Why Now is the Time to Invest in Brazilian Real Estate

September 17, 2015

Commercial, Rental

Brazil will always be a beautiful and exotic locale with beach-side condos and vacation homes in demand. The Brazilian vacation rental market is in good standing with AirBnb and similar services providing high-end vacation homes available for rent, bringing in thousands of dollars of revenue.

Photo source: Creative Commons

 

Why are these homes good investments?

Due to tumultuous political and economic situations, it’s now cheaper to buy real estate in Brazil. Housing prices in Sao Paulo have dropped 20% in certain areas and could continue to drop further.

Since 2011, Brazil and the U.S. have basically been trading places with their respective economic climates, and in the past few years, the Brazilian real (R$) has lost nearly half of its value against the dollar. During the most recent recession in the U.S. (2008-2011), Brazil’s economy was flourishing at a peak in all areas. Today, while the U.S. economy has mostly recovered and its markets are in very good standing, Brazil’s economy has suffered a recession in all markets including the housing sector.

usd vs brl

During the U.S. recession from 2008-2013, many Brazilians took advantage of the housing crisis by on the acquiring U.S. real estate, with a focus in Florida. Many of these purchases involved vacation rental property.

Three factors contributed to this great opportunity:

  1. The currency difference. According to the chart above, in 2011 there was an exchange rate of nearly 1.5 Brazilian reais (R$) for 1 American dollar ($). If a Brazilian were to purchase a condo in Miami for $100,000, they would pay roughly R$150,000. As of August 2015, the exchange rate is now BRL 3.78 to USD 1. If that condo was sold and the Brazilian received only what he paid for it in 2011 ($100,000) he would receive 378,000 BRL. That’s a net gain of 228,000 BRL from the sale. Of course, with exchange rates where they currently are, you would want to reinvest that profit in the Brazilian market where you can currently get more for your money.
  2. Buy low, sell high. Buying real estate properties during the U.S. Recession allowed Brazilians to buy at a large discount and, in many cases, at a fraction of the original sale price. Florida housing has appreciated an average of 7% annually over the last 4 years — and in certain areas that figure is even greater. Using the same metrics from the currency difference above, that is an average of 28%+ over the last four years since the asset was purchased — making it an even more lucrative investment.
  3. Rental income stream. If it was a vacation rental the demand has only increased. High rental occupancy averages have driven rents upward creating significant profits for investors. Of course, several different criteria determine the size of those profits, but overall that industry has done very well.

These three market conditions now exist for American investors looking to purchase real estate in Brazil. Now is your chance to reverse positions and seize the opportunity on Brazilian real estate.

  1. A glut in the housing supply has created low prices in most Brazilian markets.
  2. Demand for rentals is projected to be high because of the 2016 Olympics. Also, demand for rental property usually trends upwards after a housing bubble bursts.
  3. Favorable exchange rate for investors paying with US Dollars as the current exchange rate of USD/BRL is 3.78.

Under these market conditions investors can expect to get more property for their money, profit from rental incomes, and profit in a few years when the market recovers and they sell their assets. Don’t miss the boat, but make sure to be patient about sales. Be prepared to hold onto your new investment property for a few years in case the economy gets worse before it gets better.

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About David Askar

David Askar is a Chicago-based real estate investment expert and financial asset strategist. He’s the chief asset strategist at DreamTree, Inc and contributes to his own real estate blog, The Askar Report.

View all posts by David Askar

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