Building Wealth It's enough to inspire real estate FOMO – "fear of missing out" – in even the most grounded, rational people...
My favorite part of the Irish Times – my go-to paper when I lived in Ireland – is in the real estate section, where the so-very-evil editors show houses, apartment, or even castles that are for sale at a given price (say, €350,000, or €700,000, or whatever sum) in different cities or countries in Europe. (The New York Times has something similar for the U.S., in its What You Get section.)
Invariably, the properties on display elsewhere – Latvia, Mexico, Thailand, Spain, and elsewhere – are big and beautiful, in exotic locales with great views... compared with – for the same pile of cash – the miserable, small, dilapidated shacks available for the same price in your overpopulated, overpriced, hypercompetitive hometown real estate market.
For example... there's a 440-square-foot glorified box in downtown Dublin that's cautiously described as "quaint," for the euro equivalent of around $380,000... and, for nearly the same price, a five-bedroom former Catholic priest's house from the 15th century featuring fireplaces and a turret, with views of Pyrenees, in a French town not far from the city of Toulouse, in southwestern France.
Of course, just because you could buy that apartment in a town in Latvia... or a three-bedroom house in San Miguel de Allende in Mexico... or a place in Cape Town... for a fraction of the cost of where you're living now – especially after housing prices in the U.S. are up nearly 30% since early 2020 – doesn't mean that you should. Like power drills, exercise gadgets, and late-night TV ads for vacuum cleaners, real estate abroad looks a lot easier than it is in practice.
Figuring out ownership rules, taxes, visas, bank accounts, and lawyers on your own in order to buy property somewhere else is hard enough... and then actually moving there (which I wrote about recently) is a lot of work. And how good is the heating in a place that was built a few centuries ago, anyway?
Purchasing real estate abroad doesn't have to be rife with uncertainty, though. My friend Ronan McMahon makes a living finding opportunities in residential real estate all around the world, helping normal Americans who are looking to buy – whether to live, as an investment, or both.
The Residential Zoom Boom
And business is good. Ronan points to what he calls a "zoom boom" in global destinations that are drawing American workers away from the overpriced hovels of urban decay... cookie-cutter strip malls... and soul-destroying traffic, and into more appealing international locales.
"Why work from home if you're paying $3,000 a month to live in a studio apartment in San Francisco? Or why work from home when you're living in the Midwest and it's winter?" asks Ronan.
When I spoke with Ronan in May 2020 about buying real estate abroad, he pointed to a handful of attractive real estate markets, including Rome, Florence, and Venice in Italy... Medellín, Colombia... Tulum, Mexico... and parts of Nicaragua.
Since then, the pandemic sped up long-term trends that were already in place – toward remote work and a better quality of life, Ronan told me. That's true both for people in the middle of their professional lives who are looking for more flexibility, as well as retirees in search of new horizons.
Some of the people looking at international real estate options want to make money... others want a place to live... and most wouldn't mind a combination of the two.
The key, Ronan says, is to find areas that are ripe for big-time investment – locations that will support and drive population growth... and thus, real estate demand. The strongest real estate markets around the world have good infrastructure – highways, power grids, and big airports with easy connections to and from a wide range of countries.
And one of those markets lies just south of the U.S. border...
The Riviera Maya's 'Path of Progress'
Ronan likes the Riviera Maya, which includes the area between the cities of Cancún and Tulum, in Mexico.
This location has what Ronan calls a "path of progress." That's when a locale's combination of location, convenience, and investment creates a virtuous circle of development, growth, and tourism. And with that, of course, comes higher demand for villas, condos, bungalows, and apartments that are comfortable, safe, and close to the action.
In Riviera Maya, the Mexican government recognized that the area's beautiful beaches and easy access to the rest of North America made it a great tourist destination. So it built a big airport, installed water-treatment plants and power infrastructure, and laid down blacktop. Tax breaks and cheap financing eventually drew the attention of hotel chains. In 2019, more than 6.4 million tourists visited Cancún.
Ronan sees similar "paths of progress" in Los Cabos, at the southern tip of Baja California, and in parts of Panama, Costa Rica, and Uruguay.
In many of Ronan's target markets, $150,000 to $300,000 can buy you the equivalent of a big townhouse in the U.S... only it's close to a tropical beach and in a town where a big night out will set you back $20. Also, gross yields range from 8% to 14% in these places... compared with 3% to 5% (if you're lucky) in much of the U.S.
Of course, investing in developing countries like Mexico comes with risk. The rule of law is less developed and the legal system itself – especially for a foreigner – can be challenging to navigate. Also, government upheaval can result in wholesale changes – and not good ones – in how foreign capital is treated.
The Portugal Opportunity
For people who want to avoid that risk, Ronan points to Portugal. In certain parts of that country, nice beaches, good golf, rich history, and an excellent quality of life are available for a fraction of an American suburban budget.
"The likes of Portugal might be inefficient and slow... but they're not going to screw you over," Ronan says.
What's more, local banks in Portugal extend mortgages – even to foreigners – at rates well below those in the U.S. So while you're taking a currency risk, the European Central Bank is likely well behind the Federal Reserve when it comes to raising interest rates.
It's enough to scratch that FOMO itch.
(If you're interested in learning more about Ronan's international residential real estate newsletter, click here.)
Best regards,
Kim Iskyan
March 24, 2022