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Top Rules To Minimize Risk When Going Offshore

09 Feb
andscape with Candelaria town on Tenerife, Canary Islands, Spain

Top Rules To Minimize Risk When Going Offshore

Too Risky?

Most people take few risks.

They go with the comfortable job, make the safe investments, and stay within the lines…

With every investment I’ve made—there’s been some risk. Any investment comes with risk…

There’s also always been someone telling me it’s too risky.

I bought my first investment property in the States.

It was 1995, and I bought a three-flat building in Chicago. I was renting an apartment in another three-flat, and the owners told us they were selling the building. Until that moment, I hadn’t been thinking about buying a house, let alone a multi-unit building.

But I liked the apartment where we were living, so I began looking into whether it would be possible for me to buy the building. I started to educate myself, running numbers, speaking with mortgage lenders, checking prices of other buildings, trying to understand the market.

While the negotiations didn’t work out for the building where we’d been living (that really was a great apartment… designed by Frank Lloyd Wright), the seed had been planted.

I found another building that met all my number parameters—and bought it.

Friends and family all thought it was a bad idea. Too risky.

What was someone as young as I was at the time, just starting out, doing thinking about making such a big property purchase?

It turned out to be one of the best investments I ever made. After owning the building for two-and-a-half years, I sold it for almost double what I’d paid.

I’d run the numbers—and I knew it was a great prospect. There was some risk—for example, if the property lay vacant and we couldn’t get renters… But for me, it was worth taking the risk because of the potential upside…

It worked out.

Ask My Wife

My next real estate investment was in Spain. I bought a pre-construction apartment on the beach.

Again, I was looking for an opportunity where the numbers stacked up…

I spent 10 days traveling the entire southern coast of Spain looking at real estate and speaking with a dozen developers and agents.

By the time I got to Estepona on the south end of the Costa del Sol, I had seen a lot of properties—most of them crap.

The developer I met in Estepona had released a new beachfront project the day before I’d arrived. His group didn’t even have their sales office set up at the property yet. They were working out of their main admin office down the road.

We visited the site, I looked at the plans and prices, and I was ready to invest.

This was the best opportunity I’d seen on the entire trip… and because it was pre-construction, the initial capital outlay for the deposit wasn’t much.

I called my wife, Kathleen. She’s a fairly conservative investor.

Her first reaction was to tell me I was crazy to be thinking about investing in Spain… in a pre-construction project. What did we know about buying pre-construction real estate in Spain?

While a 10-day trip couldn’t be called an all-encompassing education in Spanish real estate, it was enough, as I explained to Kathleen, for me to know a good deal when I saw one.

She begrudgingly agreed to buy a unit because I was there and she wasn’t. She had to trust my instincts.

And, in the end, she sure was glad she did.

That purchase falls into the top 10 of my more than 60 real estate investments over the years. The developer sold the apartment for me before it was completed. The returns were almost 100% profit over the less than two years that I held the property.

I took a risk, but I knew what I was doing, and it worked out…

Follow My Lead

When folks tell me that investing overseas is riskier than investing in the States… When they wonder why I would open bank accounts and corporations outside of my home country… Most people think I am taking too much of a risk.

They think I should stick to where things are “safe,” like the United States and Canada… They think I am taking risks I can’t afford to take…

I would flip this on its head.

Can you afford not to take the kind of risks I take?

Anyone who has been through the financial crisis of 2008–2009 knows that your investments are not always safe in America—even your deposits in a U.S. bank.

But take a country like Panama, where I have been investing and indeed living for a long time… Panama has never had a banking crisis. Not one.

So, at least in that respect, it is more “safe and stable” than countries to the north…

(If you want to get to know Panama better, you still have time to sign up for the livestream of our conference there next week—but hurry.)

What about keeping assets that don’t require you to deal with banks?

Surely it’s 100% safe and not risky to keep hard assets like gold in the States?

Well, in 1933, during the Great Depression, President Roosevelt confiscated all gold held by private owners… The government literally forced its citizens to hand over their prize possessions.

Keep your gold outside America, and the government literally has no authority to take it.

You never know what crisis will be used by the government to justify actions that can destroy your personal wealth…

That’s why it’s risky to be all-in on one country… or one asset…

That’s why I tell people: diversify or die broke.

Going offshore… seeking a second passport… owning a property outside your home country… Sure, all these things come with some risk.

But the riskier bet—at least in my view—is not to at least be looking at all your options, including your offshore options…

Protect Yourself

In any walk of life, you can’t eliminate all risk. But you can cut down on risk, and become comfortable that the choice you’re making is the right one, by taking certain actions…
Educating yourself… like the extensive tour of Spain I took, and learning about the local market… is one way to protect yourself against risk.

Educate yourself to understand the real risks you’re taking… and then do what you can to mitigate and manage those risks.

The two big risks with the Spain purchase were the developer (would he deliver?) and the amount due at completion. I knew I could cover the progress payments, which amounted to 30% of the purchase price over the first two years of construction, but the 70% balance due if the property didn’t sell before completion was a point of exposure.

At that time, Spanish banks were giving mortgages fairly easily to non-residents. That was the backup plan and safety net for protecting my 30%. If the property didn’t sell, we’d take out a loan in Spain… and rent out the apartment to cover the payments.

Risk tolerance is personal. Only you can determine what you’re comfortable with.

But remember: take no risk and you reap no reward.

Take too much risk, and, well, you’ll likely pay for that, too.

The key is to take the steps to find your balance.

Lief Simon