Live & Invest Overseas (Brazil)
Brazil Property Market Case Study--Big Upside Potential But Unique Challenges
April 17, 2013
By Kathleen Peddicord, Live & Invest Overseas
http://www.liveandinvestoverseas.comhttp://www.liveandinvestoverseas.com/read-2013-articles/how-to-invest-in-real-estate-in-brazil-17april-2013.html
"Two experts walk into a bar….(stop me if you heard this one)?….."
Ok, just the punchline: "If you can, do. If you can't, teach."
This article describing property investment in Brazil by the founder and publisher of Live & Invest Overseas, is excerpted from the company's just-released book, "How To Buy Real Estate Overseas," LIO is a seminar and publishing empire with a widely-circulated newsletter similar to "International Living" (IL) from which it sprung. (I first subscribed to the print version of IL in the early '80's). Both companies target neophyte American expats who need a nudge to make 'the big move'.
Cautionary advice also is not lacking. Part of what experts are paid for is to promote what they (think they) know. Then find a way to extract a profit.
Then there's the cautionary advice. There is no point to promoting countries the Company does not or cannot easily sell at a profit. From LIO's latest, "Brazil's….(euphemistically)... unique challenges":
Caution #1: Brazil: "tricky (country)"
Trickier than Mongolia, Costa Rica, USA...? No examples of specific trickiness are given- either first or second hand. Who would know? LIO staff apparently speaks no Portuguese and has made a couple, brief trips from home in nearby Panama to Fortaleza and surrounding. The Northeast is Brazil's overhyped, tradionally poverty-stricken area, closest to the US and Europe and ripe for the plucking. Would they know more about property "investment in Brazil" than, say, Brazilians who speak no English- but have visited Orlando and like Hollywood movies?
Caution #2: "Americans often don't speak Portuguese."
True, and…? Life who cannot speak the language where they live is like swimming without getting wet.
Still, we are assured that, "Brazil is a difficult country for anyone who doesn’t speak Portuguese….. for the small investor". A "small "investor myself, I have found the language no obstacle. Neither "difficult" nor "complicated". Nor have a great many others.
Portuguese, a "problem": Hmmm…. Americans don't usually speak the languages of many of the countries LIO likes to promote, e.g. France, Panama, Colombia, Equador, Uruguay, etc.
For those who speak something of America's second language, Spanish, Portuguese is no more difficult.
Monoglots should raise their game a bit. Would you, or could you, live in the USA without speaking English? A few do- and even fewer do well. The language of the country is more than an advantage presumably unavailable to "most Americans". The language is simply essential to understand, enjoy and prosper. It is primary window on a culture, its people and the place we hope to call home for some time to come.
My three children graduated from the American School in Rio de Janeiro (EARJ), the highest rated K-12 school in Rio. From this, we learned American multinational corporate executives, US military attachés, etc tend to depend on multilingual drivers, majordomos, the consulate, English language schools and expat support networks where "everyone speaks English". With some reason: Typically, they will be 'in country' for only a few years, then reposted elsewhere. With such a short stay, they feel little 'need' to learn the language.
Resident expats are another story: Do those who will spend a good part of each year for many years really need to learn the language, if only a part? If course, unless they want to remain irrevocably isolated from the people and culture of the country where they live.
Does this compute?
Compared with most nationalities, Brazilians do their best to make it easy for non-Portuguese speakers. The do not allow their lack of English to stand between them and their visitors. That few of the 200 million Brazilians speak English is an odd comment. (Makes a much sense as Brazilians surprised that "even Caribbean children speak English!") Of course they don't. It's Brazil, why should they?
The reality is most of the professionals we need we locate in major cities. Professionals, unlike most Brazilians- often do speak some English. Accountants, real estate agents, car dealers, contractors, lawyers, despachantes (fix it men are a ubiquitous feature of Brazil), architects, health professionals, etc, etc.
Just ask Doug Casey (the "International Man" site) about Brazilians' familiarity with English:
http://www.internationalman.com/78-global-perspectives/131-common-reasons-for-staying-put?acm=7288_96
"Almost anyone who is anyone, and the typical school kid, has some grasp of it…some grasp is often all that is required to engage with the locals." Isn't it time to get moving, ourselves/
Caution #3: "Currency exposure"
"The buyer in Brazil has to navigate constant fluctuations of the currency exchange rate, in this case between the real and the U.S. dollar… Brazil imposes exchange controls,"
"Fluctuations"? Another odd comment?
(1) Most of the countries LIO promotes as expat havens one way or another employ floating currencies. One of the few that doesn't is Panama (USD = Balboa). Panama, you guessed it, is heavily promoted by LIO.
(2) The 'real' currency exposure is not the Brazilian Real/BRL. It's the decadent Dollar. For more than a decade the Brazilian Real- along with many other emerging country currencies- has not only not declined in value against the Almighty Dollar. It has significantly appreciated against the USD. This is the kind of..."exposure" that has made lots of money for immigrants from
the USA.
Although the article carefully points out that currencies can go either way, concerns about exposure to foreign currencies are in a post-WWII time warp.
Old myths die slowly. To reject them may be inconvenient for both message and sales. What we need are facts.
(3) "Exchange controls".
Yes, they exist- and fluctuate. As in Europe, including the Parisian real estate market that LIO enthusiastically promotes.
And don't look over your shoulder: US Controls are on the way. Ask Paul Krugman. Ask Peter Schiff. Ask Bernanke and the Fed.
Caution #4: "Very low down payment"
"...developers offering financing with a very low down payment. This presents a great and unique opportunity for leverage; it also creates its own set of risks."
"They won't take cash? Force me to finance 40%, 60%, 80%- or more..? Shocking!"
Funny. I always assumed buyers anywhere assess the personal advantages and disadvantages of financing property purchases based on their situations. They don't…?
Caution #5: Off-plan "Discounts"
"Early buyers had bought for 15% less than the initial public price."
Another odd one. For a company promoting real estate, palm oil and coffee plantation schemes, etc, etc, LIO seems unaware developers offer discounts at "off-plan" project launch (prior to breaking ground) with gradual, built-in (no pun) price increases on future sales. The idea is of course to create cash flow at probably the developer's most challenging financial moment. Notwithstanding LIO's squeamishness about increasing prices benefitting early buyers, they benefit early buyers with a form of guaranteed appreciation. In other words, developers promise successive units will be sold at successively higher and higher prices.
What's not to like? The 'early bird' should get the worm.
Caution #6: Buy what you like!
Even if return on your investment is poor, at least you'll get what you like and "have fun".
Did you need to be told?
Caution #7. The advantage of visiting, first. "On the ground", in the LIO jargon:
"Discovering good local deals is much easier if you've got time for firsthand exploring. And firsthand exploring can be a big part of the fun. That's a successful real estate investment overseas"
Yep. Better to take a look than not to take a look. And more "fun", and….
Sigh.
"Say, have you heard the one about the two real estate agents....?"
Small countries like Panama, Uruguay, Argentina, (Paris), Nicaragua, Equador with bite-sized economies and currencies of little use in international trade are always more volatile.
They are riskier medium to long term bets than large ones (BRICS, Brazil, India, China, USA, etc.) But from the point of view of the 'destination-selling company' easier to visit, research, digest, become an expert in and catalog for readers awaiting their marching orders.
Why do I get the feeling LIO does not 'like' Brazil? For one thing, it's a whole lot easier to sell the Next Big Thing. As long as it is small and easily digested.
