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| Buying
International Real Estate - Exchange Controls, Offshore Banking, Government
Folly, Privacy, - International Real Estate & Foreign Currencies |
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| Buying
Smart |
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| There are
a number of interrelated factors that apply to Exchange Controls,
International
Real Estate and to Foreign Currencies that are important for
us to understand: |
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| The purchasing
power of each nations currency (money) profoundly effects the actual
price of that nations property, especially vis a vis the currencies of
nations other than the nation in question. |
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| Every nation
that has an independent currency, usually has a currency that fluctuates
in value relative to the currencies of other nations. The Euro and
the Dollar were initially pegged one to one, but circumstance has altered
that relationship. At the time of this writing the Euro is pegged: 1
Euro = 1.01070 US Dollar
1 US Dollar (USD) = 0.98941 Euro (EUR)
In January of 2002 the Euro was pegged at: 1 Euro = 0.89154 US Dollar
US
Dollar (USD) = 1.12165 Euro (EUR) - That is a 10¢ difference
in the value of the Euro. |
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| Currency
rates are cyclical and history demonstrates that those nations with high
rates of inflation have weak currencies subject to periodic currency devaluation's.
For a currency to be devalued means that the issuing government has mandated
that the price of the currency (in foreign dollars) is to be lowered by
government fiat or decree. Immediately following such a devaluation the
price of commodities produced within that nation, (as well as its real
estate), becomes cheaper to buyers who have sound foreign currencies and
are capable of using those sound currencies to make their purchases. |
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| This buying
opportunity which I call a 'window of opportunity,' will only exist
for brief cyclical periods, from the moment of devaluation up until the
time when that nation's ‘internal’ prices are adjusted to compensate for
the difference between the internal prices and those prices existing ‘externally’
to that nation. There is usually, but not always, a lag time between
the moment of devaluation and the moment of adjustment. The lag time can
be quite brief, however the differences in a strong currencies buying power
within that lag time is often quite pronounced. (i.e. the deals are good.) |
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| Upon the inevitable
upwards price adjustment created by external buying pressure the purchased
property or commodity will then reflect its truer internal value vis a
vis its national currency once again. Example: |
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| Ten Zopoloté
to the Dollar |
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| A two hundred
acre ranch property in the imaginary Republic of Sabroso is worth US$100,000.
The national currency of Sabroso is the Zopoloté. (See image above.)
The official rate of exchange is Ten Zopoloté to the Dollar; (Z$10
= US$1). Hence, under normal circumstances it takes Z$1,000,000
[1 million Zopolotés] to purchase our two hundred acre ranch.
Without warning, the Republic's Ministry of Economic Development and Finance,
Senor Chappurito, announces a fifty percent devaluation of the Zopoloté.
(The Minister-General himself, is unavailable for comment; Senor Chappurito,
along with his wife and children are vacationing in Zürich). |
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| Internally,
inside the Republic of Sabroso, little has changed. A housewife
in the Capital City of Sâo Donato goes shopping for groceries; there
is no change in prices. Two tomatoes cost the same price on the day of
the devaluation as they did the day before; a dozen eggs have not increased
in price by as much as a single Zopoloté, even a pound of meat costs
no more then it did a week ago. On the International Monetary Exchange
however, things have changed. We can suddenly buy twice as many Zopolotés
today for each $US dollar than the number of Zopolotés we could
buy the day before. Wishing to take advantage of this opportunity,
we buy one million Zopolotés for US$50,000, (which would have cost
us $US100,000 just yesterday,) we then fly to the Republic of Sabroso and
for our US$50,000 (one million Zopolotés), we purchase the
two hundred acre ranch. |
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| Ultimately
the commodity (consumer) prices within the Republic of Sabroso will rise
until they are in balance with the prices outside of the Republic.
Ultimately our ranch will be worth two million Zopolotés, (or US$100,000)
and two tomatoes will take twice as many Zopolotés to reach the
kitchen. Such is the advantage for us of holding our money in a strong
currency or in gold or silver, until such times as we can take advantage
of a cyclical fluctuation. ...and the disadvantage plagued upon the
people of Sabroso, and all other nations, by their bureaucratic masters. |
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| Government
Employees Uber Alles |
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| We might well
make the assertion that the use of such a modality for purchasing a property
is mercenary. However, before we make such an assertion we should
wonder if such an event has ever happened to us. The answer is a
resounding Yes. Just like all the other world's currencies, the
United States Dollar has undergone several devaluation's. Those who were
then holding stronger currencies such as the Yen (then,) or hard
metal assets such as gold or silver were able to buy commodities and real
estate inside the United States at bargain basement prices and did so!
Welcome to the real world. |
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| Like
it or not, this is the way of finance in a world of mixed economies; where
governments exert control over not just the the economy of a nation, but
also over the ultimate value of a nations currency, and do so through an
act of fiat. (The word Fiat can be defined as the arbitrary whim of a government
employee.) People who are in government service can take unscrupulous
advantage of such a devaluation and profit handsomely at their citizens
expense. However, this is not the place to discuss such issues; even
though I would love to rake any number of politicians over the coals I
will restrain myself and maintain a semi level-headed focus on the issues
we
are discussing in this article. Never lust after the blood of bloodsuckers,
it may be tainted. |
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| We are not
obligated to buy in this fashion, nor is it always to our advantage to
do so. If we find a situation where there is a stable currency inside
a stable nation; we may of course proceed to buy real estate there because
we like the place and we plan to spend part of, or the rest of our life
there, regardless of any cyclical fluctuations in property or monetary
values. It may also be worthwhile to point out the obvious fact that
there are both practical and emotional reasons to purchase real estate.
To many of us a family house is much more than just a piece of real estate,
it is a home with a capital ‘H’. It is something personal
that we make a part of ourselves. True, it is also a combination
of other factors: a major investment, a sort of savings program, a tax
shelter and a large part of our retirement insurance. Buying something
as personal and emotionally laden as real estate doesn't have to wait for
bargain time, it can be fun to buy even when the price is high if the property
is something that really excites us. However, for most of us it is probably
always more fun to buy low and sell high than the the alternative. |
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| Foreign
Real Estate As Sound Investment & Hard Asset |
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| It may be
worth considering that even though a particular property fills ‘practical’
investment criteria, it still remains very difficult for many of us to
look at a home as something we simply buy and sell like a bushel of apples,
or as we might buy and sell some stock in IBM. |
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| Real estate
is an investment that many of us become psychologically attached to.
This propensity for engendering emotional attachment changes (separates)
purchasing property from just about every other form of investment.
However, as we become expatriates, and/or buyers of overseas real estate,
we develop a global perspective rather than a narrow parochial view, and
because this new view has a wider peripheral, we are able to see what was
once obscured by the narrower frame of reference. |
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| The fact that
more and more people are now buying international real estate, (which
is to say, property in a country other than their birth or current residence,)
it also changes the time frame in which a 'window of opportunity,' may
exist. i.e. The pressure to adjust to 'external' prices will be greater
and more rapid as smart people from around the world go around the world
looking for smart property. |
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| As I've said
countless times, there are reasons to buy international real estate; good
economic reasons that go beyond the emotional. Owning foreign real
estate takes us out of restrictive and potentially volatile currencies
whether the Dollar, Peso, Zopoloté, or Yen, and places us in a form
of real, or hard, asset. Example: |
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| In our imaginary
scenario in the Republic of Sabroso, we purchased a swell property for
fifty cents on the dollar. Now, what if that dollar should happen
to fall? We'd have more Zopolotés to put on the wall?
Well, yes, sort of. In our scenario we purchased a property for US$50,000
during a cyclical low in the Zopoloté. If the dollar should
now fall by twenty percent, (which is entirely possible,) then that increases
the worth of our property in dollar purchasing power. [we can ‘buy’ more
dollars in exchange for our property] We now have a ranch worth US$125,000;
each dollar has now fallen in value to .80¢ based on its former worth.
We have in effect made US$75,000 [*See note¹ below] simply by purchasing
a ranch we wanted anyway. |
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| Do these
things actually happen? Assuredly. So, another factor for
us to consider in purchasing international real estate is a positive diversification
of our assets out of the dollar (or any other government created currency,)
and into a tangible asset with intrinsic value. |
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| This
type of diversification has many positive attributes for the expatriate,
and/or buyer of overseas real estate. Besides moving us out of
the U.S. Dollar (hence protecting us from a collapsing U.S. economy) it
also insulates us from potential foreign exchange control mandates that
might be put in place by a panicked U.S. government trying to shore up
escaping assets. i.e. they'll want your bread, and they won't want
you to leave home with the money that belongs to you. As we've discussed
elsewhere, US government employees are eventually going to start looking
around for someone to blame their mistakes on. Unlike Senor Chappurito
they cannot all slip away to vacation in Zürich quite so easily. However,
they are not our concern; our concern is to protect ourselves and our families
from their fiscal idiocy. Real estate is difficult, if not impossible
to repatriate, (foreign governments cannot easily confiscate real estate
in another country,) very much unlike money in a US bank account. [
fully unprotected by the FDIC such as it is]. |
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| That said,
it should also be said that moving ones cash to an offshore bank is always
a good idea if viewed only as a form of diversification. Having a
variety of banks in a variety of nations is simply smart, especially when
some nations respect privacy and the rule of law and some do not. If you
live in a rouge nation such as Libya or the USA that does not respect human
privacy then it becomes imperative to seek diversification, preferable
to Switzerland, Panama or other country that respects privacy. Money in
rogue nations like Libya, Iraq and the USA. is subject to confiscation,
and if the USA is going to continue to unravel at the same velocity that
it has been unraveling then it is smart to diversify in every way shape
and form. |
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| I should also
mention the haphazard structure of the U.S. bank system which may be on
the verge of collapse. Smarter people then me think the same thing, so
this is not something I pulled out of a hat. The US banking system
may collapse. If so, don't count on the FDIC to pick you up and dust you
off. The FDIC (a U.S. government operated Panzi scheme,) operates through
the modality of insuring a pool of risks for a fraction of the total amount
of risk outstanding. (Which is exactly the defining characteristic
of all Panzi schemes.) This principal might work with automobile insurance
where it is mathematically improbable than everyone in the United States
will get in a wreck on the same day. Insuring banks, (or pyramid
investment schemes,) using this technique is the worst violation of insurance
and investment principals. (It is considered a crime punishable by law
if an investment firm does it, but it is kosher if the U.S. government
does it.) When the U.S. bank of cards finally collapses (not if,
but when,) it is probable that the event will be a chain reaction.
Because the FDIC has only .015% of the insurance payment funds available
for the total of the money that is deposited inside all U.S. banks, the
possibility of anyone getting their money back is nil, or less than nil.
One and one-half of a percent of the total money owed to the American people
would probably be just enough money to pay for the funeral costs of the
Directors of the FDIC along with the nations major Bank Presidents, and/or
preferable the members of the U.S. Congress, at least those among them
that don't escape to Brazil with the money they have stashed offshore. |
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| January
2003: Correction to the former statement: |
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| Note that
I have recently revised and down-graded my opinions on this issue.
If the Bush family can get away with metaphorically sleeping with Eron
president Brian Slobogian, and have the entire affair clumsily brushed
under the rug by persuading, without any great subtlety, that the American
mind should now focus on; Iraq, Saddam Hussein, [...his first name is,
'that madman,'] the Al Qaeda, or whatever it is that is the current diversion,
and further, if through such crude diversion the Bush/Enron collusion is
thereby somehow forgotten, even though the Bush family and the Enron officials
were seen openly with their bodyfluids and lipstick all over each other,
then the directors of the FDIC will probably also get away with, lying
to, raping and cheating the American people. Those American people
still choosing to willfully remain in America may actually be too stupid
and gullible to save.... I'd like to think differently, but anyone
who could swallow the crap currently coming out of Washington D.C. is possibly
beyond the hope of any redemption. |
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| It is often
easier to purchase real estate offshore then to move your hard earned money
into an offshore bank. It is not illegal for American citizens to
purchase foreign real estate and no government permission nor paperwork
is required. Not so with opening a foreign bank account. The
U.S. government wants to stick its nose into your foreign banking activities
and does its best to do so. Conversely, once you've purchased foreign
real estate you've effectively expatriated your funds, and once it is off
of the radar, well, it's off the radar. Which is to say, you've conveniently
moved your money abroad into a hard asset that is difficult, if not impossible
for the U.S. government to confiscate. |
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| Real Assets |
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| We mentioned
gold and silver and we also mentioned some other factors that should perhaps
be addressed. I am not ashamed to say that I do not consider myself
qualified to discuss such things as hard assets beyond a rudimentary level.
So I will just say that I believe that sound, cogent assets with intrinsic
values are to me usually, if not always, preferable to the fiat ersatz
creations of government employees. However, values are based on individual
preference. In one of China's many dynasties the populace refused
to accept the paper money, preferring the tangible assets of gold.
That dynasties government employees in an act of utter desperation hit
upon the brilliant idea of producing a money made from perfumed colored
silk rather than paper. Of course, it didn't work, a piece of perfumed
silk is never worth more than a piece of perfumed silk. Hitler had
a better idea. Anyone who debased, speculated in, or undersold the
Nazi German Mark was shot. What a concept! |
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| The Right
to Privacy is not a Crime |
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| The issue
of Exchange Controls is a simple issue with a simple solution: Avoid them.
There are many safe ways to own real estate anywhere in the world (including
the United States). We can protect ourselves by the holding title
to any property via an Offshore Corporation issued within a jurisdiction
that is different (safer or saner) than that of the jurisdiction where
the property exists. We can hold title in the form of stocks in a
corporation. We can hold title as a corporation. We can hold
title by registering ownership through a third entity such as a bank or
foundation. It is probably safe to say that there are more than enough
possible methods to hold title that we should be able to find a method
to fit just about any situation. |
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| The important
thing is to seek methods which are legal and which fully protect our privacy.
We cannot over-stress how crucial it is to protect our privacy regardless
of any indoctrination to the contrary. The right to privacy is not
a crime. There is absolutely nothing for which anyone should feel guilty
in seeking to keep their own affairs private. It is also our right to protect
the money we've earned from those who have not earned it. No
one has a right to know our business. We can think of no reason that
anyone needs to know who the parties are that own a property, stock, or
an offshore corporation. If the property taxes are paid on that property
that should be the end of it. In the same regard, no one needs to know
the name of the corporation or the individuals for whom a bank is holding
title as long as the bank is maintaining the property and paying the property
tax. If a corporation changes hands in a country or in a tax jurisdiction
that is different from the jurisdiction in which the property exists that
is the business of that jurisdiction. It simply isn't anyone else's business.
Unless we are terrorists it should never be anyone's business who we are
or what we own. Why should it be? |
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| If we do decide
to hold ownership of real property within a country that has exchange controls
it is important to understand that we may have a difficult time repatriating
our funds from the sale of that property. If we should ever decide
to move to another country we will have the choice of keeping the property
we've bought or selling it and reinvesting the funds inside that country.
The latter is not a good option inside a country with a debased currency.
However there may be instances and situations in which we may wish to hold
ownership in such countries. We cannot offer any profound advice
in such matters. The best advice we can give is not to break any laws especially
when there are so many legitimate methods of doing business within the
law. |
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