How To Minimize Currency Risk When Investing Overseas

When it comes to property buying, I’ve had a love-hate relationship with foreign currencies over the years.

My first currency hero was the Brazilian real.

I bought a property on the beach in Brazil as the market was trending upward.

After just nine months, I sold it and realized a 28% gain in Brazilian real terms.

Not bad.

But in dollar terms, my 28% gain turned into a 78% gain.

Thanks to the strengthening Brazilian real, I got a lot more dollars back when I exchanged my reals. That’s a huge bonus, and I did absolutely nothing to earn it.

Currencies: there’s no easier way to make money, I told myself.

But then there’s Uruguay… my first currency villain.

When I first visited Uruguay, I fell in love with its first-world environment, honest culture, and super infrastructure. And at an exchange rate of 34 pesos per dollar, life there was an amazing bargain.

In fact, I finished my first article on Uruguay with the words “…and best of all, it’s cheaper than Ecuador.”

A couple of years later I moved to Uruguay full-time, and by then the exchange rate was only 25 pesos per USD. This drove my cost of living up by 36% in dollar terms. The cost of living was no longer “cheaper than Ecuador,” but it still wasn’t bad.

A few years later, the Uruguayan peso was down to about 18.5 pesos per USD.

At that exchange rate, based on exchange rates alone, my living costs in dollar terms had gone up by about 84% in less than eight years.

That’s a big change for someone whose income is in dollars. Instead of being “cheaper than Ecuador,” it was now more expensive than Vermont.

Currencies, I told myself, there’s no easier way to lose money, and it’s out of my control.

And the Uruguayan roller coaster ride wasn’t over yet.

The dollar subsequently reversed course, giving dollar-holders an amazing 250% increase in buying power.

Since that time, the Colombian peso worked against me… while the Mexican peso added to my earnings.

The moral of the story is this: When buying and managing property abroad, you need to either accept the risk/reward of a foreign currency (for at least part of your portfolio) or deal in your base currency.

If you want to avoid the foreign currency risk—and the stress of the volatility that comes with it—then you should stick to the dollar-based markets.

When it comes to minimizing your currency risk, there are three versions of “dollar countries”:

1. Countries that use the U.S. dollar as their currency across the board.

The most popular of these would include Ecuador, Panama, and El Salvador (who also uses bitcoin).

This category is the most secure, since all expenses will be in dollars, and these countries don’t print their own paper money.

2. Those whose currency is pegged to the U.S. dollar.

Examples would include The Bahamas, Bermuda, Belize, and Hong Kong. This is almost as good as a real “dollarized” country, because again, 100% of your expenses will be stable in dollar terms.

3. Countries where real estate trades in U.S. dollars, even though they have their own sovereign currency.

Examples here include Uruguay, Nicaragua, Costa Rica, and Peru, and sometimes Mexico, among many others.

You’ve got plenty of options around the world if you want to invest in properties priced in U.S. dollars. Here are a couple markets you should think about…

Panama

In Panama City, my favorite area for investment right now is a newly planned and recently developed sector called Costa del Este.

Costa del Este is the city’s only urban-planned sector, so you won’t find the typical Central American chaos in the sector’s design. The neighborhood is laid out in an organized fashion, with wide streets and underground utilities. The construction is recent, and high end.

I like it because it’s new… it’s nice… and it has good amenities, with tasteful shops as well as fine restaurants and cafés.

But best of all, it’s only 7.5 miles from the international airport (12 kms). It’s perfect for the business traveler, or people who want to rent to business travelers. There’s an abundance of property options, many with beautiful ocean views.

If you want to get to the “mature” part of Panama City, the western end of Costa del Este is connected to the downtown by a 1.5-mile (2 kms) causeway that will have you there in minutes.

My favorite investment right now in Costa del Este is Generation Tower. It will operate as a luxury condo hotel suitable for executive stays, conferences, or residents who want to enjoy hotel-style amenities. Prices start at a reasonable US$215,000. You can learn more about Generation Tower here.

Another good choice in Costa del Este is the Nogal project. Also rich with amenities, I like this one better for long stays or full-time living due to its larger units. Prices here start at US$288k. Get more information on Nogal here.

Both of these projects permit short-term rentals… a rarity in Panama City.

On Panama’s coast, investors often head to the areas around Coronado, Chame, and Gorgona, as these markets are the best performers for beach properties.

Collectively, we usually refer to these as the “Panama City Beaches,” due to their proximity to Panama City and the airport.

This area started its popularity with Coronado, and the entire area is still sometimes (erroneously) labeled as Coronado. But as you’ll see when you visit, there’s a lot more going on there than just Coronado.

The most populous area is between Chame and Rio Hato… you’ll find a lot of rental action there. In the heart of this area is the beachfront Royal Palm project, with a handful of turn-key apartments still available. They have a couple of special offers.

One has a cash-only price of US$159k for a one-bedroom unit. For a US$200k package deal, you can get a fully-furnished, ocean-view unit, ready to rent, along with permanent residency in Panama. Financing is also available. You’ll find the details here.

Another bargain-price, limited-inventory deal is at Casa Bonita, located just outside the city at Playa Bonita.

The apartment is a spacious 107 square meters (1150 square feet), with one bedroom and 1.5 baths. It’s in a luxury building with views of both the ocean and the Panama Canal.

The developer has a promotional cash-only offer of just US$275,000 for this one-bed unit. Two and three-bedroom units are also available, and financing is available. Learn more here.

Belize

Ambergris Caye is my first choice as an investor, since it gets most of Belize’s tourism visits and expat traffic.

On Ambergris Caye, I’d stay within a short distance of San Pedro Town, with its abundance of restaurants and shops… not to mention the airport.

The Marriott Residences project is a Marriott-branded, high-end condo hotel, right on the waterfront, and a close walk to San Pedro Town.

In addition to enjoying the beach here, I took a snorkeling trip from their dock, and experienced some of the best reef snorkeling I’ve ever seen.

Offering studios, one-, two-, and three-bedroom condominiums, this sophisticated resort sits directly on a white-sand beach with turquoise-blue Caribbean waters. The old world, British Colonial design echoes Belize’s rich British heritage.

Of the condos offered for private ownership, prices start at US$319,900 and go up to almost US$900k. Take a look here for more about Marriott Residences Belize Ambergris Caye.

If you’d prefer to shop the island-wide open market, contact my friend Rachel, who has been immersed in the market here for the past 10 years. You can get in touch with her here.

Sincerely,

Lee Harrison
Contributor, Global Property Alert