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International real estate

International Real Estate Investing Distortions

International real estate

Part One of Three
By
Gary Scott

My greatest profits (and losses) have come from international real estate investing distortions created by currency shifts. Now two distortions have come together to create an unbelievable deal.

International Real Estate Investing Distortions Story

Read the true story below first, then I'll explain.

The Tiffany lamp cast an amber glow, rich ivory and warm in the grey gloom of early dusk. The gold knobbed mahogany desk, its deep patina waxed and smooth, shone with reflections of ancient leather Chesterfields stuffed full, but rumpled with age and of maritime shots that hang in brass frames on the wall. The room spoke of settled tradition, the kind that might never end. But my thoughts instead were on the demise of this room, and how it was coming soon.

1976, London , England . Artillery Row near the houses of Parliament. After building my business in Hong Kong , I moved to London and carried on expanding there. Business grew and I opened a new market, the United States . The pound had reached an all time low of nearly 1.5 dollars per British pound, which made the dollars from my U.S. direct mail campaigns more easily profitable. Lured by increased sales, I left my one room office that sat over a coffee shop in Wigmore Street and moved into a five office suite of antique offices in Artillery Row and began building up a staff for expansion. We bought a computer, a Data General about the size of a refrigerator with 64K of processing power. Then that was a big deal and costs about $75,000. I felt very good about everything because I saw great potential in the United States.

International Real Estate Investing Distortions Disaster

The offices were everything English tradition could provide, balconies overlooking Victoria Street near the River Thames and Buckingham Palace, leaded frame windows, antique partners' desks, leather couches and chairs, thick carpet and old paintings that were exquisitely framed. The office looked like it had been there forever and would stay there too until the British pound strengthened and rose 37% versus the U.S. dollar from 1.50 dollars per pound to 2.40 per pound. The fee I charged for the service I was providing was $99 per year. At 1.50 dollars per pound, I received 66 Pounds. When the pound had strengthened, the same $99 brought me 41 pounds. My business which averaged 20% profit on sales now lost 17% of sales! This was a hard and expensive lesson for me to learn. I sold the offices and left London just to stay in business. Currency changes often create more profit or loss than any other factor in business today.

The British pound was once the reserve currency of the world, but as the dollar could do now, it started falling steadily against other major currencies at the turn of the 19th century. At one time, it took US$10 to buy one British pound, but it had fallen steadily so that when the Bretton Woods Agreement disintegrated in 1971, it took about US$2.50 to buy one British pound. It then plunged all the way from US$2.50 to a low which reached US$1.00 per pound. It has since recovered back to over US$2.00 per pound and since weakened to the US$1.50 level where it remained at that low for more than a year before it made its rise.

International Real Estate Investing Distortions

Yet at the same time when the pound created so many problems for my business, it also made a small fortune in another direction.

International Real Estate Investing in Houses

Earlier in 1970 I had also lived in London , England for a year, then moved to Hong Kong . During that time I also maintained a home outside of San Francisco , California .

This was a time of great inflation. My homes in California and in Hong Kong appreciated greatly. 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? Was this time for international real estate investing?

On investigation, I learned that there had been a huge real estate crash in 1970 which continued to dampen real estate prices six years later despite the rampant global inflation. Then at the same time, the British pound collapsed suddenly over 35% versus the U.S. dollar from 2.4 dollars per pound to that low of 1.50 dollars per pound.

Huge International Real Estate Investing Distortions Collapse

This meant to my way of thinking that London houses, which I thought were already very cheap by world standards, just became 35% cheaper.

I could not resist, started property shopping and eventually 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 as did my business losses. I had to shut down my business and move. This meant selling my London house. Here I discovered that I made some great profits.

International Real Estate Investing Distortions Profit

First, I had been right. London property had been under priced. 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 U.S. 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! So international real Estate investing and currency distortions both worked well for me.

International Real Estate Investing Distortions

One of London ’s major real estate firms is Sothebys. Picture here is from London.sothebysrealty.com/

International Real Estate Investing Distortions Lesson

There is much we can learn from this case study both about real money, international purchasing power and how they affect 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.

Part two of this three part series looks at why and how to cash in on international real estate investing. Just use the arrow below to go to part two.

Gary Scott

For more on international real estate investing distortions go to Successguidelines.com

International real estate
International Real Estate Investing Distortions
March 17, 2005
International real estate

 

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