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INTERNATIONAL INVESTMENT, CURRENCIES AND REAL ESTATE

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International Investments and Bubbles of Wealth VII

investment trends

By
Gary Scott

This series of messages has looked at whether or not there is a real estate bubble and has examined why some people think property prices are too high and others do not.

The real point however should not be if there is a bubble or not. Instead let’s look at how to profit regardless.

Here are some important points this series has reviewed.

#1: The real estate market is currently active. Many feel prices are too high. Many others do not. 

#2: Many opinions have suggested that there is not a real estate market, but many markets. Some are priced too high. Others are priced too low and offer good value.

#3: There are good values even in the high priced markets. 

#4: Property markets are not likely to crash quickly, but are more likely to drift down or stagnate.

#5: There are many forces that can push property prices higher.

#6: No one can predict exactly when prices will drop.

#7: High priced markets can in some cases create extra opportunity in low price markets.

Understanding these facts can help us find ways to invest in current conditions.

Approach #1: Wait for prices to fall. Warren Buffet thinks this way. He believes there is a bubble in some areas and sees a way to make money from this. He wrote:

"A lot of the psychological well being of the American public comes from how well they've done with their house over the years. If indeed there's been a bubble, and it's pricked at some point, the net effect on Berkshire might well be positive because the company's financial strength would allow it to buy real-estate-related businesses at bargain prices."

This means keep your powder dry. Remain liquid.

I really cashed in this way clear back in the 70s.In 1970 I lived in London for a year, then moved to Hong Kong. During that time I also maintained a home outside of San Francisco.

This was a time of great US debt, a falling US dollar and inflation. My homes in California and in Hong Kong appreciated greatly. Seven years later in 1976, when I moved from Hong Kong back to London, I noticed that London real estate was priced about the same as it had been in 1970. This puzzled me. Why had London property prices remained flat despite inflation?

On investigation, I learned that there had been a huge real estate crash in 1970 continuing to dampen real estate prices six years later despite the rampant global inflation. At the same time, the British pound collapsed suddenly (over 35%) versus the US dollar from 2.4 dollars per pound to a new all time low of 1.52 dollars per pound. To my way of thinking London houses, which I thought were already very cheap by world standards, just became 35% cheaper.

I could not resist, started property shopping and bought an old five bedroom house in Bedford Park in west London. I converted $15,200 to make a 10,000 pound down payment and took a 25,000 pound loan to meet the 35,000 pound asking price I had negotiated (about US$53,250).

A couple of years later, the pound rose (almost 50%) to the US dollar and I made extra currency as well as real estate profits.

First, I had been right. London property had been underpriced. I was able to sell the house for 115,000 Pounds. I made a profit of 80,000 pounds. But the currency change helped enormously too. The pound had risen from 1.52 US dollars per pound back to over 2.2 dollars per pound. My 80,000 pound profit was not worth US$121,600 (value at the 1.52 rate) but was worth $176,000. I earned $54,400 extra profit because of currency moves!

There is much we can learn from this, about real money, international purchasing power and how government debt affects currencies. This study is a classic example of how real money moves versus currencies that have been adulterated by governments.

In this case, property was the real money. Residential property is a classic hedge in times of inflation and currency destruction because it always offers a real service of value, i.e. a home for one to live.

In the study, this real money was first lowered by a local real estate crash. Most British real estate buyers were not aware how inflation had pushed real estate prices up in other countries. British businesses could operate cheaper than elsewhere because it cost less to house employees. This gave Britain an unfair advantage. Their low real estate prices were not caused because there was a greater supply of British land nor were British builders more efficient nor were British building materials more abundant. British homes were cheaper only because investors elsewhere had not yet seen the discrepancy.

Then prices really became cheaper when the pound crashed. Overseas buyers (like myself) caught onto the cheap prices and Americans, Japanese and Arabs began buying London homes. Prices soared. So much money flowed into Britain that the pound rose.

As is usually the case the pound had been oversold at its bottom, so that it rose dramatically. The results were wonderful.

To take advantage of this approach watch areas such as those below where prices have risen steeply:

The Economist house price index shows that from 1997 to 2005 prices are up in the following areas:

244% in South Africa
192% in Ireland
154% in Britain
145 in Spain
114% in Australia
87% in France
84% in Sweden
76% in the Netherlands
73% in the U.S.

Remember that within each of these overpriced markets there are still good values. We have taken advantage of this approach in Naples where we purchased high value condos we can use that are surrounded by much more expensive properties. 

A second approach is to buy where prices are not so high or where they have fallen. The Economist house price index shows some of these areas show:

Hong Kong –43%
Japan –28%
Germany -.2%
Switzerland 12%
Canada 47%
Denmark 58%
New Zealand 66%

These may be countries of greater opportunity along with depressed areas within the faster rising countries.

We have taken advantage of this approach in both Ashe County and Ecuador. Ashe County prices are vastly depressed compared to surrounding areas. After extensive research, we found high value property we loved and could use in our business. DETAILS

The same is true in Ecuador. Low land and construction prices offer high value compared to property of similar utility in the US. We spent years researching and inspecting property to find acreage we loved and could use in our business. 

Right now we continue to buy property there. This is why we have added another seminar in Quito this November.

See more at Gary's archives

Finally use the rules of PIEC when you invest in property
:

  1. Look for property you like.

  2. Realize that money isn't everything.

  3. Work only with people you like.

  4. Buy utility, not property.

  5. Invest only in what you understand.

  6. Don't over diversify.

  7. Keep looking for new opportunities.

  8. Buy property you plan to keep for life.

  9. Look for property that is available at a good price.

Take these steps and every economic condition, boom or bust, will create opportunity for you. Until next message may all your, good investing!

Gary

P.S. Whether boom or bust, there will be opportunity.  Those who look for it and know how to process information correctly can gain. This is why we are conducting a special course, "Super Thinking - Super Learning” to help you unlock the power of your untapped knowledge.

For details, or to enroll

investment trends
International Investments that Sell
updated April 10, 2005
investment trends

 

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