Euro-Dollar Exchange Rate And Greece Debt Crisis Implications For Purchasing Property Denominated In Euros

I don’t try to predict currency exchange rates. I pay attention to them in property markets where I’m active or interested in investing, but I don’t attempt to time property purchases to them except in extraordinary circumstances.

Timing a currency investment is different than trying to time a real estate investment according to currency fluctuations. Currencies are liquid. Real estate is not. Making the decision to buy another currency can be done online and in seconds. Scouting and due diligence for a property investment are best done in person on the ground and take time, sometimes months. Rarely does it make sense to hold off on a real estate purchase while waiting for a currency to reach the exchange rate you’re hoping for.

Early last year, I bought an apartment in Paris even though I felt the euro was overpriced. Had I waited until the same time this year to buy that apartment, I would have saved 20% on the euro I bought with my U.S. dollars for the purchase. On the other hand, I would have missed out on that particular apartment, which fit my needs in terms of location, size, and layout. I bought when I bought because I had a need for the property, because I had the time to focus and carry out the search necessary to finding the property, and because a property that fit all my criteria presented itself. I’ve learned to act when what I want is in front of me if possible. In this case, the apartment I purchased has now enjoyed some appreciation and has generated rental income.

A reader wrote in years ago when I bought my apartment in Medellín, telling me I was crazy. Didn’t I realize the Colombian peso was overvalued? He was going to wait until the peso hit his target of 2,000 pesos to the U.S. dollar before buying.

At the time, the peso was holding steady in a band around 1,800 pesos to US$1. The peso did eventually hit the guy’s target more than three years later. In other words, the 10% currency savings he was waiting for cost him at least 25% in property appreciation… plus three years of lost rental income.

This year, I’m considering buying an apartment in Portugal. Today is perhaps the optimal time to get into the Algarve property market, as prices have stabilized in some areas and are even beginning to move upward in spots. Still, you can find great deals on the ground for rental apartments generating decent yields.

As I watch the Portugal property market, I’m also paying attention to the situation in Greece. Many pundits expect Greece to leave or to be booted out of the euro. While a Greek exit should, in theory, bolster the euro, as the eurozone would then be rid of the dead weight that is the Greek economy, I expect that, even if Greece and the euro part ways, the currency will fall more before beginning to recover.

My U.S. dollars already buy 18% more euros than they did this time last year (when I began thinking about buying in Portugal). However, again, the deepening crisis in Greece likely will push the euro down further. This could be an instance where I time my property purchase just right accidentally.

Regardless, my plan is to carry on with my search ignoring the euro’s position versus the dollar. I’ll buy the apartment that is right for me when I find it. I’ll stay focused on the fundamentals of the investment and not allow myself to be distracted by any currency implications.

Lief Simon

“Lief, I am Canadian and have just left the United States where I was living. You and I met at your Belize conference in October 2014.

“I will probably buy one of your Los Islotes lots. Since I have zero IRS accountability, would a Panama trust or foundation be better to hold it?”

L.G.

Foundations have some better flexibility when it comes to handling heirs, and, in the case of Panama assets, a Panama foundation has tax benefits in Panama.

If you’re going to live in Panama and have most of your assets in Panama, then, yes, a Panama foundation probably makes most sense.