In the last installment, I mentioned that it was not sufficient to dollarize in order to gain security and economic independence; and many Venezuelans used to keep their dollars in savings or checking accounts in the United States, especially in Miami, New York or Panama, realizing excessively low interest and investment returns that do not even compensate for inflation and with a very high opportunity cost. Consequently, I brought up various investment alternatives that differ from conventional opportunities for gaining a higher return. I will now focus on various options within the real estate sector in the United States which I consider to be a very interesting investment opportunity for putting aside a portion of dollarized assets and for investment and portfolio hedging.
The U.S. real estate market, particularly in certain areas following the significant price drop that began with the 2008 crisis, currently offers a great investment opportunity. The current prices at which properties in some areas of the United States are listed are the lowest in at least the last seven years. The rise in real estate sales via short sales, foreclosures, distressed properties, real estate owned properties, etc., gives way to purchasing very good properties at a considerable discount. Property sale prices in Florida cities, or in Las Vegas, Nevada, and Detroit, Michigan, are well below their replacement values.
The Most Appealing Areas and Property Types with the Greatest Potential
The cities with the best prospects, great investment opportunities and the most significant revaluation possibilities are the so-called “coasty cities” (New York, Miami, Washington, D.C., San Francisco, Los Angeles, Boston and Chicago). These areas and properties are called “trophy assets.” There is currently a demand for buying great properties at great prices, which is why private and institutional investors are on the hunt for these properties. One of the most affected sectors is Florida. In the case of the Miami area, the price drop produced what turned out to be a unique situation with regard to price levels – especially for luxury condominiums, which is why international demand over the last four years is generating the current construction boom in Miami – and the recovery of price levels corresponding to 2006. However, there are great opportunities for acquiring housing in areas in Florida at closeout prices with a 40 percent discount. Latin Americans, particularly Venezuelans who are betting on the market recovery in the medium term, will not only have the possibility of gaining great investment returns in the medium-term outlook, but also the possibility of acquiring a good property.
What Type of Properties to Invest In?
Today’s properties with the greatest potential are the so-called “multi-family homes” and “condos,” followed by hotels and commercial properties for the more sophisticated investors or those with greater investment capacity, and lastly, office spaces.
How can I Invest?
There are various ways to invest and take part in real estate. The traditional way is to purchase with cash or with financing, putting down 50 percent at the start and funding the rest using 30-year and 15-year financing. Other ways of investing with great diversification and versatility in the different areas of construction (residential, commercial and office spaces) are through investment vehicles like real estate investment trusts or exchange traded funds in the real estate sector. You can participate in these investment instruments for a reasonable amount of money (a minimum of $10,000 to $15,000). Through them, you can invest in investment shares or units in different real estate sectors or even the hotel sector, with the liquidity that these investment instruments provide.
The Crowdfunding Revolution
Very recently, crowdfunding or collective financing has been giving way to democratic participation in real estate investment. Through this type of investment, small and medium investors can now participate in investments in large property assets like hotels and commercial spaces, which generate a much higher investment return with a greater revaluation percentage than that of traditional investment in residential properties. The crowdfunding scheme is changing the way of investing and financing projects, and there are currently funds that are successful with this new scheme in the real estate area. This is the future. In coming installments, I will present ways of investing in excellent projects for a reasonable amount of money in places like New York, Miami and Colombia.
The author is a financial adviser and participant in the Advanced Management Development Program in Real Estate at Harvard University’s Graduate School of Design.