THE SOVEREIGN SOCIETY OFFSHORE A-LETTER
Your Link to Freedom, Privacy & Prosperity in the Offshore World
Monday, December 20, 2004 - Vol. 6 No. 244
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In This Issue:
* COMMENT: Offshore Real Estate Investment & Management, 101
* OFFSHORE: UN Keeps On Smearing Havens. U.K. Setting Sun.
* WEALTH: Investments from Offshore. High Costs, Little Effects.
* PRIVACY & RIGHTS: Garbage in That 'Intelligence' Bill.
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Guest comment is by Lief Simon, editor of Global Real Estate Investor.
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COMMENT: Offshore Real Estate Investment & Management, 101
Dear A-Letter Reader:
Why buy real estate internationally? The best reason is profit potential. Repeatedly I've proven this in my own investments; for instance, the value of a house in Ireland I owned for five years increased 2 1/2 times during that period. A property I bought and resold on Spain's Costa del Sol returned about 35% annually for the 2 1/2 years I owned it.
But there are other reasons to invest in offshore real estate as well. It's an excellent hedge against the dollar, the US economy, and US stock markets. It's a hard asset. You can stand on it...and enjoy it, while it appreciates. Plus, international real estate is an easy way to globalize your investments. It also offers asset protection advantages; once you own property abroad, it's extremely difficult for a lawsuit-happy lawyer to find it, much less seize it.
I've been investing in global real estate for almost a decade now. Since 1996, I've bought, sold, and invested in more than a dozen countries.
And I manage a US$40 million global real estate portfolio. That's a substantial portfolio. But you don't need anywhere close to that amount of money to become a successful international real estate investor. But how do you begin? More importantly, once you decide to invest a specific amount of capital in offshore real estate, what's the best way to allocate that investment?
The fundamental rule here is the same as with other investments: diversification. You don't want to put all your eggs in one basket. In a global real estate context, this means don't put all your capital into one foreign market...or one type of property investment.
Furthermore, you should invest not only in different countries, but also in different currencies and, critically, in different types of real estate. I currently own or am buying real estate in eight countries. If one of these markets doesn't go the way I expect, the impact on my overall portfolio will be manageable. Further, my portfolio includes raw land, short-term rentals, resort rentals, off- plan buys (i.e., purchases in a development that is not yet complete and are thus available at a discount), and an investment in a small development.
The flip side of the diversification rule is that you don't want to spread yourself among too many countries. While theoretically this would provide tremendous safety, it has a downside. You have to remember the ongoing management and administration of each holding. For every country where you hold property, you need to understand the local laws related to real estate investment and ownership. You need to address the tax obligations. And sometimes you need to visit.
Generally, I recommend that you invest in countries where you travel anyway...or where you want an excuse to spend time. Enough theory. Let's get to specifics. Generally speaking, the minimum investment required for a foreign real estate buy is US$20,000 to US$50,000. To create a diversified portfolio, therefore, you need at least, say, US$50,000 to invest. If you've got US$50,000 to put into international real estate, buy:
* One off-plan development. Right now, the UK has deals requiring as little as US$20,000 down with no progress payments required. I consider this a medium-to-high-risk investment, because of the level of leverage, with the potential for extreme returns of 100%-400% in 18 to 24 months.
* One leaseback property in France. The French Leaseback, a government- sponsored program, was created to attract foreign investors to build tourist accommodation in France. In a nutshell, when you buy an apartment, you get a big discount (19.6%) off the purchase price, you enjoy up to 95% financing, and get guaranteed minimum rental returns for nine years (up to 6% of the purchase price per year). Right now, there is at least one development in Normandy you can buy into with as little as US$6,000, including closing costs, although you should consider better locations where you can expect better appreciation if your budget allows. You can find developments on the Cote d'Azur requiring as little as US$35,000 down to set up a break-even cash flow. Leasebacks are low risk, and with 25% down you can expect between 12% and 15% annualized returns over nine years. This small portfolio has both country and currency diversification, while also balancing risk and returns.
If you've got US$200,000 to invest, you should start with Portfolio A and add land in a market on the rise. I recommend:
* Santa Rosa, Nicaragua. This is best coastal land buy in Nicaragua right now. There's still time to act, although prices have risen more than 80% in the last four months.
* Baja California, Mexico. This region is seeing a lot of activity with new big developments in the works. The better of these developments near Cabo San Lucas have good growth potential.
* A development in a ski resort area of Argentina. These have good long-term potential for appreciation. Arelauquen near Bariloche is one development offering year-round amenities. Also look around San Martin de Los Andes.
In all these areas, you can buy lots with high appreciation potential for US$50,000 to US$75,000.
If you've got US$500,000 to invest, start with PORTFOLIO B and add rental income property. My top picks:
* Paris. France is the most visited country in the world. Its capital city has tremendous tourist traffic. Also of importance to the investor, you'll have no trouble finding a management company here, and you can arrange financing. Look mainly in the 5th and 6th arrondissements, but you can also find good options in the 4th, 7th, and 8th. Look for net rental yields of 6% to 8%. Annual appreciation has been averaging 10% a year. This will likely level off to 5% over the next few years.
* Croatia. The biggest downside here is that financing is not an option, though you can buy into this market with as little as US$50,000. Look for net yields of 5% to 7%, depending on where and what you buy. Appreciation should be strong over the next three years, especially, as Croatia continues to work toward entree into the EU. Look for a boost in prices when financing becomes widely available.
* Panama City. There is limited supply, growing demand, and property prices are low compared with potential rents. Net yields can be as high as 10%. Look for mid-priced one- and two bedroom properties in central locations in the US$80,000 to US$150,000 range. You can spend less, but to ensure high occupancy from foreign travelers, buy something nicer than the cheapest thing you can find.
Once you've established your base portfolio as outlined above, I recommend keeping some capital (US$20,000 to US$50,000) liquid so you can take advantage of time sensitive deals that come along.
Lief Simon
E-mail: lsimon@globalrealestateinvestor.com
Editor's Note: To learn more about global real estate investing, you can try a risk free trial subscription to Lief Simon's Global Real Estate Investor. To learn more, click on the link below:
LINK: http://www.agora-inc.com/reports/REL/WRELEC01/
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* FROM THE EDITOR'S DESK:
* OFFSHORE:
* UNITED NATIONS CONTINUES TAX HAVEN SMEARS
VIENNA: There's probably an unneeded UN office somewhere for almost everything, but until yesterday we had never heard of the UN Office on Drugs and Crime (UNODC) in Vienna. But this aubgroup continues the UN anti-tax haven smears of the past, citing a global treaty curbing government corruption as a new check on offshore financial centers. Get it? As the UN sees it 'offshore' equals crime and corruption. This UN theme has gone on for years, co-ordinated with the OECD, the G-7 and national tax collectors. But it takes some cheek for the UN to lecture the world on corruption when the UN Secretary General and his son are knee deep in the corruption and self dealing of the so-called Iraqi 'oil for peace' program where millions under UN supervision have disappeared. Before you knock tax havens, UN heal thyself.
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* THE SUN MAY FINALLY BE SETTING
NASSAU, The Bahamas: The old saying once long ago suggested that 'the sun never sets on the British Empire.' In the century since England was at the height of its imperial glory, one after another, its many overseas possessions have dwindled considerably. Now comes word that Tong Blair's UK is actually closing down 18 foreign missions and scaling back embassies and consulates to save cash. Among the closures; the British High Commission in The Bahamas.
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* WEALTH:
* DOLLAR DRIVES U.S. INVESTORS OFFSHORE
In last Friday's edition we noted the massive move of American cash from domestic to offshore investments. Now analysis of the flows shows this began soon after Pres. Bush re-election, spurred on by the free fall of the US dollar.
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* HIGH COST, LITTLE RETURN
LONDON: Anti-money laundering laws impose huge costs but generate few benefits. The London Times reports a new study shows that compliance burdens now account for 15% of total costs for UK financial companies, every pence passed on to customers in higher fees. Such costs might be acceptable if they produced a benefit, but there's no evidence that these laws have reduced either crime or terrorism. They have produced thousands more bureaucrats.
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* PRIVACY & RIGHTS:
* THE GARBAGE IN THAT 'INTELLIGENCE' BILL
WASHINGTON: The bill title says it's about 'intelligence reform' and then states it is also 'for other purposes.' Does anyone in Congress every read those other purposes? Buried in this monstrosity is the blueprint for everything from national ID cards to possible internal passports, travel checks, police roadblocks, nationalized birth records and personal dossiers files on each and every American.
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OFFSHORE LINKS:
* Tax havens to face new UN code on corruption. LINK:
http://news.independent.co.uk/business/news/story.jsp?story=594453
* Britain to close to High Commission in Nassau.
LINKS: http://www.caribbeannetnews.com/2004/12/17/close.htm
http://www.thenassauguardian.com/national_local/295693296416386.php
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WEALTH LINKS:
* Dollar doldrums turn US eyes overseas. LINK:
http://seattletimes.nwsource.com/html/businesstechnology/2002123926_pfoverseas19.html
* Anti-money laundering laws impose huge costs. LINK:
http://business.timesonline.co.uk/article/0,,9063-1406264,00.html
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PRIVACY & RIGHTS LINK:
* National ID Red Alert! What's in that intelligence bill.
LINK: http://www.lewrockwell.com/yates/yates99.html
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* Learn how to slash your taxes...build an iron wall of protection around your assets...create a lasting legacy of wealth. Find out more in our print publication, The Sovereign Individual. Click here:
LINK: http://www.agora-inc.com/reports/SVS/WSVSECFF/
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THE SOVEREIGN SOCIETY OFFSHORE A-LETTER.
* Bob Bauman, Editor * Daniel Aponte, Jr. Editorial Asst.
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