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Investing In Real Estate

20 Nov
Investing In Global Property In 2015

Trendy Is Transient—Here's A Far More Powerful Market Indicator

In my office, on the wall alongside my desk, I have a map of the Caribbean that includes the north coast of South America and much of Central America. The cumulative lengths of coastline represented amount to well over 12,000 miles. Looking at it all, you have to wonder…

What makes one 20-meter stretch of this stuff worth millions…while another can be worthless?

The explanations are varied—sandy beach versus rocky coves versus cliff tops…ease of access…infrastructure and services (electricity, water, a town)…politics and economics (not a lot of demand in Venezuela or Haiti right now)…

But one of the biggest value changers is perception.

Perceived Value

A trendy spot, beach or otherwise, can become trendy just because people begin to perceive it that way. Maybe a celebrity buys in a small town or a movie is filmed nearby or a reality show is shot on location…triggering the marketplace to believe there’s something cool or interesting about a place they’d previously never heard of.

The trouble from an investor’s point of view is that trendy is transient.

Manzanillo, Mexico, became hot after the movie “10” was filmed there (remember Bo Derek?). The movie brought great interest to an otherwise obscure stretch of Mexico’s Pacific coastline, but the attention was fleeting. Some jet-setters and A-listers built big houses overlooking the ocean, but the place didn’t catch on long term. A decade later, those big houses were crumbling, and Manzanillo had reverted to its nowhere status.

Another film, “The Night of the Iguana,” is credited with launching another stretch of Mexico’s Pacific coast, Puerto Vallarta. In the decades since Taylor and Burton introduced Americans to PV and the sexy, sultry Bay of Banderas, this region has grown into a well-established tourist and expat destination.

What’s the difference? Why did Manzanillo flash then fizzle, while Puerto Vallarta has evolved and developed into one of the world’s most solid long-term coastal investment choices? Access and infrastructure. What’s conventionally referred to as “progress.” And what constitutes, I believe, one of the most important indictors an investor can look for.

The Caribbean coast of Panama is another interesting example. Lots of beautiful, pristine miles of white sand here, but hardly any of it developed. Why? Access and infrastructure. In this case, historically, sorely lacking.

Most all coastal development investment in Panama to date has been focused on the country’s Pacific coast. Historically, most of the Caribbean coast has been largely inaccessible. Now, though, the path of this country’s progress is beginning to expand to include some spots on its Caribbean coast. Specifically, the Caribbean coast around Colon and Portobelo is being targeted for potential development…the realization of which is supported by an expanded and paved highway between Colon and Panama City. Speculators are moving in.

What’s the point? I don’t recommend trend investing. Trying to identify the next trendy hot spot ahead of the crowd and then timing your exit before prices fall again, as they often do, is too much work and too much risk. Don’t try to invest ahead of a trend. Invest ahead of the path of progress. Look to the edges of the established markets…and for the directions the natural extensions of places where people are currently spending time and buying property will likely lead.

Look at Panama today, and you notice the extension of historic and current focus to include particular spots on the Caribbean. In Puerto Vallarta, you notice the edges of Nueva Vallarta…

Lief Simon

Mailbag

“Lief, what happens if someone lives in three different countries during a year for less than the required amount to be declared a resident? Do we legally have to be a resident of a country, or can we decide not to be? For a non-U.S citizen, wouldn’t this be beneficial for tax purposes?”

— C.B.

Precisely. We know many people who have organized their lives to eliminate taxes completely. For non-U.S. citizens, it can be as simple as living in a country that only taxes income from sources in that country (this would include Malaysia, Belize, and Panama). Live in one of those countries and earn your income as a consultant with clients outside that country or from an online business operating outside that country and you can live income tax-free.

To answer your question directly, no, you do not necessarily have to be a legal resident of any country. You could move around the world as you wanted, never staying too long in any one place to trigger a residency complication. However, your home country may require you to prove legal residency elsewhere before agreeing that you’re not liable for any tax obligation there. Check with a tax expert from your home country to clarify.