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My real-estate experience and an eye for international distortions paid off a decade later, in 1976, in London, where I had been five years earlier, before a three-year stint in Hong Kong and several years in San Francisco. Back in 1971 in London, I had rented a nice two-bedroom house for the equivalent of $250 per month. Back in London
for a second time, I shopped for another house to lease and found that
rents were still about $250 per month. “Something’s wrong,” I thought to
myself. It had been a period of high inflation around the world. The house
I bought in California had quadrupled in price. Hong Kong real estate had
skyrocketed more than that. The cost of the duplex I sold in Oregon had
risen dramatically. “Why,” I asked, “are London real-estate
prices so low?”
Meanwhile, technology had changed the fabric of the international real-estate market. Better travel and improved communications technology were making the global community grow. There was a new demand for real estate in large international cities. “If the global community continues to boom,” I figured, “companies from the United States, Japan and all over the world are going to set up regional offices in some major European city.” If real-estate prices were high in Frankfurt, Brussels, and Paris, and low in London, I realized, those companies would relocate in the British capital. I knew this would force London property prices up. This is one
of the most powerful investment lessons I have ever learned…and I’ve used
it to make a fortune since. Look for local distortionsThe key is to have
a global investment view but at the same time to look for regional and/or
local distortions that create temporary economic imbalances. In other words,
to look for places that will benefit from changes in technology. In the
case of London, the city offered global business utility. It was as good
a business center as any other in Europe—perhaps even better, because English
is the language of the global community—yet local conditions kept real-estate
prices low.
I could not
resist. I bought a five-bedroom house in Bedford Park (London’s first and
oldest garden community) for £33,000 (US$48,500). I put $12,000 down
and borrowed the rest. My timing could not have been better. I lived in
the house (making mortgage payments instead of paying rent) for four years.
London real-estate prices accelerated to catch up with prices in the rest
of the world. Four years later, I sold the house for £115,000. The
British pound had recovered and was now worth $2.20 per pound. The £115,000
now bought US$253,000. I increased my $12,000 investment over 20 times
in four years.
I did the same thing on the Isle of Man in the early ’80s. In 1980, I discovered I could form Isle of Man companies (which were equal in utility to Jersey companies) at half the price of other financial centers. Shortly after arriving at Ronaldsway Airport, I found out why. The Isle of Man was having a real-estate crisis. Tourism, on which almost every one of the 60,000 residents based their livelihood, had collapsed. Soon, airfare
from the UK to Spain was less expensive than the ferry ride to the Isle
of Man. In addition, the weather was better in Spain. Two thousand properties
on the island were for sale (amounting to one property for every 30 residents).
Prices were unimaginably low.
Merri (my wife) and I bought a house in Naples, Florida, instead. There was an enormous distortion there as well. The east coast of Florida was packed with people and tourists, and the west coast, a mere 100 miles away, was empty, especially Naples, at the southernmost tip. Yet a brand new airport was built just 45 minutes away and a new freeway (I-75) was being completed that led right to Naples. Improved communications and a much improved infrastructure allowed more and more people to flock to the sun. After enjoying living in this beautiful historic home for about 18 years, we sold the house for many, many times the price we paid. It’s happening all over again in Ecuador. Go to Page Two Of This Article - C L I C K H E R E - |
