Exotic Lands, Extraordinary Opportunities
by Dr. Steve Sjuggerud
Advisory Panelist, Investment U
January 21, 2002: Issue # 437
Dateline: The Pacific Coast of Costa Rica
Frank is an Oxford Club member and a restaurateur from South Carolina who has invested heavily in Costa Rican real estate. Frank owns beachfront property in the Tamarindo area in the northwest, and he’s bought additional property in the mountains on Lake Arenal. Frank and his wife built a house on the beach, and they now spend a portion of their winters down here.
They’re not alone. Americans are fast discovering Central America. They’re coming in droves, investing, and in some cases, even moving here. A number of them, like Frank and his wife, are at least bypassing Florida’s winter for a much cheaper Costa Rican one.
And it’s easy to see why . . . Eating lunch on a large balcony in San Jose on Saturday, it was probably 75 degrees with a nice breeze. Just perfect. And that’s late January!
Warm Weather… Great Scenery… & Huge Profits?
There’s another reason – beyond the weather and the beaches – that Costa Rica is so attractive: it’s good business. Here in Costa Rica, a small $20,000 investment in beachfront property – like the one Frank made 15 years ago – would be worth over $200,000 today. And for a real “in-demand” location, prices are much higher. Frank told me at dinner last night that a one-acre lot on the beach at Playa Flamingo just sold for $850,000.
But you haven’t missed out, yet. There are plenty of opportunities down here. And the sky’s still the limit . . . How do I know?
We’ll, I’m writing to you today from a 440-foot sailboat, and yesterday we sailed nearly the entire Costa Rican coastline. Believe me, 95% of the coastline is still untouched by man. Right now, we’re anchored at the island of Coiba off the coast of Panama. It’s a massive island, yet I don’t think a soul lives here.
Untapped opportunity abounds . . . it’s an opportunity you should consider.
How to Make 12% – Or Better – in Real Estate
In 2000, as stocks were crashing, home prices in the U.S. continued to rise.
This wasn’t an accident. Over the last 30 years, when stocks have struggled, real estate has actually done well. Regardless of whether stocks were booming or crashing, U.S. real estate was just chugging along at 4% per year.
If you can collect 4% a year in appreciation, plus 8% a year in net rental income, that’s 12% a year. You’ll recall from Investment U #100 that Warren Buffett – commonly regarded as the world’s greatest investor – only expects us to make 7% a year for the next decade in stocks. So – in comparison – 12% a year from real estate sounds pretty good. But you can do even better . . .
You can boost your returns, increase your diversification AND reduce your risk through investing in real estate. You just need to consider investing in two things in addition to your home:
- Central American real estate, and
- Real estate stocks in the U.S.
Two Ways to Get into the Real Estate Game
You’ve already heard the case for investing in Central American real estate. It’s pretty clear-cut. Well, the case for investing in U.S. real estate stocks is just as attractive and just as easy to understand. In fact, one real estate stock (currently included in The Oxford Club’s recommended portfolio) provides a great example.
It’s Equity Residential Properties (NYSE: EQR). Managed by real estate investment icon Sam Zell, EQR literally owns billions of dollars worth of apartment complexes all across America. With EQR, not only do you profit from real estate management, but you also get great diversification, professional management, easy in-easy out liquidity, no closing costs, high income, no problem tenants, days off when you’d like, etc.
Why would you invest in real estate outside of your home any other way?
Or, to reduce your risk even more, you could consider buying a real estate stock fund like those offered by Vanguard. (For more details, see www.vanguard.com).
Real estate is a more powerful investment than you might think for hedging your exposure to the stock market. To increase your real estate returns even more – and to reduce your risk through diversification – you should further investigate Central American real estate and U.S.-based real estate stocks.
Until then,
Good investing,
Steve
Today’s Investment U Crib Sheet
- Real estate has always provided an attractive hedge for investors during rough periods in the stock market. Opportunities within Central America offer investors impressive profit potential . . . and great weather!
- One way to become a real estate investor – without the hassle of tenants, closing costs, etc. – is by investing in real estate stocks or funds. U.S. real estate stock Equity Residential Properties (NYSE: EQR) and Vanguard’s real estate stock fund (more info at www.vanguard.com) present sound choices for those interested in real estate profits.
- Learn more about Central American investing and living, by visiting http://www.internationalliving.com. To learn about the Oxford Club’s Central American project, visit http://www.ranchosantana.com And, finally, to learn more about real estate stocks, visit http://www.nareit.com
- Home Ownership: How to “Buy on Fear” in Real Estate
- The Commercial Real Estate Sector: As The Other Shoe Drops – Be Wary of Bank Stocks
- Real Estate Investment Trusts: How to Double Your Money With REITs
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