This was an answer to someone in a RE forum who pointed out the fact foreigners can't use Colombian sourced debt, in Colombia to increase ROI.
Here's my response…
Colombian sourced debt is not going to happen
Yes, you're not going to be able to use Colombian sourced debt in Colombia.
leverage your US equity
That said, I've leveraged the equity on my US assets several times to remodel and flip properties in Colombia.
If I can take out fixed-rate debt at 5%, and a 70% LTV, and put it to work making 30% returns, the numbers make sense all day.
USD debt to buy peso assets
Especially when you using USD debt to buy peso assets when the peso is extremely cheap, historically speaking, against the dollar.
So you can get your 30% return while at the same time taking a high probability to bet you'll make another 10%-40% on the currency, if and when, you take the pesos and buy back dollars.
It's not what you bring in, it's what you send back out
Also, remember that you're not exchanging the amount you brought into Colombia but the amount you're taking back to the US that's compounded at 30% clip.
So send $1,000,000 USD down, when the peso is 3200/1, compound it at 30% per annum, and then after a few years, take $2,000,000 (doubled money with a few years of flips) in pesos back to the US when the peso is 2000/1. You're $2,000,000 now buys $3,200,000 worth of dollars.
Remember the initial $1,000,000 could have been leveraged off the equity in US assets…OPM.
What if the peso goes to 4000/1? Great, the purchasing power of your USD cash flow increases dramatically to redeploy at the 4000/1 rate.
When Your expenses are denominated in pesos
If your expenses are denominated in pesos it's a huge win assuming local inflation doesn't get out of hand. In which case, the nominal value of your peso Real Estate would increase, maintaining purchasing power.
And one extremely important fact most/all investors overlook
Tremendous returns can be made simply by an asset increasing with the rate of inflation.
Example: If your cost basis on an asset is 100k and its value is 200k, a 10% inflation raises the value to 220k, in real terms the asset didn't increase in value, but your cost basis is 100k so you gained purchasing power because the asset increased at 20k (10% value), not 10k (10% cost.)
My point is, you're 100% correct that there's no access to Colombian based debt, but if you get creative, ways exist to achieve the same type of returns, with the benefit of the reduced downside, due to the lack of credit in the existing Colombian housing market.
I would love to compare notes and happy to debate ANY BP members with you. 😉
George.
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