September 2001

In recent columns, I have exhorted readers to spread their investment portfolios beyond the city limits of the town they live in, and indeed beyond their own national borders. Having all one’s proverbial eggs in one basket is, at best, a sign of chronic laziness, and at worst, a recipe for potential disaster.

If you happen to be in a region with high capital growth rates, in country where the currency is strong relative to a basket of international currencies, then spreading your investments geographically may not offer many immediate benefits.

However, statistically, only a small proportion of the investing public happens to live in places with higher than average capital growth, in countries with stronger than average currencies. What is more, even if they are presently in such a fortunate location, what are the odds that their investment paradise will retain those coveted attributes?

In my experience, the strength of economies, both in absolute terms and relative to other economies, rises and falls like the tide. Sometimes there are spring tides, sometimes there are ebb tides, and occasionally the shoreline gets obliterated by a tsunami.

Having all your eggs in one geographic basket is downright foolish to say the least. And yet I am stunned to see how many people have 100% of their investment funds in one region.

These same people complain to me how they have to work for 49 or 50 weeks of the year, and how there is hardly any money left over to pay for an overseas holiday during their two or three weeks of vacation. And yet, when you look for, research, negotiate, renovate, inspect and manage properties abroad, is it work, or is it a holiday? Or to put it another way, if you were in a foreign location with a foreign currency, customs, rules, and, dare I say it, language, to work on your portfolio, would you lie in bed in the morning, cursing the fact that it was a work day, or would you be up at the crack of dawn, rearing to go, to explore, and to learn something new in your exotic location? Remember, your attitude determines your altitude!

Well, it seems that some readers have taken my exhortations to task, and are seriously looking at investing overseas. From Perth, Australia, I got the following question (abridged) that shares the sentiments of many but states it in an eloquent manner.

“We have asked ourselves and some banks how we would arrange finance on a property that we wanted to purchase in New Zealand. Not being residents or citizens of New Zealand, one bank said we could not borrow on properties purchased in far away lands. Even if we had a deposit and the ability to support a mortgage along with a tenant, they still weren't interested. Some banks here don't even recognise equity in a property to lend you up to 100 percent of the purchase price of another property. Do you know of any? We have heard that one bank does, but that you must go to top management level, thus bypassing the ‘drones’ as I call them. How can you do this?

We are keen to look at property in New Zealand for a buy and hold strategy and for the good cash flows possible in relation to similarly priced properties purchased in West Australia. Costs kill Australia. Also, the tax advantages available in New Zealand with respect to capital gains are of major interest to us. Our tax wizards here cripple any attempt to create a wealth structure, by taxing you to the hilt and giving it to those who would rather bludge, or spending our money on their own little projects. Sorry, I'm not big on big government. I like freedom of enterprise, and rewards for those who risk their monies in investments. Don't you think that investors should be rewarded for creating housing, venture capital, jobs etc? Makes sense to me.

Any help in financing foreign properties would be of great assistance. As yet I haven't emailed big banks in Europe, to ask of their stand on this aspect of property investment. Which banks have you found property cooperative if you know what I mean?

We appreciate all of your time and help, and encourage you and others like Robert Kiyosaki who we have also seen here, to keep telling of the wonderful opportunities to get rich in investment property. We certainly are listening!”

Well, there are some great questions and points of view here. My reply, also abridged, was as follows.

“If you went to a bank in France, and asked about lending money for a property in Finland, they would look at you with indignation before ushering you our of their office. Same if you asked a bank in Chile about buying a property in Malaysia. If you wanted to buy a property in Finland, or Malaysia, or anywhere else, the best approach would be to go there, find a property, and then ask a local bank for the money.

Thus, regarding buying a property in New Zealand, I would say the best bet is to go there, find a property, and then go to a local bank. Show them that you have a deposit of some sort, by all means show them a statement of assets and liabilities (reflecting your Australian holdings), and let them know that you are absolutely going to buy that property, preferably with their help, but otherwise with some other bank's help.

Your comments on the desire by many in power to tax us is spot on! The sad thing is that in the long run they do not generate more revenue for all, but diminish it by stifling business. Those countries with the lowest tax rates seem to have the most vibrant economies.”

So much for that question. Overall, I would echo the environmentalists’ motto, albeit in a different context: ‘Think globally, act locally’. And local is wherever you are or want to be.

Successful investing!

Dolf de Roos.