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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 
A family 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. 

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?” 

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. 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 distortions

The 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) 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.

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 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
Now, the same thing is happening in Ecuador. My interest in this country began in 1996, when I was looking for the best opportunities in Latin America.  According to a recent survey I read, Latin America is currently the least popular region for investors. Yet this is a region with great potential neighbor to the United States, Latin America (according to The Economist) has a larger disproportion of wealth than any other region (including Africa). This means that the region has more potential than any other for growth in its middle class.

That’s why I was attracted to Ecuador. I believe the global market will continue to expand. And I believe that the current emerging market crunch has created an opportunity of a lifetime. I also believe that the investments most investors ignore are the ones that yield the greatest profits.

Ecuador is the oldest democracy in Latin America, and just slightly farther from Miami than is Los Angeles. Prices are ridiculously low, yet foreign-exchange restrictions have been abolished. You can hold dollar accounts outside the country (for security) as you look for opportunities here.

When I first arrived in 1996, the country was undergoing a shakedown. It had enjoyed enormous reform in the early ’90s. The Ecuadorian economy had begun to boom. Then, in 1995, an armed conflict with Peru 
and an unprecedented drought (which interrupted electricity supplies) depressed the economy and killed the boom.

Still undiscovered
This country, you see, has everything: vast natural beauty, a rich culture, and better law and order than much of the United States. It has a very low cost of living, and enjoys sleeping real estate and stock markets. Resident visas are easy to obtain.

The country has huge natural resources and an incredible variety of climates, ranging from miles of unspoiled beach to rain forests and rich Andean mountain ranges. Yet Ecuador had not yet caught on when I was first started looking at it. In fact, it still hasn’t.  Only 10 thousand foreigners lived there a few years ago. And tourism was still in its infancy.

So I bought Ecuadorian shares and started looking for real estate. My wife and I visited several times. The more I saw, the more I liked, and I quietly began buying up land and alerting readers of this newsletter. This advance warning has already helped some of my readers cash in. 

We have been living in Ecuador for the past few months watching people make a profit. 
Beachfront property - - - $500 an acre
For example, I just looked at a listing for an 8-year-old, 3,000-square-foot, beachfront house (fully furnished) in a charming Pacific fishing village. It listed at only US$30,000 (asking price)!  Brand-new, magnificently beautiful, two-bedroom Moroccan-style condos in Quito are selling for under $30,000. I heard that one of my readers bought 64 acres of beachfront property at $500 per acre. Sounds cheap, doesn’t it? Believe it or not, there is a listing for a 1,600-square-foot, three-bedroom beachfront fixer-upper for just US$9,000! 

On top of all this, there are no foreign-exchange restrictions in Ecuador. All profits can be taken out of the country. Non residents can hold dollar accounts outside Ecuador (for banking safety) and then make real-estate investments just as if they were resident. 

One president after another may be wiped out by the current bad times, yet difficulties are the precursors to better times.  Despite the bad economic times, the country is still politically and socially stable.  At its worst, Ecuador still feels much safer than most U.S. cities in normal times. Another of my readers, who bought a condo in Quito, described this phenomenon to me when he wrote, “Quito is not a city whose social structure will break up, even in the worst of times.”  I agree.

Easy residency requirements
The Ecuadorians are among the friendliest, most easy-going people I have met in 30 years of travel. This is not to say there won’t be demonstrations, crimes, or social problems, including strikes and occasional riots. But the problems won’t be big ones, at least as far as real-estate investments are concerned. And they won’t last long. They won’t involve death and destruction.

You can even become a resident (and a citizen if you wish) with no investment, provided your income is as little as $1,500 a month. This is why I believe the turmoil (which may last for some time) offers such incredible opportunity now.  These problems allow you to buy land not too far from the United States at a fraction of U.S. prices.

As the global economy grows, and as technology allows more and more people to live anywhere 
they choose (as Merri and I now can do) while they work somewhere else, more and more people will 
flock to the sun. When they reach Florida, they will find that prices are high and conditions are crowded. They will look for cheaper alternatives. Ecuador is one such alternative. 

This alone can push prices up.
A modest beachfront house in Naples today may cost 2 million dollars or more. How many can afford that price? A similar house in Ecuador goes for $50,000.  Just think how much extra travel and other great things the extra $1,950,000 will buy.

Why Ecuador’s properties are so cheap
In 1996, as Ecuador was trying to recover from its battle with Peru (the two countries have now declared a settlement), the people made a terrible mistake. They elected Abdalah Bucaram (called El Loco, “the crazy man”, by many) as president of the country. He turned out to be an incredibly inept leader, so corrupt that he was soon impeached.

Regretfully, the interim president was not much better (and is currently under arrest for corruption as well). The nation endured three years of political backwardness at a time when strong leadership was needed most.  Simultaneously five other events also hit the country’s economy hard. The first two, El Niño and La Niña, caused record rainfalls for two years in a row. Almost continual flooding wiped out roads, bridges, and crops, creating billions of dollars worth of damage.

In addition to leaving bad crops, Latin America has been hurt by the fact that Europe has been unfairly limiting banana imports from the region. Ecuador is the largest banana exporter in the world.  These limitations have hurt the country’s economy.

In addition to this list of black events, the emerging-market crisis reduced the inflow of investment, raised financing costs, and added to the nation’s woes. To top it all off, the price of oil crashed! Ecuador is the second-largest producer of oil in South America. The government receives 25 percent of its revenues from oil sales. These economic problems have led to a recession and a banking crisis which caused the sucre (Ecuador’s currency) to plunge.  The currency collapsed (53 percent at one point in just a few days) so fast that the president had to step in, declare a state of emergency, and close banks for a week. There was no gas, business ground to a halt, etc.

Now there’s a new president, and the country has dollarized its currency. It may sound like disaster, but, believe me, this is an incredible opportunity.