Expanding Your Portfolio?

Introduction

You probably started out just like me; about 8 years ago you purchased a buy-to-let investment property – located around 20 miles from where you lived. It was not perfect, so you hired a local builder to bring it up to scratch. Soon after you placed your advert for tenants in the local gazette and within a week, you had a nice new shiny tenant who was just perfect for your apartment.

Can you remember how it felt when the first rent cheque dropped through the letterbox? For me, it was magical, someone has just given me £1,000, I thought this is great! I want more of these.

Your confidence was now sky high and with a rapidly rising property market, you were able to re-mortgage your investment property to release further capital. You used these proceeds to purchase a couple more buy-to-let investment properties. Within 4 years using the same system, you were now in control of a property portfolio worth in excess of £1,000,000, but – with prices now reaching an all time high it was very difficult to make the numbers continue to work.  You could also see that the domestic market was close to reaching its peak.

With a plethora of low-cost airlines serving many destinations in Europe, you felt it would be a good idea to purchase your first overseas investment property within the Euro-zone. You studied various countries and invested in a country that was at the start of its growth curve, creating strong potential for an increase in property values and income and that matched your investment objectives.

After buying in several locations around Europe, you now want to diversify your portfolio by investing in South America and you have shortlisted the world?s largest emerging property market ? Brazil as your next stop.

Why Brazil?

Home to some of the world’s most idyllic beaches and tropical rainforests, nowhere captures the essence of South America like Brazil. It is the largest and one of the most beautiful countries within the region.

In the past Brazil attracted fewer tourists than even Austria or Ireland, but thanks to a range of government initiatives and increased spending on infrastructure, it is now attracting record levels of tourism and according to travel company Expedia – Brazil is predicted to be one of the most popular destinations for travellers this year.

Under the strong leadership of President Lula, interest rates have fallen from 26% in 2003 to 12.25% (at time of writing) and inflation currently stands at around 4.3% after reaching a high of 2,500% in 1993.

With the mortgage to Gross Domestic Product (GDP) ratios at just 2 percent, it is quite clear to see why Brazil is not overly affected by the ?credit crunch?. After all, Brazil?s mortgage market is only just starting to develop. This is very good news for the ?early bird investor? who can secure their investment now and then watch demand increases as more local people gain access to competitively priced finance.

Standard & Poor recently upgraded Brazil credit rating to investment grade, which means that Brazil is considered a safe investment destination that is unlikely to default. This should both  increase and accelerate investment into the country.

For more details and statistics about the merits of investing in Brazil property, why not  download our Brazil Property Report.

Property Market Cycles

Timing your entry and exit in a property market is a key element in becoming a successful investor. The diagram below shows how the property market works:

Property market cycles

The eagle eyed property investor is always looking to buy either at the end of a recession, the bottom, or the recovery stage, whilst looking to realise profits by selling or via the release of equity during the expansion and peak stages.

My personal opinion is that Brazil is now at the recovery stage and with the fastest growing middle class society in the world and high levels of commodity exports it will not be long before the market move into the expansion cycle.

Setting Goals

Did you set yourself some SMART goals when you invested previously? I am pretty sure you did. I have met many successful property investors over the years, with portfolio’s ranging from one property to four hundred properties – spread across the entire globe and one thing they all had in common, is that they all started out by writing down their goals.

So why are you looking to invest in Brazil property? Are you investing for growth, income or both? What hotspot location will match your objectives? How long are you looking to hold the investment before selling?

Goal setting helps you concentrate, focus and have greater self-belief.

Do Your Homework

When investing in property it is essential that you research, research and research some more! You need to find out about the macro and micro-economic outlook. Today technology has allowed us to complete our research in record time; there is so much information available, doing your homework should not be too challenging. You can keep up to date with the latest macro and micro economic trends by registering to become a Colordarcy member. We are always doing our homework, so we always have new insights to share with you. 

Purchase Process

You will find that purchasing in Brazil is very simple and straightforward and is similar to most western countries. Foreigners are allowed unrestricted ownership of land and property, which is not the case in many other emerging property markets. You will require a CPF number, which is similar to a social security number; this is a simple process that we can arrange for you. Click here to read about the Purchase Process

Taxation

The table below gives you details of the typical percentage of taxes relating to property ownership in Brazil:

Tax Amount
Tax on Rental Income 15%
Capital Gains Tax 15%
Annual Municipal/Local Tax Approx 0.6%
Wealth Tax None

Financing

The majority of people who have bought investment property in Brazil have funded the purchase by re-mortgaging their existing property or buy-to-let portfolio to release the capital available. In some cases we have seen a combination of using savings alongside a part equity release. At present overseas buyers are unable to obtain a mortgage in Brazil and the above financing strategies offer the best route to raising money for your purchase. Click here to read more about Financing Your Property

Managing Your Portfolio

You are probably wondering who is going to look after your property in Brazil, who will show tenants around and who will collect the monthly rental income.

The best way to do all of the above is to use a management agency. In Brazil, management agents will also pay your income tax liability on your behalf and arrange the transfer of your profits to your bank account.

Exit Strategy

With the growing wealth of Brazil middle class and the developing mortgage market, you should have little problem selling your property to a Brazilian. Not only do you have the local buyer as an option, Brazil is also attracting the highest level of foreign investors in its history and I believe that this is set to increase even further.

For those who are looking to rent out their investment property, a 70% occupancy rate is very achievable if renting to the local and international holiday market. As for the traditional buy-to-let model of renting to locals on a long-term basis, you should expect yields in the region of 7% to 8%

Summary

Brazil offers the “early bird investor” an opportunity to buy securely into a property market that is at the start of its growth curve. The savvy investor should be looking to strategically acquire their investment now before the increase in demand – fuelled by easier access to finance – and increased levels of international buyers, pushes prices to a level where the opportunity no longer exists.

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Categories: Experienced Investor / Property Invest

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