Kathleen Peddicord - Buying Real Estate Overseas For Cash Flow (And A Better Life)

Our overriding objective in these pages is to show you how to build a diversified portfolio of hard assets overseas to generate cash flow to fund the lifestyle, the retirement, and the legacy you want. So, as we consider our world post-pandemic, let's start there.

What will global property markets look like post the COVID-19 crisis?

We do not believe we're going to see 40–70% drops as we did in the wake of the 2008/2009 global crisis, when real estate markets worldwide took huge hits with few exceptions. However, localized markets and individual properties will experience those levels of price reductions, even if only in U.S. dollar terms.

That is to say, one of the biggest opportunities created by the current crisis is going to have to do with supercharged U.S. dollar buying power. The Colombian peso and Brazilian real, for example, have weakened significantly against the U.S. dollar since the virus crisis began. These countries are oil exporters and commodity producers. The values of their currencies depend on their abilities to sell those products on the global market in dollars and then trade those dollars back into pesos and reals. Will the Colombian peso or the real return to pre-virus levels once the crisis abates and oil prices begin to recover? Probably. Meanwhile, properties in these countries will stand out as crisis-level buys for U.S. dollar holders.

Short-term rentals are a key element of any global property portfolio, a top choice for generating diversified cash flow overseas. What's the post-COVID-19 picture for this asset class?

The vacation rental business disappeared overnight when borders closed and planes stopped flying. Hotels are being converted to hospitals in some countries, and short-term rentals are being relisted as long term. That's one benefit of owning a furnished rental. You can reposition it according to market demand. In Dublin, Ireland, for example, the available inventory of long-term rentals jumped 83% in March 2020 compared with March 2019, while short-term rental listings on Airbnb fell accordingly.

Since the advent of Airbnb, many cities have seen sharp declines in long-term rental supply, increasing the cost of housing for locals. In an active tourist destination, a short-term rental can produce a much higher net yield than one rented long term. Now we're going to see a dramatic shift, which is good news for locals looking for affordable housing but not necessarily for global property investors. However, we believe this is a temporary trend and will revert as tourist markets are reborn.

You can easily switch a rental from short to long term in a European city, but making a change like that won't get you far in a resort town like Playa del Carmen, Mexico, where's there's next to zero long-term rental demand. Expect, therefore, to see hugely discounted vacation rental prices in destinations like Playa del Carmen when people begin traveling again. Also expect to see properties for sale at discounted prices from owners who either need to sell their investment real estate to shore up their personal financial situations back home or because an extended loss of cash flow has put them behind on their mortgage payments. As we remind our Live and Invest Overseas readers often, leverage is a double-edged sword.

Speaking of leverage, note that banks in countries where financing has been an option for foreign buyers will be focused on helping locals recover first. We think, therefore, that institutional financing options for us foreign investors will become thinner on the ground for a period.

On the other hand, we also predict that global property buyers will find sellers and developers more open to more creative terms than they've been in a long time, especially in Latin American markets dependent on foreign buyers. Seller financing will be particularly easier to come by in Panama and Belize, for example.

Some markets in Europe are already experiencing broad real estate price drops. Greece is top of this list. We believe this country will represent a bona-fide blood-in-the-streets opportunity, and we will share specific opportunities with our Live and Invest Overseas readers in real time. (You can stay up to date with these opportunities as a reader of our free e-letter service. Go to www.liveandinvestoverseas.com/cashflowupdates to sign up.)

In addition, we expect prices in Portugal, where values had appreciated significantly between 2015 and 2019—particularly in Lisbon, Porto, and Lagos—to soften and perhaps to fall when pent-up supply is released after Europe reopens. The window of opportunity here, though, will be short.

We predict price drops across Latin America. Emerging markets are going to be hardest hit by the pandemic crisis, and their economies will be slowest to recover. This means countries at the top of your post-crisis opportunity list should include Mexico, Belize, and Brazil.

Panama is an exception in this regard in this part of the world. This country reacted quickly to the coronavirus threat, showing itself again to be more than just another banana republic. Panama closed its borders in a matter of days, then restricted the movement of its residents in inventive ways. At the height of the threat, women were allowed to leave their homes at assigned two-hour increments on Mondays, Wednesdays, and Fridays, while men were able to be out for two hours at a time only on Tuesdays, Thursdays, and Saturdays. Everyone had to stay home Sundays, and the government banned the sale of alcohol. No baby boom for Panama but we predict a quicker return of economic activity certainly than anywhere else in the region. In addition, our contacts in the country report that President Laurentino “Nito” Cortizo's administration is planning an aggressive program of investor incentives to attract direct foreign investment post-pandemic lockdown. Again, we'll keep our Live and Invest Overseas readers up to date on these programs as they are rolled out, at www.liveandinvestoverseas.com/cashflowupdates.

The second cash-flowing asset class every diversified global property portfolio should include is agriculture. Amidst and in the wake of the COVID-19 crisis, this investment option remains the big winner. While short-term rentals are producing zero cash flow during the global shutdown, agricultural properties are still growing food… and people are still eating.

Meaning crops need to be harvested. The United States, Germany, and other developed-world markets rely on migrant workers for their harvests. With borders closed, farmers in these countries are worried about how they're going to bring in their crops before they rot in the fields. In the countries we recommend in these pages for turnkey agriculture investment—Panama and Thailand are at the top of this list—farmers don't rely on migrant labor. They use seasonal workers, but recruit them locally. One more benefit of diversification.

The most resilient part of any real estate investment portfolio during the current or any other crisis will be timber. Trees don't care about a virus. And, even with less attention from caretakers, they keep growing.

Our objective in the pages that follow is to show you how to generate the cash flow you need to be able to afford the lifestyle you want. Looking ahead to the other side of today's crisis, what might you want your life to look like and where in the world might you be able to realize that ideal? Here are three places where you could restart your life putting health, self-resilience, and community first, while also investing in diversified, income-producing hard assets: