For every successful real estate investor there are many behind-the-scenes have overextended themselves, gambled their savings and are often left with nothing. The vast majority of investors who struggle to make a return on their real estate investments have probably failed to research each and every area of the industry. There is so much to look at when considering a real estate investment and one area we will cover today is currency risk.
International markets are more accessible
There is no doubt that the introduction of the Internet has made international real estate markets more accessible to the worldwide investing community. Whether it is simply a phone call, an e-mail or perhaps a chat on Skype, there are now opportunities to invest in each and every real estate market in the world. This has brought many new investment opportunities, many interesting ideas but in some cases inexperienced international investors seem to think this is money with no real risk. There is no such thing!
We hear about the traditional problems with investing overseas, finding companies you can trust, knowing what is happening in the local market and also securing your overseas investments. These are issues which can be overcome by using companies and third parties referred to you by friends and family who come with a good reputation. However, one other issue which you will need to keep a very close eye on is currency risk.
Quote from PropertyForum.com: “There is no doubt that many of us will have come across so-called “certain investments” which promise the world for minimal risk. These are very eye-catching, many people are attracted by these offers although the fact remains that if there is no risk with an investment then there is no return.”
Whether you are buying a property to resell or you are buying a property to rent out the chances are that you will have a long-term exposure to an overseas market. You can take the best performing market in the world, you can choose the right area and you can invest in the most sought after type of property but if you get the currency wrong this can be a game changer!
Managing your currency exposure
There are ways and means of hedging your currency exposure and we strongly recommend taking professional financial advice at the earliest opportunity. Can you imagine how heartbreaking it would be to see your investments increase significantly in terms of local currency only for the exchange-rate to have gone against you when converting back into your sovereign currency?
For many years investors effectively discounted currency issues because of the relatively small movement in some of the major currencies. However, we only need to look at the 2008 mortgage crisis in the US which very quickly spread across the world and had a massive impact upon exchange rates. The Euro collapsed, the pound came under pressure and the dollar was struggling to hold its own leading to massive volatility across the currency markets.
Is international real estate investment really worth the trouble?
As we touched on above, the Internet has opened up a whole new field of potential real estate investments for individuals and companies around the world. The fact remains that if it was “easy” and trouble-free then everybody would be doing it. So in brief, yes, international real estate investment can be very lucrative but you need to do your research and you need to monitor not only your investments and also your currency exposure on an ongoing basis.
This is where a third party advisor would be worth their weight in gold!