Interesting investment strategy?

November 13, 2007 3:22 AM

How can I wisely invest US$15k? I have an unconventional idea, but could use your advise: buy land in new EU countries.

Of course the obvious safe-bet for an investment portfolia is a mix of C.D.s and mutual funds, right? I guess the return on mutual funds should be around 9%, depending.

However, my idea was this: land. What if I were to buy land in those countries on the verge of accepting the Euro - namely Poland/Romania, for example. These countries (esp Poland) seem pretty stable and the transition to the Euro should be straight-forward and easy (esp given the recent elections in Poland: pro-EU).

Surely after the switch from the zloty, the prices will rise as they did in most other countries, and there will always be a need for land, right?

OK, 12K can't buy much - but a few acres near the sea or outside some medium-sized city might prove lucrative one day... no?

Not sure if this is wise... Any other ideas for creative/non-conventional uses for this money are appreciated, so long as they are lucrative, practical and don't contribute to the military/industrial complex (sorry for sounding like a hippy).

Thanks!

posted by mateuslee to work & money (25 comments total)

Assuming your assets are currently in USD, you realize that the USD must also devalue further against the Euro for you to make money, right? This seems risky -- you're making two interdependent bets, not just one.
posted by randomstriker at 3:31 AM on November 13, 2007

"...buy land in those countries on the verge of accepting the Euro ..."

It's called a convergence play, and it's all played out. The time to purchase property is when countries are about to enter the EU, not really when they adopt the common currency.

I've spent a fair amount of time in Poland, I'm not saying there still isn't money to be made there, however if you're not either on the ground there or prepared to travel, you've got a fair amount of operational risk to circumvent.

If you're interested in protecting your $ assets, I'd suggest a non dollar closed end fund, for example, CurrencyShares Canadian Dollar Trust (FXC).
posted by Mutant at 3:40 AM on November 13, 2007

A few reasons why this seems unwise, at least to me, a non-economist:

- it would be hard to assess the value of a lot absent a pretty good knowledge of the local environment or language
- Euro adoption is, actually, rather far off: Poland, according to the last government, doesn't plan to adopt the Euro until 2012, and Romania isn't looking to do so until even later, in 2014.
posted by mdonley at 3:41 AM on November 13, 2007

Thanks a lot guys. Seems like the verdict is pretty negative, though I'm not sure if we're on the same page.
A few points:
* Traveling there is no problem (living in NL for now), I also have good, native contacts there (professionals, albeit non-economists). I think they would help and would probably have some valuable input.
* Waiting to 2012 isn't so bad, not looking for an immediate pay-off

Still not a financially wise idea?
posted by mateuslee at 3:46 AM on November 13, 2007

"Traveling there is no problem (living in NL for now), I also have good, native contacts ..."

If you're willing to travel / spend time in Poland you probably can make some money. I'd very carefully evaluate local laws regarding foreign ownership of land; some of those countries (e.g., Bulgaria) restrict this. They way most folks get around it is to form a Bulgarian resident corporation they they (the foreigner) full owns / controls. Not sure if this same approach is necessary / valid in Poland.

I've only spent time in Warsaw and a few points close to the Russian border, and the locals all were complaining about how expensive prices were. I live in London so space comparably looked pretty cheap.

Net / net - I think if you get into a carefully selected smaller city / town and are prepared to hold on for a ten to twenty year horizon, you probably could do well.

"Waiting to 2012 isn't so bad, not looking for an immediate pay-off "

Of course 2012 is essentially immediate, in real estate terms.
posted by Mutant at 3:54 AM on November 13, 2007

Prices in Poland are already insane compared to the standard of living. I don't expect them to increase so much in the next couple of years. Look further east.
posted by rom1 at 3:56 AM on November 13, 2007

As far as I remember, Poland made a lot of noise and laws to prevent EU citizens (especially Germans) to buy their land, precisely because they expected everybody to come over and buy land cheaply. You may want to investigate if you´d be allowed to buy in the first place.
posted by dhoe at 4:11 AM on November 13, 2007

DHOE - Thanks for the tip, happily I have US citizenship... though, I see what you're getting at - I heard this too.
posted by mateuslee at 4:44 AM on November 13, 2007

I think it would only be a short while before Poland etc would have to allow EU citizens to buy. US is another matter - there is probably no entitlement.

There is a lot of property for sale in Bulgaria, and they seem to be pro investor. I think you buy it through a local company or a trust (which you indirectly control). But there seem to be lots of people selling it; prices are reasonable.

That said, $15k isn't going to get you very far. It's a little over €10000 at today's spot rate - you're not going to get that, and you are going to have to pay legal fees, stamp duty, etc. I think not only the costs and exchange risks will be against you at this time (as noted above) but the round trip fees on the transaction would suggest you do something less ambitious with this sum of money.
posted by sagwalla at 5:00 AM on November 13, 2007 [1 favorite has favorites]

This seems risky

Keeping your money in USD is risky, too. You will be placing a bet one way or another, and given the recent downturn against the Canadian dollar, in addition to continuing concerns over the sub-prime market ("it's getting better!" says Pollyanna), I think the OP is at least on the right track.
posted by Civil_Disobedient at 5:04 AM on November 13, 2007

The other assumption you are making is that prices will rise because the countries convert to the Euro. It's not necessarily true. A lot of eurozone countries did see price rises, but these were because of the underlying weaknesses of the economies being exposed due to the harder line taken to policy by the European Central Bank, and, entertainingly, because the swap to the Euro gave shopkeepers an opportunity to raise prices without anyone noticing. A lot of things got rounded up to the nearest Euro.
posted by DangerIsMyMiddleName at 5:09 AM on November 13, 2007

Hi

I interned in a Polish bank two years ago doing mostly commercial real estate financing. (Shopping malls, hotels, factories)

I dont know much about the land market but a lot of foreign bank were expanding their credit bases very aggressively when i was there, both commercial and retail banking. It is not impossible that they will have problems similar to the "credit-crunch" over there causing falling property prices.

Of course this may also prove to be an excellent bying opportunity.
posted by ilike at 5:12 AM on November 13, 2007

Should add that transaction costs and all the work involved would likely make this a bad investment.
posted by ilike at 5:14 AM on November 13, 2007

On one hand, it's not obviously super-stupid. On the other hand, travelling, figuring out the legality, etc, will - and this is pure guess-math on my part - eat up enough of $15k that it'll definitely knock any money you do make well under what you'd have gotten in a long-term mutual fund (or similar) investment, barring major economic collapse and the like.
posted by Tomorrowful at 5:21 AM on November 13, 2007

What about a global equities mutual fund through a US based firm? I know it doesn't sound sexy or unconventional, but looking for something unconventional is probably the fastest way to flush your money down the toilet. Making money make money is a slow unsexy process. If I had $12-15K to blow, I'd buy some aggressive mutual funds and promptly forget I had the money and let it do it's thing.
posted by 45moore45 at 6:49 AM on November 13, 2007

You might consider a foreign REIT. I have no idea if this is a good idea or not, but if you want to do it, a REIT may take some of the grunt work out of it for you and spread some of the risk around more than your $15K could otherwise manage.
posted by willnot at 7:35 AM on November 13, 2007

you'd be foolish to even bother converting 15k from USD into euros or pretty much any other currency. the rate is so low, you'll instantly take a 30% hit compared to what you would have gotten two years ago. this is the worst possible time to make this kind of move - I say this as a person who very well may find himself forced to do the same in a matter of weeks.

you have us citizenship, so you have an SSN and probably a resident address. open up a cd and lock it in now somewhere around 5.25%. try to find 5.75% if you can, bankrate.com will help you a lot here. don't just plunk it into a high-yield savings account because the economy is tanking and the fed might very well cut interest rates yet again. this may be your last chance to get such an interest rate (which you will not get in europe) for three or five years (I expect the housing market to bottom out in 2009).

you were thinking about real estate. fine, so I take it you can lock the dough away for five years. do it now but take the cd. lock that thing in. it's safe, it's well below the FDIC insurance limit of 100k and you will get back in excess of 25% on a five year cd (this obviously leaves out interest on interest gained and takes a 5% interest rate per year as its base).

and, to top it all off, you can hope that the dollar recovers over the next five years. that would give you another boost.
posted by krautland at 8:22 AM on November 13, 2007

Someone I know did this with Romanian property, buying up lots of houses for about $15,000 a piece several years ago, and now he has a healthy property portfolio. I think the horse has probably mostly bolted now, but we aren't growing any more land over here and we're getting short of it (in Western Europe, at least).
posted by wackybrit at 9:01 AM on November 13, 2007

Another thing to consider is the time investment. Buying property in the US can be a pretty big hassle -- add to that foreign laws, foreign taxes, foreign language, and a whole host of other unforeseeables. All the time and stress that go into managing this deal will most likely have a palpable affect on your real work.
posted by blapst at 10:16 AM on November 13, 2007

I know little about direct property investment in Eastern European countries, but I do know that lots of people, in the UK at least, have had the same idea that you have and as a result property prices in E. Europe have rocketed in the last several years or so and most places you would want to buy in Western Europe are now at their high. So you will have to put quite a bit of time and research into finding the next up and coming places to buy. This will be combined with risks that other people have mentioned - language barriers, legal issues and rights of investors, possibly inadequate regulation and potential double or additional taxation. You are going to need to pay for a specialist who can help you navigate this and this will eat into your profits.

Not to say that there's not money to be made, I just would thouroughly research it before jumping into it and be aware of all of the issues. If you really want to invest in property, perhaps you should look at a fund that invests in international property. One that comes immediately to mind is the New Star International Property Fund, but you will have to look into if you are able to invest in it from the Netherlands. There are regulatory issues that surround this. Otherwise just google "international property funds" and you should find some others.

And as Mutant said, 2012 is not long term at all. Property investment truly is a long term investment. We are just coming out of pretty much a worldwide property boom and though people might have been making 15% - 20% or more over the last however many years, this is not the norm. Property provides stable and real returns over the long term and anything else should just be looked at as a bonus.
posted by triggerfinger at 10:52 AM on November 13, 2007

bonus, if only for fun.

andrew carnegie's rules on investment: only invest in companies you have investigated yourself; only invest in companies about which you have insider knowledge; only invest in companies that sell goods or services for which demand is growing; never invest as an individual, but always with a group of trusted associates who together will own a controlling or dominant interest in the company. 'andrew carnegie' by david nasaw, p.76, penguin 2006

these rules, of course, only applied before the invention of that pesky SEC. insider trading today is obviously very phew today.
posted by krautland at 10:57 AM on November 13, 2007 [1 favorite has favorites]

Why do something that requires as much time and energy as property when you are only invetsing 15k? Go online and pick a mutual fund that fits your morals with a risk/return that fits your stress tolerance and press GO.

I am not a professional but after a little research and chatting with friends I ran into www.vanguard.com. Their "Emerging Markets" fund had a return last year that was around 60%, year before that was 40%. This year is currently at 37%.

However, if your heart is set on non-traditional... I just read an article in WIRED about investing in forests. Apparently there are companies (eco-capitalists) that are buying tracts of forest for their CO2 processing abilities and selling their environmental credits/offsets to other companies. At least I think that's how it works... http://en.wikipedia.org/wiki/Eco-capitalism

Best of luck!
posted by charlotteaudrey at 12:14 PM on November 13, 2007

A lot of small Irish investors have taken a massive bath investing in property in places like Poland, Bulgaria, etc. Tread very carefully!
posted by jamesonandwater at 5:06 PM on November 13, 2007

There is a magazine for ex-pats called international living that is all over this type of question. They have a free newsletter to give you a taste of the advice they give.
I find them overly USA-centric, but that should be fine for you.
No endorsement, and a warning they also cross promote some high risk non-traditional investments, (dubious oil-shale schemes and strange gold bug stuff) but they seem to know what they are talking about when it comes to off-shore real estate. That said, the editors seem to have interests in some off shore markets, holiday units in Nicaragua etc. so you can look at it as practicing what they preach, or spruiking to drive up prices for their own investments.
posted by bystander at 9:03 PM on November 13, 2007

I (also an expat in NL) just went to Romania (and have a friend who is a Romanian property lawyer) and you have missed the boat by about 3 years.

Sorry

J
posted by jannw at 1:37 PM on November 14, 2007