to a Lifetime of Making Money in Overseas Real Estat
From: The Best Of International
In three decades
of international investing, I have been lucky to spot some hot stock
markets — those in Hong Kong, Austria, Turkey, and Finland to name
a few — well before they skyrocketed. But investment in stocks has
not been the area in which I’ve made most of my money. Currency and real-estate
distortions are the investments that have given me the greatest profits.
With real estate, I seem to make money without trying. Some of it probably
is luck, but I’ve helped create this good luck by keeping a vigilant watch
for distortions. By distortions, I mean imbalances that create greater
value in one place than in another where there is equal utility. I want
to show you how I’ve decided over the years where to invest my money.
And I’ll show
you where I think the best opportunities are right now. I’ve made hundreds
of thousands of dollars in profits over the years. Here’s how I did it.A
crash…and opportunity in London
background in real estate helped. I first gained experience when I
was involved in joint venture with my brother-in-law (a real-estate
developer) in Oregon when I was 19 years old. By the time I was
21, I owned seven duplexes and a house outside Portland. Then I left the
United States for Hong Kong.
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.
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?” I discovered that local circumstances in 1970 led to
a horrendous London real-estate crash. The drop was so severe that despite
five ensuing years of high inflation, property prices were still depressed.
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.”
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. Then something else happened. The British
pound crashed. It went from US$2 per pound to US$1.50 per pound. This meant
that already-distorted London real estate dropped another 25 percent (in
dollar terms) while inflation continued. London had it all—and with
the currency drop, it was now discounted an extra 25 percent! 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. A replay on the Isle of Man.
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)
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.
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. There was quite a distortion
here. So I began my first Manx real-estate tours in the 1980s, taking groups
of investors there to buy real estate. Prices were so low that on our first
trip, one developer was selling beachfront condos for $12,000—and he accepted
credit cards! I missed a golden opportunity because I did not buy Manx
real estate myself, though I tried. On our third or fourth real-estate
tour, I took my family and rented a wonderful farm (about 100 acres) with
a huge stretch of fantastic oceanfront. The old farmhouse, thick-walled
and sturdy, had huge fireplaces, numerous bedrooms, and stunning ocean
views. The owner wanted £60,000 (about US$90,000). I offered £55,000.
Neither of us would budge, so I missed this deal of a lifetime. That farm
is probably worth 20 times the price now.
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
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.