June 2001

This month I have a particularly busy schedule, speaking in five countries with audience sizes of up to 8,000. With the fast pace of commerce prevalent these days, it is not surprising on such a whistle-stop trip to find some economies on an upswing, and others on a downswing. Consequently, attitudes vary from place to place during these travels.

The first city on this trip was Auckland, New Zealand. There was a capacity crowd at the Auckland Property Investors Association meeting, made up of people keen to learn more about what is happening to the real estate market. It did not take long to realise that the general mood was not one of euphoria, but on the contrary that there was somewhat of a feeling of despondency about a flat and lackluster market.

I launched a new software package called PROBE, and during a demonstration of this software, I asked for a volunteer to share the details of a recent acquisition so that we could see if it was a good deal or not, as a way of demonstrating the software.

Not many volunteers were forthcoming, but from near the front a young chap with a foreign accent told of his recent purchase. I asked him what the purchase price was, and entered that into the software. Then I asked what the rental income was, and was about to enter that into the software, when many in the audience shouted out: "You can't get that much rent from such a cheap property?", and "No way!", and "Not likely!".

Our laid-back investor shrugged his shoulders and replied: "Well, that is what I'm getting".

Others in the audience started interrogating him.

"How long had you been looking for properties?", asked one.

"Just a week" was his reply.

"You must have been looking longer than that to find such a property!"

"No", was his laconic reply, "I only arrived in the country two weeks ago.

By this time the general feeling of unease had reached a crescendo! Not only had this foreign upstart just arrived in the country, but in two short weeks he had managed to score a great deal while the masses had been languishing with stagnant prices and perceptions of no good deals being available after even months of searching.

What had just transpired in the previous minute highlighted many fears and prejudices that the serious investor must learn to overcome before being able to catapult into the realm of a serious and successful property investor.

First, it pays to know that if you are always looking in familiar territory, then your subconscious prejudices may prevent you from buying a property that any foreigner (to your city) may snap up. You may have this notion that the street is not very good, or that houses take a while to sell so the properties cannot be very good there, or that the suburb in general is not particularly desirable. Any of these notions can hold you back, even if the deal in and of itself is extremely lucrative.

There are two ways to overcome this prejudice. One is to work on your reactions to various properties, to consider them in the cold light of day, in an effort to see them devoid of any bias. The other is to invest somewhere else where you do not have these prejudices. This could involve traveling to another city, or, dare I say it, to another country.

In another country, you will have no prejudices at all: you will see the market for what it is worth. You can then become the young (or recently young) upstart that finds a bargain amongst all the properties on the market that has the locals saying: "That's impossible! You can't get that much rent from such a cheap property".

There are many advantages to spreading your investments among a number of countries. Foremost among these is that if your local currency dives, then you have at least somewhat of a hedge against that. Why tie 100% if your investments to one single economy and currency?

You may want to spread your risks somewhat by getting the benefit of various investment features only offered in some countries. For instance, in New Zealand you may reap the benefit of no capital gains tax, no stamp duty or transfer tax, unlimited deductibility of losses against other income, and no inheritance tax. In the United States you may reap the benefit of noticeable population growth and mortgage interest rates that can be fixed for a the full term of a 30 year mortgage. In Czechoslovakia you may reap the benefit of an emerging market that is racing to catch up with the West after decades of economic suppression. Each market has some advantages and some disadvantages. There is no best place to invest. But, having all your eggs in one basket does make you vulnerable to a downturn in that market.

Considered in another light, if you wanted to do the inverse of spreading your investment risks in real estate, then you should only invest in properties in the one same street. To many readers, that will sound absurd and foolish, and yet those same readers will think nothing of only investing in their own city and country.

There is of course another reason to invest abroad. It is fun. Instead of working hard all year and then taking an annual holiday abroad by loafing around in some resort, why not go somewhere exotic and interesting, and seriously check out the real estate market. At worst you will have an interesting holiday with a purpose, and at best you may just find an incredible bargain that makes the holiday tax-deductible to boot.

Successful investing!

Dolf de Roos.