Science and Art of Global Real Estate
Investing," in which I share the secret to our most successful plays in more than a dozen years of investing in real estate around the world.
On the other hand...
Our biggest loser was an investment in the U.K. pre-construction market. We bought in to a market we didn't understand well enough based on the recommendation of a guy we believed knew what he was talking about but who, it turned out, had no idea. We didn't do enough independent due diligence, and we didn't visit the site before buying. This was an instance when we bought for investment only. Therefore, when the investment went south (big time), the buy was worthless to us, because this was not a part of the world where we had any interest in spending time. Meantime, the asset lost value, and the rental income didn't cover the nut.
Lesson learned? Don't buy on a tip without carrying out due diligence of your own to back it up.
Lief would report a second big loser--a lakeside house we bought in Nicaragua. Here, the developer didn't hold up his end of the bargain as we'd understood it, and, because we owners hadn't insisted on a formal Home Owners Association (HOA) from the start, we had little recourse when our expectations weren't met. A series of battles ensued, owners arguing with each other and with the developer and his representatives. Meantime, the property fell into disrepair, and, then, Daniel Ortega was re-elected as Nicaragua's president, pulling the rug out from under this country's real estate market. More arguing, more property neglect. Finally, what we'd bought as a resort rental was no longer rentable (or even habitable). This, though, became a moot point as, with Sandinista Danny back in office, there was little call for resort rentals in Nicaragua anyway.
As I said, Lief'd tell you that this is our second big investment loser. I take a different position. Certainly, the experience hasn't gone as we expected or hoped. The market in Nicaragua has taken a beating (thanks to both Ortega and the general global slowdown), and our asset is worth less than we paid for it. I recently convinced Lief to invest further, nevertheless, and we've just finished carrying out the work of restoring the house to make it again habitable and rentable. Still, though, resort renters are thin on the ground in this country. We won't see any real rental return anytime soon.
So why would I argue that this investment, unlike Big Loser #1, shouldn't be written off? More to Lief's point in recent conversations, why in the world would I want to invest further in the property?
Because, unlike Big Loser #1, this lakeside house is a place I look forward to visiting with the kids. I don't mind holding (even investing further), because I believe the Nicaragua market will come back around. And, meantime, I'll see a return. Not one Lief can plug into his spreadsheet (and not one, as Lief points out, that flows any cash our way), but a return I value nevertheless. The house, now that it's been restored, is charming and comfortable. It's in a special setting and boasts beautiful views. I enjoy any chance to spend time here, hiking in the surrounding hillsides and swimming in the warm lake waters, as do Kaitlin and Jack. That's worth something, isn't it?
Of course, it'd be better if this personal return were matched by a financial one. Lesson learned? Don't buy into a development community without an HOA in place to address important owner issues.
These are the two investments we least enjoy speaking of, the two sorest spots.
Of course, there have been others that haven't returned the yields we hoped for, that didn't appreciate according to our projections, or that proved illiquid when we wanted to exit. But, in these cases, we've still been able to realize a respectable enough return, though perhaps not the one we imagined at the outset. In one case, we're in the process of swapping shares for lots (which will be more liquid). In another, a development project we invested in is not proceeding as expected, yet we hold title to associated land with potentially enough value to make us more than whole.
The lesson here is that, sometimes, you've got to get creative. Investing in international real estate isn't the same as buying stocks or options--it's far more flexible in some ways, and it gives you, the investor, more control. Investment not working out as you planned? Make a new plan.
Lief will share other True Confessions during his Global Real Estate Profits Summit in Panama City next month.
When you see him there, please don't ask him about the house on the lake in Nicaragua. As I said, it's a sore subject...
Kathleen Peddicord
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"A reader wrote in recently, Kathleen, to ask for recommendations for how to find affordable rental accommodation overseas," writes France Correspondent Lucy Culpepper. "I've had more than my fair share of experience at this recently and have some insights that may be helpful.
"In May 2008, I embarked on a 'world' tour with my husband and our two children. We were on a mission to find a new place to call home.
"We flew from Spain, where we had been living for seven years, to Cancun, Mexico. We spent the first week in a hotel, attending a conference, before starting out on our long search for a new country. After the first lazy week, we rented a car and drove to a rental property in Progreso, near Merida, on Mexico's Yucatan Peninsula. We'd found the property by searching and scouring the web and spending time talking to owners.
"However, although the house was clean and spacious, we found far better options when we got there. It taught me the lesson to make a definite wish list and to be serious about sticking to it. If a property does not check off enough of the 'desirables and essentials,' move on to another one.
"In Progreso, our rental did not have a pool. We thought the sea would be enough, as it was 100 feet away, but we arrived to find a red tide and dead fish were floating everywhere. Certainly not a place we wanted to take the kids swimming. Luckily, we found a helpful and kind Canadian couple that had just started an apartment rental business. They gave us free use of their pool. If you are contemplating the Yucatan, I recommend checking their website for availability: www.vacationrentals.com.
"After oppressively hot Progreso and Merida, we turned our sights to the cooler climes of highland Panama and El Valle de Anton. I found an online real estate agent in El Valle who, by chance, had a friend going back to the United States for a vacation and was happy to rent his house to us. Pool, garden, office with internet connection, lots of space, and located in what I came to refer to as 'Heaven on Earth.' (You can read more about El Valle in my full Country Retirement Report, available here.) From this base, we spent six weeks exploring the area and living among the local population.
"From El Valle we went by bus (15 surprisingly enjoyable hours!) to the Central Valley of Costa Rica. We knew we didn't want to be in San Jose but close enough to explore schools and life in general. We found Norma's Villas (www.normasvillas.com) after a brief search and knew straightaway that it would be perfect for us. We stayed for two months.
"We left Costa Rica for family reasons and headed to the States, where we also rented a house (in Ashe County, northwestern North Carolina). We almost fell for the ease of living in this country but finally decided to go back to the Old World. Ultimately, we've decided to base ourselves in France. Again, here, we rented a quaint village house in the village of Cessenon-sur-Orb, in the Languedoc region, for two months before making a final decision to stay. Finally, I could unpack the bags! (You can read more Cessenon and the Languedoc in my Country Retirement Report, available here.)
"Everyone's needs and wants are different, of course. That's why I encourage anyone setting out for a new country to make a list of what's important to him. You might find what looks to be the perfect place except that it doesn't have, say, an Internet connection. If that's important to you, don't be tempted. You could end up very disgruntled and frustrated. Our Internet connection in Mexico was dependent on the neighbor's router. She turned everything off when she went out, which left us stranded. No good if you're in the middle of an important banking transaction!
"Still, it was better than staying in a hotel where we wouldn't have had the opportunity to mix with the locals. That's what makes or breaks a place for me. It's not just the climate or the scenery. Even those things can get old if the people around you are inhospitable to newcomers."
"From my experience living in this country, there are other cities in Ecuador where the cost of living is even less expensive than in Cuenca."
-- Christoph W., Ecuador
We recommend Cuenca, Ecuador, as the most affordable place you'd want to live in Latin America. Other places may be a bit cheaper, including, as you suggest, dear reader, other places in Ecuador, but you'd be removed from the conveniences of a city, you wouldn't have access to certain services, amenities, and conveniences that make life comfortable, and your standard of living might be reduced.
In Cuenca, you could live well, perhaps better than you're living now. Your life could be enriched, your breadth of experience expanded. All at an almost unbelievably low cost. We'd say that Cuenca amounts to the world's best quality of life buy for the money.
You can review our editor's detailed budget for living in Cuenca here. |
