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We live in the Information Age, where anyone with a computer and time on their hands can find out anything about everything. The world is changing, and we are now in a global economy. Like the “butterfly effect”, every action has an equal and opposite reaction. As such we need to be aware of the global economic and demographic trends when choosing our investments. Most Wall Street experts (unbiased economists, not your stock broker) will tell you to expect single digit returns in the stock and bond markets for the next decade or so.
An educated and savvy investor should also consider the following when planning his or her portfolio:
The dollar is weak and will continue to fall. Wars, record deficits, inflation and more will keep the downward pressure on. As the U.S. Dollar continues to fall in value, U.S. Government bonds lose global purchasing power. S&P’s bond rating unit warns that the U.S. Government debt could be downgraded from its AAA rating by 2010 if the current account deficit is not properly addressed. The United States Government will have to start tremendous tax increases in just a few years to fund Social Security and Medicaid benefits for the flood of retirees U.S. real estate is massively over-priced, and a steep rise in interest rates could burst the bubble. The market level of mortgage rates is set by the global bond markets, not the Fed. The 50 million plus Baby Boomers now beginning to turn 60 years old will have tremendous economic, social and political impact. Investment sage Warren Buffet has been quoted as stating, “The rest of the world owns $3 trillion more of U.S. Government bonds than we do. Pretty soon there will be a big adjustment.”
What do you think would happen if China and other governments decide they no longer want to hold US Government Treasury bonds and begin dumping them? As recently as August 2007, China has insinuated it would do just that if the United States continues to flex it’s political muscle and disrupts the U.S./China trade balance. This would surely put upward pressure on interest rates to attract alternative foreign buyers. If interest rates rise, the value of bonds will fall. It is important to understand that the shift is not a one-to-one relationship, but is rather a multiple of the interest rate movement. A 30-year bond moves approximately 13% in value for every 1% change in interest rate. Any upward shift in rates would be very detrimental to the housing and refinance market.
What do you think will happen to the value of homes if interest rates spike up? Think of the value of a house as fluctuating like the market for a Treasury bond. In the post 9/11 years, the Fed’s easy credit monetary policy and low interest rates lead to huge increases in the market price, not the value, of the whole country’s housing supply. Combine these facts with the many exotic “zero down” and “no equity loans” underwritten in the past four years and we truly have a recipe for disaster. How many people do you think will end up in foreclosure? How will those foreclosures affect the market? Most of those loans were securitized, packaged and sold to Fannie Mae and Freddie Mac and ultimately ended up in the financial markets, mutual funds, maybe even your 401K or other retirement funds!
Diversifying away from a falling dollar and into hard assets outside the U.S. just might be the only way to protect your hard-earned wealth. Buying land outside the US can help to preserve wealth as the US dollar falls in value. In most countries around the world, real estate is not leveraged by a massive mortgage market. Real estate in other countries typically sells for a cash price. A burst of the US housing bubble will NOT have any direct impact on real estate in other countries. In fact, International real estate is a hedge against the falling dollar. Remember dirt is the ultimate hard asset. When the dollar falls, the price of dirt will go up by a corresponding dollar amount. With the dollar falling, international real estate has been, and will continue to be, a solid place to invest.
Need further convincing? Consider the Baby Boomers, and their impact on the economy!
In 2006, the first Baby Boomers began to turn 60 years old. They are just the first in a massive wave of soon-to-be retirees seeking affordable housing, sunshine, safety and quality of life. It is not just the retiring Americans, there are also Canadians, Germans, Swedes, British, Italian, French and others that are looking to escape unfavorable weather, poor economies, expensive housing, crowded suburbs, complicated health care systems and unfair tax burdens.
Since it is becoming obvious that most retirees will be unable to afford the lifestyle they want in the United States, many are retiring to destinations such as Costa Rica. As a result of this international trend, Costa Rica is experiencing the early stages of a land boom. Costa Rica’s real estate market will absolutely have a long-term sustainable boom because it is based upon new flows of wealth, not just speculation or currency and interest rate manipulations like the United States real estate market.
So how can you profit from this trend? You can invest in raw land, single family housing, town homes, and luxury rental units. Investing with this trend in mind doesn’t mean you have to, need to or even plan to retire in Costa Rica, anymore than you need an engineering degree to invest in a technology mutual fund or a medical degree to invest in a biotech fund! It is just the most prudent and timely investment you can make.
In addition, investing in real estate for your retirement may serve as a means to diversify your retirement portfolio. You now have a way to hedge against the cyclical changes in the stock market, bonds, the economy, and bank and government based investments. Land and property are loosely correlated to the stock market; the value of real estate tends to rise when stocks are going down. Real estate is the ultimate hard asset. There are no corporate and accounting scandals. It is a tangible asset, and not just a paper certificate. There is great downside protection because real estate inherently maintains value, as contrasted with stocks, where the entire investment could go to zero!
Now consider all of these factors, the current domestic and economic data, the Baby Boomer demographics and the need to diversify out of the falling dollar and into appreciating hard assets. The choice is clear. Investing in the right international real estate is a smart way to diversify your retirement portfolio! And, investing in Costa Rican real estate is your best option!
Some interesting facts about Costa Rica include:
Costa Rica has been a democracy for more than 115 years. It is known as the Switzerland of Central America. It is the only country in the western hemisphere that does not have an army. In fact it abolished its army in 1949 and allocated the defense budget to education and health care, resulting in the highest literacy rate in the western hemisphere. At 96% Costa Rica has the second highest literacy rate in the world!
In a recent study of health systems around the world Costa Rica was ranked just above the United States. In fact, Costa Rica’s health care system is rated among the top in the world and it has become a leading destination in the world for cosmetic surgery and dental work. They have a lower infant mortality rate than the U.S. and Costa Ricans outlive Americans by 5 years on average.
CNBC calls Costa Rica “The Hottest Real Estate Market on the Planet!”
Fortune magazine ranked San Jose, Costa Rica’s capital, among its 25 best cities in the world to do business.
Foreign investors in Cost Rica have equal rights and laws to protect them. The regulations for conducting business in Costa Rica are the same for both local and foreign corporations, which can fully own and control local corporations, as well as real estate without any access limitations or restrictions.
Living up to it’s namesake as “The Switzerland of the Americas”, Costa Rica offers: asset protection from creditors, judgments, liens, bankruptcy and divorce; privacy from individuals and governments and fewer taxes.
There are NO capital gains taxes on the sale of property in Costa Rica. There is no income tax in Costa Rica on money earned outside the country by legal residents.
More social security checks go to Costa Rica than anywhere else in the world! Currently over 300,000 Americans are living in Costa Rica either full or part time.
You can live extremely comfortable on as little as $2000 a month in an extraordinarily beautiful country with gorgeous sunsets, endless beaches, unbelievable fishing, spectacular mountains and warm friendly people.
Property taxes are 0.25% of the recorded property value, which is not always based on real market value. Thereby your $250,000 luxury getaway is just $625 year in property taxes. Additionally, since the Pacific coast of Costa Rica is actually hurricane proof, insurance is for your luxury home is just as inexpensive as the taxes.
Ownership of real estate in Costa Rica includes a deed and title insurance; just like in the United States. The ownership of all properties is recorded in the National Registry, as are all liens, and encumbrances on properties.
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