There are four reasons for you to think about related to global real estate investing. Global real estate investing offers exposure and diversification that you do not obtain in your home country. And obtaining multiple levels of diversification is a goal that all real estate investors should be striving for.
Geographic Diversification
One way that global real estate offers you diversification is through geographic diversification. Investing in global real estate gets you exposure to assets in other markets that may have different demand drivers and built-in diversification that you may not fully obtain in your home market alone.
Economic Diversification
A second way that global real estate provides you with diversification is that you get economic diversification. Economic diversification occurs because the economic drivers in the foreign market are likely different than the economic drivers in your home market.
For example, I have invested in the US, Panama, Australia, Colombia, Brazil, the Netherlands, Italy, Portugal, Estonia, Latvia, and Romania. Each of these markets is different than the other.
Even though six of the countries are based in Europe, the drivers are not necessarily the same across all of the different countries. Four of the countries are in the Americas, but the drivers are different.
In markets like Panama, the economic driver is largely based off services (80% of GDP), which includes the Panama Canal, Colon Free Trade Zone, insurance, banking, commerce, medical, and tourism.
That’s a different driver than a market like Colombia that is well diversified as the 4th largest in Latin America, but that is heavily dependent on agriculture, mining, manufacturing, government, and financial services.
Brazil is a large economy with 67% of GDP derived from the services sector, 27.5% derived from the industrial sector, and 5.5% of GDP from the agricultural sector.
Brazil is probably a lot closer to the US due to the size of the economy and how well diversified the country is.
The Netherlands is a smaller representation of a highly diversified economy that has expertise in a number of different areas. The Netherlands’ GDP is 70% derived from the services sector, 18% derived from the industrial sector, and 2% of GDP from the agricultural sector.
Currency Diversification
Investing outside of your home country also gives you a third benefit of having currency diversification. Not everyone cares about currency diversification, but it can enhance your yields. Currency diversification can also enhance risk if you don’t have a need for that particular currency at that moment in time.
One example of this for me is that the majority of my business is conducted in US dollars and Euros.
However, I have invested in 11 countries in the past and I am currently invested in 8 countries. The US and Panama use the US dollar. The Netherlands, Italy, Portugal, Estonia, and Latvia use the Euro. And I am additionally invested in countries where I do not regularly need access to the currency, such as in Colombia, which uses the Colombian Peso, Brazil, which uses the Brazilian Reai, and Romania, which uses the Romanian Leu. And Australia uses the Australian Dollar, which I don’t need regularly.
Regardless, I get exposure to different currencies.
My exposure to the Colombian peso is both a pro and a con. When I first invested in Colombia, I had the situation where the Dollar was strong, but then weakened against the Colombian peso, so I had made artificial profits on the money I had invested.
Since COVID-19, the Colombian peso has weakened against the dollar. I received a distribution on an investment in Colombia and opted to keep the money in Colombia rather than convert to USD because I would have taken a 15% hit on my expected return, which was not worth it to me. Therefore I’ve lost those artificial gains in the short term. That’s not an issue for me, as I don’t need the capital, but in the long term, I would like to see the Colombian peso strengthen against the dollar again, so that I may have an opportunity to sell my interest for profit.
Personal Benefits
A fourth benefit to investing in global real estate is personal. For me, I love traveling. I enjoy seeing new places. I like experiencing new cultures. And when I’m invested in a particular country, I have the ability to travel to those places where I’m investing or where I have a business interest.
I am able to benefit personally by getting to visit my properties and I’m also able to benefit financially. That is because I am spending money to get to the physical location, so I have the added tax benefit since it is a business expense that I can write off.
I have done research in a lot of other geographic regions to determine both my interest level personally and from a business perspective to invest in certain markets. There are markets that I like a lot that I have not invested in. Part of the reason is that I don’t see myself visiting the geographic region often enough. Part of the reason could be that I don’t see enough profit potential in the deal. And part of the reason could be that either the economic drivers, governmental restrictions, or financial constraints imposed make it difficult to determine the viability of the investment.
On the other hand, Colombia and Brazil both make investing more complicated because there are a number of forms that need to be filled out prior to making the investment. And upon a sale, additional forms need to be filled out in order to sell the asset to get the return of your capital.
Geographic diversification, economic diversification, currency exposure, and personal benefits are the four primary reason why I invest in global real estate, and those are four reasons why you should consider global real estate investing too.
Let’s continue growing our cash flow and next worth together!
Robert