HOW TO INVEST IN REAL ESTATE IN BRAZIL 
HOW TO.... go elsewhere?

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 it)….."

OK, skip to punchline:    "If you can, do.   If you can't, teach."    

The 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 was born.   I first subscribed to the print version of IL in the early '80's).   Both companies target neophyte American expats in need of a nudge to make 'the big move'.

Part of what experts are paid for is optimism, advice to promote what they know.   And find a way to pay the bills and extract a profit. 

There's also the cautionary advice.   No point to promoting countries the company does not or cannot as easily sell at a profit.   From LIO's latest, a euphemistic title:  "Brazil's unique challenges":

Caution #1:   Brazil:  "Tricky"

      Trickier than, say, Mongolia, Costa Rica, USA, or....?   No examples of specific... trickiness are given- either first or second hand.   And who would know?   LIO staff apparently speaks no Portuguese, making only a couple, brief trips from nearby Panama to Fortaleza and environs.   Fortaleza and Natal, the currently overhyped ripe for the plucking Northeast-  historically, Brazil's most poverty-stricken area, but conveniently closer to the US and Europe than down sout.   A real estate 'bubble' in the making.   We can be sure they know as much about "property investment in Brazil" as, let's say, Brazilians who speak no English but have visited Orlando.

Caution #2:    "Americans often don't speak Portuguese."    

True... and?   Non-speakers living in a culture is like swimming without getting wet.   Existence in a foreign vacuum.   Not impossible, just difficult.  Not to mention unrewarding.

Despite how obvious this seems, we are nonetheless admonished , "Brazil is a difficult country for anyone who doesn’t speak Portuguese….. for the small investor".   A "small "investor myself, the language is neither "difficult" nor "complicated".  For me- and for many others like me.

But Portuguese is a "problem"?   Strangely or not, Americans also do not speak the languages of most of the countries LIO promotes, e.g. France, Panama, Colombia, Equador, Uruguay, etc.   

For those who know a little of America's second language, Spanish, Portuguese is no more difficult.   

Monoglots need to raise their game just a bit.    Would you, could you, live in America without speaking English?   A few do.   Even fewer do well.   The language of the country is more than an advantage unavailable to "most Americans".   The language spoken locally is beyond essential to communicate enjoy and prosper.   The primary window on the culture and its people.  And on the place we hope to call home for many years to come. 

Our three children graduated from The American School in Rio de Janeiro (EARJ), one of the best K-12 schools in Rio.   We found that American multinational corporate executives, US military attachés, etc often depend on multilingual drivers, majordomos, the consulate, English language schools and expat support networks where "everyone speaks English".   With some reason.  not a lot-  some:  Typically, they will be 'in country' for but a few years until they are reposted elsewhere.  In the country so briefly, they feel no real 'need' to learn the language despite the advantages it can provide.

Resident expats have a different challenge:   Do those who plan to spend a good part of each year for a lifetime need to learn a bit of the language?   Is this a real question?   Of course they do.   Unless they wish to remain in an alien cage, irrevocably isolated from the people of their new home.

Make sense?

Compared with most nationalities, Brazilians tend to do their best to make things easy for non-speakers.   Typically, they do not allow their lack of English to stand between them and visitors.   That few of the 200 million Brazilians speak English is a strange comment.   Makes a much sense as, apocryphally or not, Brazilians are surprised "even Caribbean children can speak English!")   Most Brazilians don't speak English.  Why should they?   Most new immigrants to Brazil don't speak English, either.   They should.

The reality is that we normally locate the professionals we need in major cities.    Professionals, unlike most Brazilians- often do speak English.   Accountants, real estate agents, car dealers, contractors, lawyers, despachantes (fix it men, an ubiquitous feature of Brazil), architects, health professionals, etc, etc. often need to.  

Just ask Doug Casey (the "International Man" site) about Brazilian 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 (English)…some grasp is often all that is required to engage with the locals."    

Time to get moving, ourselves, don't you think?

    

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 one...

    (1)  In one way or another, most of the countries LIO promotes as expat havens employ floating currencies.   One of the few that doesn't is Panama (USD = Balboa).   Panama, was you may have guessed, 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 the currencies of many other emerging countries- has not only not declined in value against the Almighty Dollar.   It has significantly appreciated against it.   This is the kind of exposure that has made lots of money for immigrants from the USA.

Although the article carefully points out currencies can go either way, worries about exposure to foreign currencies are in a post-WWII time warp. 

Old myths die slowly.   And to reject them may be inconvenient for the message as well as sales.   

     (3)   "Exchange controls".   

          Yes, they exist- and yes, they do fluctuate.  As in Europe, including the Parisian real estate market that LIO enthusiastically promotes.   

But 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?   They'll force me to finance 40%, 60%, 80%- or more..?   Shocking!"

Funny.  I always assumed buyers anywhere appreciate the advantages of financing property, while weighing possible disadvantages.   Isn't this what we do?

   

 Caution #5:   Off-plan "Discounts"

     "Early buyers had bought for 15% less than the initial public price."

      

Another oddball comment.   For a company that promotes real estate, palm oil and coffee plantation schemes, etc, etc, LIO seems unaware discounts at "off-plan" project launch (prior to breaking ground) are offered linked to gradual, built-in (no pun) future price increases.   The idea, of course, is to create cash flow for the developer at perhaps the most challenging financial project moment.   Notwithstanding LIO's squeamishness about the benefit to early buyers of increasing prices (?), early buyers also benefit from continuous, guaranteed appreciation.   In other words, developers promise successive units will be sold at successively higher and higher prices.  

What's not to like?  Should not the 'early bird' 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, like, "have fun".  

        Do we really need the assurance?

Caution #7.   The advantage of visiting, first.   "On the ground", in 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 take a look than not take a look.   More "fun", too, and….

        Sigh.

"Have you heard the one about the two real estate agents....?"

Small countries like Panama, Uruguay, Argentina, (Paris), Nicaragua, Equador with tiny economies and currencies of little use in international trade are always more volatile than big ones. 

They are riskier bets, medium to long term, than large ones like the BRICS (Brazil, India, China, S. Africa), the USA, etc.    But at least from the point of view of the 'destination-sales company' small ones are far easier to visit, research, digest, turn 'expert' in for a readership awaiting marching orders.

Why do I get the feeling LIO does not 'like' Brazil?   For one thing, it's far easier to sell the Next Big Thing.  As long as not too big, and not too difficult for the experts to digest.