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Real Estate Without Borders
How Baby Boomers Are Reshaping International Real Estate Investment Patterns
00:32:16
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- [00:02]
A
Welcome back to Real Estate Without Borders, joined here by the wonderful Cameron Hutchinson, global money mover extraordinaire. Talk to me a little bit about what we're diving into today. I know you did quite a bit of research on just like you know, kind of yields and costs and stuff of properties around the world. So I'm curious to hear what you found.
- [00:23]
B
Yeah, I think the last number of episodes we've been doing, obviously because it's timely as well. It's been focused in on talking about economics and what's going on in the world and different market movements and stuff.
- [00:32]
A
Geopolitics and trade war. I feel like people are just like so like tired of that though now.
- [00:37]
B
And if they aren't, I can tell you that I am. So yeah, what I thought would be an interesting thing to look at is honestly like different carry costs on properties from different cities around the world. And yeah in Toronto so you know it's always top of mind. So that's obviously gonna be one of the comparison cities. But like you never really know what you can get get in theory. So if you're talking about purchasing properties around the world, what you can actually get from square foot cost and then you know the actual carry cost of the whole thing. So you can get your local lending involved utilities associated with the potential tax. So I thought that would be kind of a fun one. We can see other places where instead of getting, you know, whatever it would be for a million bucks, thousand square feet here, see what you can get over in Thailand. Relatively loose numbers in the sense of just looking at. So what I've pulled is some samples from Europe, Asia Pacific, the Middle East, Latam and the States obviously.
- [01:39]
A
Yeah. Do you anything you want to screen share or.
- [01:43]
B
You know what I probably should have got. I should have pulled up some listings but I can do that as we go right now
- [01:54]
A
I can pull some stuff up on Global Property Guide as well.
- [01:57]
B
Yeah, we can start with the one that you know is obviously closest to home and everyone for you and I being troll and it's in the news for Canada all the time. High cost of living. You're seeing a huge decrease in well the overall person year over year. You know the give us kind of selfishly for my save point doesn't have a baseline. So the, the, the common factors that will be get you Seattle and you know obviously it'll depend on neighborhood is obviously going to be a huge part of it. We'll take you as a basis city for all the community unless there's out there and we'll also talk about what the mortgage rate within those countries will look like also which I thought was kind of interesting. These obviously fluctuating subject to change. But if you're thinking about from a Canadian perspective you're looking at a million bucks. We'll all know you're familiar, we're all familiar with that. You have about a 20% down payment to avoid insurance to get 200k. You got a running mortgage when you start breaking it down further 4200 bucks. 4400 bucks a month property tax is one of the interesting things within the because they keep going so So I think 6.9% hiking you probably know this might mean they're expecting another hike there which adds to those additional carry costs. Obviously just in terms of the annual cost within the trial market you're probably looking at additional ones. It's like 13,000 bucks a year. These are all the different things when you're thinking about yeah hidden costs but other additional carriers. So ultimately you're sitting around for a million dollar place. You're probably going to be running with a 20% deposit. You're probably going to be running 5,500 6,000 bucks a year. Just appeared in spot for a thousand square feet. Not ultimately would be the boring one. Where would you want to talk about Nancy? Singapore. Think about
- [04:04]
A
yeah go to Singapore and I'll pull up some some data on Singapore as well in the meantime.
- [04:09]
B
Yeah Singapore is pretty interesting because they're search on people foreign buyers being like are falling with it and you think Toronto's bad but you know for a million bucks looks like you're only going to get 600 square feet one bedroom. Yeah but there's something called which is basically an entry cost and additional costs you'll have to pay as a corporate as much as 60% of the total cost of the property. So I think you know I guess most people that are probably moving there are buying second homes within Singapore.
- [04:55]
A
I it's I think we've talked about this on the show where there was like not you and I but Dave Hutch before about like how basically there was like in Singapore. I think it's like a super high homeownership rate and they it's almost like a socialistic housing system where like people are given a home. So I actually don't know if there's a huge investment market there. Yeah they have these things you're looking
- [05:24]
B
at a huge tax to get into it from a foreign buyer. There certainly wouldn't be. Right. It seems to be targeted. Obviously. I was just curious about it because it's a cool city.
- [05:35]
A
Yeah, yeah. Great city. Yeah, yeah. To my understanding it's like a socialistic housing system with a super high homeownership rate as a result. So it might not make a ton of sense from an investment perspective. Who else did you have that you're mentioning there? I got like. I can look at like Spain, Italy, Portugal. You. I think you said Costa Rica, right?
- [05:57]
B
Yeah, I pulled up because more and more people are looking at that market. Right. So it's kind of curious how far would your. Would you mind going. And then again you talked about it before. I'm sure everybody will know.
- [06:08]
A
Yeah.
- [06:11]
B
But you're looking at a fairly substantial size. Most likely. What it looks like is about 30% down payment for you and about 43. It can get you up to about 4300 square feet which is a substantial. Yeah, yeah. I think.
- [06:42]
A
Yeah.
- [06:42]
B
For sure things is the interest rates. Right. So like a mortgage again this is just something. So ultimately taxes.
- [07:04]
A
So I just have price change. But like prices have basically been growing. Like there was a slight decrease like 8 basis points. Like I don't even know if that counts. And then you know your. I mean your real prices were growing so your nominal is down but your real is growing. Which doesn't make sense unless they were seeing deflation. But they you know and basically prices have been growing since like 2023 there. Yeah, yeah. You have like kind of price dynamic by market. I think this is per square meter. Yeah. So like 2000 per square meter in San Jose.
- [07:44]
B
Yeah, I mean it looks pretty. It looks like it could be actually one of the more expensive in terms of just carry out if you're doing more what the research. Silver54 and you gotta actually sitting out getting a lot more size. You gotta sitting at the same price in front the utilities different, a little bit lower. I thought what was kind of cool is you know it's always gonna. So far I've not personally been over there getting narrow down West City. I just statistics probably a little bit for about a million bucks. Looks like you're basically restrictions on that. Sure, we spoken about that before. Something was. So they don't like selling international waters.
- [08:47]
A
Yeah, yeah, I think there's that. And then like you know you mentioned in. In the mortgage side of things with. With Costa Rica like the other big piece is credit. Right. Like most people buy real estate, invest in real estate because the like it's really more of a debt play. Right. But you know as A foreign investor. In a lot of these countries you don't have access to debt. Even as like a, a domestic buyer. In many cases you don't have access to debt. But there are sort of like different kind of credit systems forming. But you know a lot of these places not easy to get a mortgage unless you're getting it like you're buying something pre con and getting a bender take back from the builder and you're paying like high, high rates as a result of that as well. So that's something that's worth considering. But yeah, I mean Thailand like specifically opposite kind of chart from you know, a little, a little bit of price growth but you know pretty, pretty stable market. Kind of just like normal price price basically growing at the rate of inflation.
- [09:38]
B
Yeah. I mean I'd be curious. You're kind of probably not the best. We can buy land there from international real estate. It's just a common travel area. Right. So it's like okay, if you live there, what would it actually cost for? You know the cost of living is a lot lower given just the nature of the country. It also seems to be a very couch focused. Yeah, That one sits in terms of. So that's because the assumptions being. From the other areas that I'm looking at. This could be because Japan's favorite Florida is a common area for Canadians to invest in. So I looked at a town called Nles just at cy, really lovely hills town and it has the highest caring even with the mortgage. Yeah, it's sitting at like 67 maximum American. The interesting thing for that, The insurance.
- [10:56]
A
Yeah, I think Trump like announced something around that too though. Right. Like they were trying to basically create some relief around that he's probably sick and tired.
- [11:06]
B
I couldn't imagine what his insurance be.
- [11:10]
A
Yeah, well it was just like more the. I got to try and find the news on it but it was like basically they wanted to kind of subsidize this insurance issue that's forming around what's happening in Florida right now with the condo corporations. I'll try and find it. I can't find it. I was just clicking around pretty quickly. But one of the interesting things that you mentioned on carrying costs in the US and I'll pull this chart up and this is a big reason why this show gets a lot of listeners. Your cost to own versus rent has never been this severe. Right. So that's cool.
- [11:51]
B
Sure.
- [11:52]
A
Yeah. And so buying versus renting in the U.S. right. Like your cost of rent on average based on case shiller is 1850amonth cost to buy is 2,700. And the vast majority of that comes, I mean prices obviously haven't really come down much, not super meaningfully. But your interest rate environment's still inflated, right? US Tenure obviously does not really like oil prices and war. And so, so your mortgage rates are kind of hitting highs again. Interesting phenomenon happening. And I think this is what ends up, I mean, number one taking us would be homeowners, you know, maybe, maybe aspiring homeowners out of homeownership and just choosing to rent, but also has them exploring options of like, what if I was a resident of another country, you know, what if my cottage was in Italy or Costa Rica or Mexico rather than a place in Florida. And so like the phenomena that you described from like sort of your vacation rental or like, you know, the, like those really seem to be that, that buyer group really seems to be shifting outside of the US towards other markets rather than like, I don't, I don't think it's political. I don't, I mean there's probably an element of that, but I think like a primary thing is like, you show me the incentive, I'll show you the outcome. Right? And the incentive is, well, if I don't want to own my vacation home In Florida at $2,700 a month, I can rent one or I can go buy one for way cheaper. Like you mentioned, that's one of the highest, highest costs, right. I can go buy one way cheaper. And people were just talking like, you know, we tend to talk about places where the weather's nice, right? So if we're just talking about places with nice weather, what are my options? Right? Well, Mexico, Costa Rica, you know, these are all like if you're in Chicago or New York, maybe not New York, but like if you're, you know, kind of closer to the northern border of the US Your, you know, your flight is not that much of a difference to get to Mexico, Cuba, you know, whatever, right? So that's an interesting phenomena. I think that's kind of your demand side that's forming.
- [13:46]
B
You mentioned Cuba. I mean that one's got its own little.
- [13:50]
A
I don't think, I don't like Cuba's like 100 homeownership rate.
- [13:53]
B
Right.
- [13:53]
A
Like all these socialist states, like 99 buy into it.
- [13:57]
B
Certainly cannot.
- [13:59]
A
No, no, yeah, you can't, can't buy any Cuban, Cuban anything.
- [14:04]
B
Yeah. Mean you're not going to get any. They've got the embargo and all that stuff going on down too. From a short term geopolitical standpoint. But yeah, I mean if you're looking over to the, the islands stuff along those lines and to, to that point outside of an investment and all those things it's like okay, what are my rights within this property as well? Right. So can I get residency? Do I have to pay taxes? Etc. We've spoken about, yeah, residency In Cancun, over 150,000 USD people in temporary residency as well. For you family, every other place will have these like ways to basically ensure personal security. You know what's, what's the states? The states is states or between six people half a year less a day right. Before they start getting taxed on and all these other ones even entirely under something called the wealthy global citizen. If you have 500,000 in assets so real estate wide sets underneath you can get yourself specific tax bases on getting for probably more for personal use. When these things become more concerning, I mean. It's interesting to see that if you invest in a nice piece of property they'll give you some rights within the region so you don't have to worry about getting kicked out.
- [15:49]
A
Yeah, I think that does tend to be a big reason. I like and I think, I don't know like I kind of want to like think about like you know, because we leaned in a bit on the demand side. Like you know when I'm talking about like housing being super unaffordable for like that's a new buyer who is going to enter the market. Right. Like in the US Talking about US consumer of global real estate. But what about people who already own right who are on either, you know, they're paid off, they have ton of equity, they don't have a big mortgage. You know, they're on a 30 year from COVID era and no locked in the interest rate lottery of like 3 or 4% and never have to worry again and are actually like stuck because they don't want to. We all like they don't want to go buy a new house. Yeah. So you know they end up renovating their house or whatever. Like you have a lot of people they creating this illiquid market where they don't want to sell their home and move. But then what about you know if you go look at like the demographic period of mo pyramid of most population pyramid of most, you know, western countries. You have these like two massive cohorts. Right. And this is something I think about a lot. When I think about like what's happening in Canadian real estate in US real estate is like you basically have actually One of my most. I have it pinned on my Instagram. One of my most. I'm going to pull this up. It's pretty funny. I think it's like one of my most viewed posts on Instagram. But it's like, you know, you've got basically this huge cohort of baby boomer and silent generation who has to sell. You know, this is their wealth accumulated. Obviously they have had more time to accumulate wealth. It's not to say that there's some like, weird distribution, but they've had more time. They've paid, paid down principal in their real estate, but they're supposed to sell off their largest assets because by on average most US Net worth is, is held in primary residence. And then you have millennials that are supposed to buy the homes from these people above with this small amount of net worth. And this is the big thing when you think about. So we've just established that maybe our new buyers might say, I'm not going to get a. I'm going to just keep renting in the city, whatever, New York, Toronto, Vancouver, whatever. And my cottage or my investment capital is going to go to a place like Mexico, Costa Rica, whatever. But what about baby boomers? What about baby boomers who are looking to cash out of that equity and find a nice place to retire? Where are they going to put their capital? Because if they realize the equity, one, they're selling into an illiquid market where there's fewer and fewer buyers because your millennial cohort can't afford these houses. But two is if they want to downsize, it's hard to make that move. Like the economics of that move make sense. Are they going to move within the US or are they going to think about that retiree beach life in Mexico or Italy or whatever.
- [18:53]
B
So while you're talking about that, I just looked up where is the majority of international purchases. Mexico makes sense. Not to kind of on our own country here, but I've been to Canada. If, you know, if you're down in Florida, living in Arizona right now, I've seen the States. Really probably a good argument, at least in my mind, that college country is one of the best places to spend your time. But, you know, you're seeing most of their funds go down to Mexico.
- [19:33]
A
Well, like, you can't, you can't snowbird. You can't snowbird to cottage country. Like, I would agree. I mean, even if you're like in New York, like, you go to like upstate Finger Lakes, like Poconos, whatever. Like, you know, there's some sweet places, even in, like, you know, the US Equivalents of Ontario, Canada. But, like, what about what. But like, I'm not. I. I'm not. I love skiing, but. And like, I'm down to do it for like, January. But like, by the end of January, I'm kind of like, yeah, I could do without winter, right? So where am I going?
- [19:57]
B
Right?
- [19:58]
A
And if I'm like. If I'm like a equity rich, illiquid boomer, how am I. What are the mechanics of me making that happen?
- [20:07]
B
Yeah, I mean, number two there, it looks to be Portugal these days, I think. You know, we've spoken about Portugal. People talk about before. They've got. Well, they have all the visa stuff clamping up there. And then we started to tend to tighten up, but they stopping holding 20, 23 due to so much for going to it. But that's still number two. And I mean Portugal a couple times, it's a hell of a place to get away from. Infultured with people. And then you're seeing still, you know, a lot of people going over Spain into Italy. So ultimately, you know, pull it up quickly. American seemingly first sent to them summary countries over in Europe as the main investments. Costa Rica pops up. You're seeing Dubai, obviously, for a lot of extra work. From a real estate investment standpoint, that's got its own issues right now. Funnily enough, the Dominican Republic still gets a fair amount of US investment into it. Along those lines, from the looks of it, budget, beautiful country,
- [21:20]
A
and like, proximity starts to play a role too, right? Like, you know, this is why you got to think a lot of us go to like, you know, the, the Caribbean, right? Like, the islands you can get back to, like, you know, the US like, in whatever, a couple hours, right? And so if you got to go home for like, Thanksgiving, go visit the kids, see them in college or at the job or whatever. But, like, do you see people like that who live in those places? Because you can't. Like, they have the opposite phenomenon of Canada, like, kind of like Dubai too, right? It's like when I'm on the phone with somebody in Dubai, they're like, yeah, summer's really bad, but we don't talk about that. I'm like, dude, like, we have the same thing in the winter. Like, it's freezing cold the whole time. Like, you know, so. So like a couple months out of the year, you can't do anything. Do they still hold the place in. In the U.S. like, I don't. Like, what do you Think how do you think that, that like, like if you're looking at a. Not like an ultra high net worth, but like a upper middle class, middle class American. Like how do, how does, what are the mechanics of them doing that?
- [22:14]
B
You know, I can, I can talk about people that I know up here, not so much in the Canadian market or I've got some family down in the States as well that has a place in the city where they work. They have a place down in climate. Exactly. They've no interest in being down. You know, I reverse Naples a lot because I want to see transit family in the summertime, 45 degrees. So everybody sneaks away and gets out. We had some family go down to one of the islands in the community. And he used to come back to Canada. So they go to a bone toucher holiday. Also you've been away for down like 30 minutes during Hurricane season and you look to, look to vacate from there because not much fun for living there what you're going through. Which is also what was the chart up you had before?
- [23:15]
A
It was just the US population pyramid just kind of trying to show like you know where I guess your baby boomer cohort isn't that massive compared to the millennial cohort, I think is like, like life expectancies smaller in the US and like obesity and stuff. And like a lot of people die off like younger, which is kind of like crazy phenomenon. I don't think about it. But you know, a lot of the western world you have like a lot of wealth accumulated in like the boomer cohort that needs to somehow. The great wealth transfer, we call it better. Right. Or call it. But it's actually like the great house transfer really. Right. Interesting, interesting thought.
- [23:51]
B
But yeah, I mean where people go basically everywhere but there's more of an outflow over to Europe, which is also interesting. I think that's to your point as well. I would have figured it would be more damage to lifetime not only from proximity standpoint. And you're seeing costs in the United States, Mexico of course as well with the time zone thing as well. Like it's hard to keep in touch with people if you're wintering or investing in property over Asia as an example because you're dealing with a lot of partnerships. So even if it's a. The early investment piece of try maybe use it for two weeks for your own holiday and you're renting it out to the majority of the publications of managing what's effectively a business and an investment business overseas, when you're dealing with a 12 hour time change, it just becomes ultimately then bring on help or hire a company to help manage it. Where you know, you know places in Mexico selling thirsty often you can just get down there if you need to. Which is probably one reason why you see so much money there. And that's interesting Portugal because I mean it's still seven hours close to there flight in and time change.
- [25:06]
A
Yeah, what's that? That's like Toronto or New York. Delete is like four. So three and a half.
- [25:13]
B
Four, three, three.
- [25:15]
A
Yeah. But I think like it's still, I don't know man. Like that's tough, right? Like different, majorly different time zone. Like six hour lag. Like I agree but it is like, I don't know, like do you find those markets to be as compelling from a logistics perspective as like the Caribbean etc? I mean I guess maybe cost will offset logistics, right?
- [25:33]
B
Like I think that's probably a large portion of it. When you talk to you about the fact that Dominican Republic is we're seeing an influx of international, You know, it's from an everyday investor or someone that wants a second home. It's, it is a large box, especially using it as more wealthy personal use. And I'm curious into this long in anytime buying. If you go into Dominican as an example, it's like you go to an all inclusive bank, you go to a resort, so do not renting Airbnbs. And that could just be what the actual economics of the rental market is. I mean the thing we're looking at is how far is your dollar cost going to be?
- [26:32]
A
Yeah, yeah. I think you know the, the more difficult question when you start getting into like some of these like Glow Global like Airbnb plays becomes like you know like logistics management etc like their income is probably good but like managing like I manage, I manage like long term rental properties, you know, three to four hours away and it's a headache I could not imagine like effectively managing like a hospitality business basically from you know, seven hour flight away. And it's not to say that it can't be done but it's just a steep cost when it is done. Right. So like you know, if I'm paying a long term rental manager like 4% property management fee with a short term rental property manager in a foreign country, I'm probably paying like 20 to 30%. And so your margin diminishes pretty quickly if you're just using it to like subsidize the cost of ownership and you know, you know like mitigate Some carrying costs and whatever. It's a lot easier, you know, systemic. Yeah, yeah, like, or just like you know, if you're, if, if we're talking about the boomer cohort who's maybe bought them cash out of their US asset, bought a lot of cash. Like it doesn't matter. It's pure cash flow. You're just, you're just watering down your cash flow. But when you think about it from a like investor perspective, if I'm going to take on leverage, take on capital risk and buy one of these things, most people like after they model them out like most, most deals of this nature and we've seen this over the last like you know, a couple five, five years in the, in the credit cycle that we're in or maybe six years I guess since the beginning of COVID Like most bad deals or like deals or people are really aggressive and bullish. Like it's usually when they don't pull out a spreadsheet. Right. Like, and so as soon as you model these things out, I think that they end up being like less of a business expense which is fine. You just have to accept that I'm not buying this as a, as a good quality yielding investment or hospitality business or whatever. I'm buying it for the qualitative benefit which is that I get to live in a sick place and when I'm back at home visiting the family for you know, or like I'm, I'm back back in, in Canada or the U.S. for the six months of the year in college country or wherever I want to live there I am able to subsidize the cost of owning that and it's a qualitative like the yield that you collect like the benefit is, is, is a qualitative benefit, not a. Yeah.
- [28:40]
B
A huge portion of its personal utility.
- [28:42]
A
Right.
- [28:42]
B
And I think that's, I think that's what you're seeing a lot of investing into studying your client will be it style is purely just as a, an income driving profit. You'll know better than most people out there. But if you're looking for what returns on investment for those things, you're probably better off buying a multiplex in a small town figure environment not necessarily going to West Palm or to Calum. And so you get to offset somewhat your cost for basically stock property because you didn't have value. And you should take that into consideration as a personal opinion where it's like okay, I'm going to go. This is a place I need for it drive somebody to use it for two months, three months of the year. In theory, you could basically do okay. If I didn't have it, I'll be paying for holiday. What would holiday cost? Be the same thing, place for 12 months to use it for two. But you know, it does get.
- [29:56]
A
Yeah, you never know. I mean like we were looking at this for like Palm Springs and it's like, I mean, you know, you're paying like for, for a good quality Airbnb in Palm Springs. You're paying like 30k for three, four months, right? Like for 40k, like 10k USD a month. But if not, like, that's like, actually that's not even like a good one. Right. You're like 10, 15k USD. So you know, you can buy like a comparable property like that, you know, if you have the cash. Like debt becomes a little bit more fickle if you're talking like, you know, 6% interest rates in the US maybe higher if you're a foreign investor, but you know, your annual cost of owning that if you, if you account for like 100% of the interest as a sunk cost at plus plus management, et cetera, and assuming you can subsidize a little bit of it from like, you know, Airbnb revenue or whatever, it actually kind of made sense, right? It's just like, do you want, you know that then it becomes reverse, qualitative for me. It's like, do I want to own
- [30:52]
B
an asset in response to another country?
- [30:54]
A
Right? Yeah. And it's like, yeah, just, I don't know, try to, try to have less stuff on my plate, not more. Right.
- [31:00]
B
So.
- [31:00]
A
And I would imagine most people in the snack bracket of like investment grade, you know, like international cottage folk that we're talking about, probably have a comparable perspective on, on capital versus labor relationships with, with their assets.
- [31:14]
B
I've again spoken about this with clients and other people within my life and it's like, you know, would you rather, let's say it's a million dollar property down south when you're in the 50s? Probably rather take the return.
- [31:50]
A
Yeah.
- [31:51]
B
Wanting to jump on these planes then I think.
- [31:58]
A
Yeah, yeah, I think that's a good place to wrap it, man. It's great chat. I feel like we went, went deep on a, on a couple of interesting topics, so I'm glad. And for those of you who, who are listening, thanks a lot for taking the time and we'll see you again as soon as humanly possible.