International investing

Why would you want to do this?

Going outside of borders of your own country can bring you many advantages. When the market is down in one place, it might be up in the other one. Same goes for risks – if it’s risky in one place, situation might be better somewhere abroad.

Investing abroad also helps you diversify. 

When talking about investing abroad thought that comes to mind first, is usually real estate. Real estate is very geographically specific. 

One city can be very different than the other one in the same country, you can also get one district or even street that performs better than others within the city. 

There are many advantages that you can get by investing in other parts of the world 

People get the best possible deals is when the market goes down, and they come from abroad with money and invest in the country where the market is down. 

Think about the housing market in the US in 2012. Many people got awesome deals on real estate in that time. 

If you are an American it didn’t make much sense to go and invest in Realestate abroad at that time, you had all the best deals right in your country. Not just that, you understand the domestic market better, you have better access to capital, etc.

However, today in 2020. situation might be slightly different. 

Markets are at the historic highs. Is there a reason to believe that stocks are about do go down? What about bonds?

Yes! There are many reasons to believe that this might happen soon. 

Why not look beyond your country at this point. Maybe you could find bonds that will pay 10% abroad. You can get solid corporate or bank bonds in some countries. 

Challenges when investing abroad

Recently I was looking at a deal in Africa. It was investment in a stone crushing business in Ivory Coast. 

What is the problem when it comes to looking at those markets?

Well, the biggest one is that you’re in a situation where many things that you take for granted in, let’s say Canada or the USA, you cannot rely on in those places. 

You can’t rely on the fact that they have the rights to use the land there, you can’t rely on the fact that there won’t be some serious government corruption or usurpation, etc. There are so many unknowns in this situation that it makes stuff extremely complicated. 

You simply don’t even think of all the possible things that could go bad in such places, because they usually don’t happen in the first world countries. 

We are not saying that there is no money to be made in such places. There is, that’s for sure, but you will need to make sure you do a good job with due diligence when thinking about investing. 

Right now I’m looking at the deal in Hungary. Hungary is not as robust nor refined as the US, the access to information is not nearly as good.

For example, there is sophisticated credit scoring in the US that doesn’t exist in many other places. You would have easier time evaluating your risk in the place where they have credit scores. 

The other question that comes to mind is legal framework. If it turns out that things go wrong is there something to protect you? If so, how?

Good thing is that Hungary is decent and stable market, so I don’t expect to have many problems here. 

However, it is important to keep in mind that this is a different legal system and different language, which makes things more complicated. 

Be aware of currencies

Another thing to consider would be currency risk. The currency could go up relative to currency in your home country, or it could go down. 

You could make or lose more money than expected. 

When the local currency goes down it’s always appealing to foreigners to come and invest in real estate, because they can get the best deals. This happened with the Chinese in Vancouver when the Canadian dollar fell. Suddenly real estate becomes very expensive for locals, but at the same time became a good deal to people from abroad. 

Any time you invest abroad you need to be aware of currencies. 

My general advice is that if you’re looking for opportunities look for places where the currency is low. 

I’ve seen people make good investments in Turkey, Vietnam, Malaysia, all benefiting from local currency being in a down cycle.

Price to earnings ratio 

This method was put together by a very famous economist, named Dr. Robert Shiller. Price earnings ratio is based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio (CAPE Ratio).

You can see which countries are down, and buy-in places where it is the best deal to buy. 

There is always an opportunity somewhere in the world. 

Pay attention to legal systems

Legal systems can really hurt you when investing. This goes for both developed and undeveloped countries. 

For example, landlord-tenant rules are not so favorable toward landlords in the Netherlands, which caused many issues to some of our clients. 

Another example, we know people who bought the property in Denver for Airbnb purposes, but short rentals such as Airbnb got shut down by the local government in Denver. 

You need to understand that legal systems in different countries might be working against you. However, they can also work in your favor. 

Landlord-tenant rules are not so favorable to landlords in let’s say Germany, but you might look for the opposite situation and go for the country where it will favorable to you as an owner, such as Georgia. 

Another very important thing to pay attention to when investing abroad is corruption. In some places, you can to a search to see if the person actually owns the property they’re selling. In others, you could get scammed quite easily. 

In the past, there was a situation in Serbia where people were selling the same apartment multiple times. Many people were left without the money or the property they purchased. 

This would be very unlikely to happen in the US where the system around ownership is very clear and structured, and where laws are put in place to prevent this kind of stuff. 

Another bad thing that happened in Serbia is related to mortgages that were denominated in Swiss francs. This currency went way up, and all of the sudden peoples’ mortgages became unaffordable. The government in some countries intervened when this happened, but in Serbia nobody did anything and now many people are drowning in massive unexpected debt. 

Can you trust banks?

People from developed countries have a very good and regulated banking system where money is always safe. However, this is not the case everywhere. 

We’ve heard many horror stories from our clients that lost lots of money due to unreliable banks. 

It is very important to investigate whether your money is safe in certain banks in foreign countries. 

We have clients that do lots of business in Ukraine, and they are very cautious when it comes to local banks. 

As soon as the money comes in, they either withdraw or wire it all out to another place. 

An interesting thing is that our clients who did business in Ukraine did quite well because they understand the local situation and are able to play by those rules and take advantage of the system. Many who are not will lose everything in the same situation. 

If you know the system well you can always win

There are many people who managed to profit from the most corrupt and unstable economies. While many would drown in those situations, others managed to make a fortune in those situations. 

For example, after the crash of the Soviet Union or Yugoslavia, many national companies were for sale. People with money managed to buy them for way below their actual worth. Actually, you’d be shocked how little some of those guys paid for companies that are bringing so much today. 

These people are among the richest people in those countries today, just because they took advantage of the system that was in complete chaos. 

The world is full of opportunities, it is important to find them and be smart about how to get them. 

We might not have the same opportunities that we had 10,20 or 50 years ago but there might be something even better. It’s just important to look at the right places and to be cautious. 

You might be interested in our article about getting the best deals. If you want to check it out click here.

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