Currency play RE investing in markets like Brazil

[Account Closed]

With countries like Brazil experiencing an almost $6 Real to $1 US dollar exchange rate due to Covid, not to mention the drop in prices RE due to Covid, properties are looking very attractive.  I see great opportunities in tourist areas in European countries as well though the currency play is not as good as in other areas.  Curious what countries you guys are buying in right now?

[Mike Lambert]

JD, I totally agree. Mind you, Covid has only accelerated the historic fall in the Brazilian currency. Around ten years ago, I was looking at real estate in Fortaleza, where I was invited to participate in a private sale preceding the launch of a landmark pre-construction project on the city’s main boardwalk. At the launch, a typical seaview unit was going to be retailed at the higher price of 412,500 Brazilian Reais (BRL) at the time. At the exchange rate of the time, 1.65 BRL / USD, that came down to USD 250,000. Since then, those units have more than tripled in value to BRL 1,350,000! However, the price has actually decreased to 235,000 when expressed in USD! This is because the BRL has dropped from 1.65 to an all-time low of 5.74 over that period; the BRL has lost an astounding 71% of its value against the USD!

There are other countries that are in the same situation, like Colombia or Turkey. Colombia is a great market. Turkey is interesting too but it's higher risk.

Then, you can also benefit from the fall of the currencies of countries like Mexico, the Dominican Republic or Argentina even though North American standard properties are trading in USD. Indeed, the drop in the currency has a huge positive effect on the profit margins of the local developers. As a result, some of them have been offering very large discounts on their prices.

I also agree that there are great deals to be had in some European tourist destinations but for reasons other than the currency. Europe isn't per se a currency play, as the Euro has been strengthening against the USD over the last few years.

In my opinion, all the above mentioned countries and regions are worth investing in mainly for many reasons other than the fall of their currencies. And I wouldn't invest only because of the depreciated currencies. Indeed, a currency can go up or down. There is no law that says that a currency has to revert to its previous highs or even to the mean. And there's no guarantee that the currency isn't going to fall further. The USD has actually weakened a lot over the last few months and this hasn't helped the BRL.

There could be price drops related to Covid but that's not automatic. For example, even though Colombia has been affected very badly by the Covid situation, prices haven't come down and there are good reasons for that.

To conclude, it's a great idea to invest in these countries and the fall in some of their currencies is an additional reason to do so but it's far the only one. Also, successfully investing there isn't like shooting fish in a barrel. You need to educate yourself and know what you're doing or have people in your team who do.