Part One of Three
By
Gary Scott
My greatest profits (and losses) have come from international
real estate investing distortions created by currency shifts.
Now two distortions have come together to create an unbelievable
deal.
International Real Estate Investing Distortions
Story
Read the true story below first, then I'll explain.
The Tiffany lamp cast an
amber glow, rich ivory and warm in the grey gloom of early
dusk. The gold knobbed mahogany desk, its deep patina waxed
and smooth, shone with reflections of ancient leather Chesterfields
stuffed full, but rumpled with age and of maritime shots
that hang in brass frames on the wall. The room spoke of
settled tradition, the kind that might never end. But my
thoughts instead were on the demise of this room, and how
it was coming soon.
1976,
London , England . Artillery Row near the houses of Parliament.
After building my business in Hong Kong ,
I moved to London and
carried on expanding there. Business grew and
I opened a new market, the United States . The pound had
reached an all time low of nearly 1.5 dollars per British
pound, which made the dollars from my U.S. direct mail
campaigns more easily profitable. Lured by increased sales,
I left my one room office that sat over a coffee shop in
Wigmore Street and moved into a five office suite of antique
offices in Artillery Row and began building up a staff
for expansion. We bought a computer, a Data General about
the size of a refrigerator with 64K of processing power.
Then that was a big deal and costs about $75,000. I felt
very good about everything because I saw great potential
in the United States.
International Real Estate Investing Distortions Disaster
The offices were everything English tradition could provide,
balconies overlooking Victoria Street near the River Thames
and Buckingham Palace, leaded frame windows, antique partners'
desks, leather couches and chairs, thick carpet and old paintings
that were exquisitely framed. The office looked like it had
been there forever and would stay there too until the British
pound strengthened and rose 37% versus the U.S. dollar from
1.50 dollars per pound to 2.40 per pound. The fee I charged
for the service I was providing was $99 per year. At 1.50
dollars per pound, I received 66 Pounds. When the pound had
strengthened, the same $99 brought me 41 pounds. My business
which averaged 20% profit on sales now lost 17% of sales!
This was a hard and expensive lesson for me to learn. I sold
the offices and left London just to stay in business. Currency
changes often create more profit or loss than any other factor
in business today.
The British pound was once the reserve currency of the
world, but as the dollar could do now, it started falling
steadily against other major currencies at the turn of the
19th century. At one time, it took US$10 to buy one British
pound, but it had fallen steadily so that when the Bretton
Woods Agreement disintegrated in 1971, it took about US$2.50
to buy one British pound. It then plunged all the way from
US$2.50 to a low which reached US$1.00 per pound. It has
since recovered back to over US$2.00 per pound and since
weakened to the US$1.50 level where it remained at that low
for more than a year before it made its rise.
Yet at the same time when the pound created so many problems
for my business, it also made a small fortune in another
direction.
International Real Estate Investing in Houses
Earlier in 1970 I had also lived in London , England for
a year, then moved to Hong Kong . During that time I also
maintained a home outside of San Francisco , California .
This was a time of great inflation. My homes in California
and in Hong Kong appreciated greatly. In 1976, when I moved
from Hong Kong back to London , I noticed that London real
estate was priced about the same as it had been in 1970.
This puzzled me. Why had London property prices remained
flat despite inflation? Was this time for international real
estate investing?
On investigation, I learned that there had been a huge
real estate crash in 1970 which continued to dampen real
estate prices six years later despite the rampant global
inflation. Then at the same time, the British pound collapsed
suddenly over 35% versus the U.S. dollar from 2.4 dollars
per pound to that low of 1.50 dollars per pound.
Huge International Real Estate Investing Distortions Collapse
This meant to my way of thinking that London houses, which
I thought were already very cheap by world standards, just
became 35% cheaper.
I could not resist, started property shopping and eventually
bought an old five bedroom house in Bedford Park in West
London . I converted $15,200 to make a 10,000 pound down
payment and took a 25,000 pound loan to meet the 35,000 pound
asking price I had negotiated (about US$53,250). A couple
of years later, the pound rose as did my business losses.
I had to shut down my business and move. This meant selling
my London house. Here I discovered that I made some great
profits.
International Real Estate Investing Distortions Profit
First, I had been right. London property had been under
priced. I was able to sell the house for 115,000 Pounds.
I made a profit of 80,000 pounds. But the currency change
helped enormously too. The pound had risen from 1.52 U.S.
dollars per pound back to over 2.2 dollars per pound. My
80,000 pound profit was not worth US$121,600 (value at the
1.52 rate) but was worth $176,000. I earned $54,400 extra
profit because of currency moves! So international real Estate
investing and currency distortions both worked well for me.
One of London ’s major
real estate firms is Sothebys. Picture here is from London.sothebysrealty.com/
International Real Estate Investing Distortions Lesson
There is much we can learn from this case study both about
real money, international purchasing power and how they affect
currencies. This study is a classic example of how real money
moves versus currencies that have been adulterated by governments.
In this case, property was the real money. Residential
property is a classic hedge in times of inflation and currency
destruction because it always offers a real service of value,
i.e. a home for one to live.
Part two of this three part
series looks at why and how to cash in on international real
estate investing. Just
use the arrow below to go to part two.
Gary Scott
For more on international real estate investing
distortions go to Successguidelines.com
|
