International Real Estate Investment: What Investors Should Know Wayzata MN

It’s easy to take for granted the scope of “international real estate,” which lumps all the real estate markets of the world—193 countries, to be exact—into a single category of three words. While we recognize that a detailed guide to investing in international real estate could easily fill a book, NuWire has managed to summarize some of the basics into a short list of what investors should know before venturing into foreign real estate.

1. International real estate investment can offer excellent diversification of assets

Investment in international real estate offers diversification, which is “a superior investment style,” according to Ross Moore, senior vice president of Colliers International USA. Diversification effectively distributes risk among multiple markets and can optimize potential for return.

Because real estate market trends are cyclic, “we may have a down-cycle here in the United States, but [there may be] excellent opportunities in Argentina or Europe, [which] are in the beginning of an up-cycle,” Tyler Clay, president of FIABCI-USA, or the U.S. Chapter of the International Real Estate Federation, said.

Large, commercial real estate investors usually need a large amount of capital in order to acquire and maintain a global portfolio, according to Moore. However, small investors have the opportunity to diversify their assets on a microcosmic level, such as purchasing residential property in markets that show considerable potential for upward growth.

2. Currency exchange rates can enhance or impede profit margins

International real estate investment essentially combines property two types of assets: property and foreign currency. The value of a foreign currency can profoundly affect the amount of return made on an investment, as it increases or decreases relative to the U.S. dollar.

For example, a small office building in Europe worth €1 million six years ago would have equated to $920,000 U.S. dollars, when the Euro traded at 0.92 Euros to the dollar. Since then, any appreciation in the building’s value might have been compounded or negated by changes in exchange rate. In this case, the exchange rate would have added to the returns: With an appreciation of 10 percent, the newly valued €1.1 million office building would be worth $1.65 million— almost twice its original value in U.S. dollars.

Foreign real estate investment mixes property and currency Conversely, a strengthening dollar may slow down appreciation in a European property. Experts intuit that the value of the dollar may be at a cyclical low, and may soon begin to climb again.

“If I buy now at €1.54 on the dollar...but I think the dollar will be a little bit stronger [five years from now], that’s going to eat into my returns,” Clay said.

Investors who would prefer not to deal with the volatility of the foreign exchange market, or forex, at all &ldq...

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