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- [00:00]
A
Welcome back to Real Estate Without Borders. Today we are going to talk about the four most important metrics that you need to know to analyze investments around the world. My name is Daniel Fosh. I'm joined here by the one and only Dave Hutch. How's it going, man?
- [00:15]
B
Good, man. It's great. Red, tanned, warm.
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A
Yeah.
- [00:19]
B
Living in Mexico, full lobster mode. I did move around some lighting, so I think, I think we're getting closer to where we need to be here.
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A
The red's good with the like, the blue, like, it's like what they call that, primary colors or whatever. Complementary colors. You remember that from like grade three art class? I do.
- [00:35]
B
I was not, I wasn't a big art guy, so. No, I was curling on recess.
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A
Yeah.
- [00:42]
B
Just dominating phys ed. And that's it. That's about it. I think, I think you made this episode for you. I'm gonna be here. I'm a big personality hire on this one. We do use these metrics a lot, to be honest. But yeah, some of these, some of these are great. They're great.
- [01:00]
A
Well, yeah. So there's four key metrics that I think you need to. You really want to analyze when you're buying property. So typically, you know, when you're, when you're buying a piece of real estate, you want to get an understanding for the yield, right? So you're, you know, your cap rate or whatever, you know, price relative to income. Then you want to get an understanding for the loan the, you know, the interest rate that you're going to be paying and where does that fall relative to said cap rate? Because that kind of determines the spread. Right. Let's call it like your, I don't know, your rolling profit. Almost like the difference between if the cap rate's higher than the, than the mortgage rate that you're buying the property with, typically you can make that investment viable. And then we also want to. Another kind of variable gets thrown into the, into the mix here. This, because we're buying outside of our own countries, is the currency exchange. Right.
- [01:49]
B
And so I love this part of it. This is cool because this is something that I've only like really dove into this year. So it's super cool.
- [01:56]
A
Yeah. And so, I mean, you really want to think about, like, this is probably what makes most investments compelling present day for people who are holding USD. Right. USD is so strong relative to currencies around the world right now. I'll pull up the chart that I've. That I've shown a couple of times on the show. But like USD is currently trading at like record highs against a lot of currencies. And so people who are buying real estate in other countries with USD are getting a relative discount today. And assuming those currencies recover, which I mean in the fullness of time, I don't see, I don't have any, any reasonable reason to believe they won't. You'll also get a benefit from the growth of that domestic currency. Right, so we've got, so we've got our cap rate, right? We've got our mortgage rate, we've got our vacancy rate which is going to kind of get factored into our cap rate and then we've got our exchange rate. Those are the four key metrics that we're going to go over today. So get me started on the exchange rate, Dave, because you just said that you, what did you say? You just got into it and now you're a full time forex trader.
- [02:53]
B
Now I'm a four. You know, we should. Don't say that. I got a few tick tock accounts out there that are, are doing forex scams and I got like, honestly I've had like three people in the last.
- [03:03]
A
Week be like, how much, how much money did you lose on forex games? Let's go.
- [03:07]
B
I was gonna just put my email in there so they send me their, the money myself. But I got like these four tick tock accounts that just go over people with crypto and, and forex stuff and I don't know how they make these accounts look so good, but that's not important. But the currency exchange rates. I want to give you an example of a deal that we just structured here in Mexico. It was an American buyer and when I moved here to Mexico in early, early 2024, it was actually end of 2023. But whatever, who's counting? The exchange rate from Mexican peso to dollar was about one US dollar was 16.67 Mexican pesos. Okay. Today it's around one USD per what, 20.67 Mexican pesos. Okay, so let's, let's cover a deal. So a lot of the, a lot of the developers down here are selling properties in peso, which is a massive, massive advantage to Americans. Now this was a real deal, so the property cost was around 6 million pesos, which I'm pretty confident. Okay, let's do it like this actually, I'll make it easier. Okay, let's do a deal. The same deal that would have been structured in February of 2024 versus today February 2025. So February 2024, 1 USD 16.67 Mexican pesos. Property cost was 6 million Mexican pesos. That would work out to about 359,000 US dollars. Okay, now fast forward to today. The exchange rate is 1 US dollar to 20.67 Mexican pesos. That same property, 6 million pesos would probably run you around $290,000. So that's what, 60, a $69,000 difference buying one year ago versus today, which is pretty crazy, honestly. That's a huge, huge win. That's a big discount, $70,000. But I mean, at the same time, this show is unique because we're helping Americans invest globally. And there's a lot of factors when you're investing globally and when we're talking about exchange rates and the exchange rate fluctuations that can really make or break your investment, you know. So if the US Dollar strengthens, US Investors get more purchasing power. If the US Dollar weakens, obviously the foreign property values in USD would increase. And that's just a Mexican example. But maybe you can kind of give your little input on what you're.
- [05:27]
A
Well, I would say it's, you know, it's the same, same thing like in Canada, had you bought this time, right, Last year, two years ago. If you bought two years ago when prices were high and exchange rates are high, you get double smoked, right? But on the flip side, now prices are low and an exchange rates or the Canadian dollar is low relative to the USD. So you, you know, Canadian dollar is like 69 cents. I'll probably go down to 65, to be honest. I mean, Trump doesn't seem like he's finished with this trade war stuff. I think Trudeau is now calling a, a summit for all of the local or the provincial leaders to get gathered on this to discuss it. So I think it's not over. I think Canadian dollar will continue to be deval valued against the USD. Probably the peso will continue to get devalued against the USD. And so over the next two years, I would say probably potentially over the entire Trump presidency with his America first agenda, you're going to see relative discounts for any property that you can buy in a local currency in any country on earth, quite frankly. And so, you know, we, we talked in the UBS bubble index about Germany being down 20% and the euro is down, you know, 20% off peak relative to the USD. So you just got, you know, you got, you get a double whammy. You get to stack that discount. And now all of a sudden, if the euro recovers you know, even if it recovers 10%, you get 10% gain from the currency plus you get, you know, 10% gain from the actual nominal increase in price. It just feels like a no brainer to me. For people who are holding USD, it doesn't even have to be Americans because it's the most held currency, right? It's the most in circulation currency globally. If you're a Chinese investor holding USD, right. If you're a German investor holding USD. Because so many of them are right, so many people have been piling into USD and now they're like, okay, well USD gave me a great return over the last couple of years. Probably can't squeeze that much more of a return out of holding it relative to the investment. Now where can I go and deploy this USD and really get that big benefit? And that's where we're going to start seeing people put currency to work by buying in other countries. And I think, you know, there's so many wealthy people around the world that have been kind of, I think your real smart money hasn't been piling into this speculative fever of buying real estate over the last couple of years. I think now that values are coming down, you're going to start to see the institutional buyer really hop back into the market in a meaningful way.
- [07:43]
B
I think this is like, this is why we made this show. Like, I think for the most part this is like the actual reason why we made this show is to help anyone holding USD or American investors understand the different key metrics on how to analyze a deal, how to structure a deal and what to look for in terms of a good and bad investment. But it's like this is something that I honestly feel like most people would likely overlook this aspect. It seems simple, but I feel like this is extremely overlooked. It's like you said, it's a double whammy. You're earning not only on the equity of the property in that country, but also on the currency as well.
- [08:18]
A
100. I think that it's, it's like, I don't think that it's reasonable to expect the outcome of everything that's happening in the global economy right now for, you know, countries like Germany and you know, China or whatever, to be in recession forever, right? They're just in recession earlier than us. And so if the US stays strong for 2025 and Germany slips into recession, China's already in recession, seeing deflation. I mean, if you can buy Chinese real estate that's down 60% with a currency that's down 30% and then it recovers. Let's just say eventually it tracks back to both of those. Eventually it recovers that 60% plus it recovers the 30% that it lost on the currency. It's a way EAs trade to make than buying your US real estate that is probably overvalued relative to income and rents right now, right. Rent's never been a better discount to, to, to homeownership in the US Literally never. Like it's never cost. There's never been a big, big, bigger spread between monthly mortgage payment and rent in the US and you know, yeah, what if, what have US home prices gone up by on average like 4 to 5% year over year for the past. It's like, okay, cool, yeah, you can buy that, that's fine. I totally cool with it. Slow and steady compounding. I get it. Or you can buy these depressed markets, go and find those competitive advantages in the markets where nobody's lining up to buy, their domestic owners aren't lining up to buy and you get a huge advantage as a, as a foreign investor. So what does this mean, Dave, Tell me what this, you got some good notes here for what this means.
- [09:45]
B
Well, okay, let's, let's cover it. So some real estate markets obviously move together with their currency while others are moving in like opposite directions. Right. So if a country's currency is strong, usually the real estate is more expensive. Look at the US Right, prime example. If the currency is weak, more maybe more of attractive for foreign buyers. We could talk about the Switzerland and the Swiss franc and the Zurich real estate which we've covered in other episodes. But like right now the Swiss franc is very strong which is allowing investors in Switzerland. It's a stable economy in Switzerland. But real estate in Zurich is also super expensive because the high value investors where they're going to park their money as like a safe asset. Like you just talked about there, there are markets where you can get in and get a great deal, but there's also these safe play markets that are made more for the long term. Right. And when global markets are struggling, you know, it can be an opportunity, especially for those holding USD. It talks about the Argentina and the Argentinian peso dropping, but I don't think that's overly relevant to be truthful here.
- [10:40]
A
Well, I think Argentina is an interesting one because they just had Malay go in with chainsaw capitalism. I mean the, the whole, like the whole motivation behind Doge in the US is, is from, from Javier Milei. Right. And so the reason and and this is where it is really interesting to look at is Argentine peso collapse in value that triggered a massive political shift. Right. Inflation, like, leads to revolution. And they went to a. Into a silent revolution. I mean, they literally went from basically pseudo totalitarian, like socialism, to pure, pure capital. Pure, like literally libertarian capitalism or anarcho capitalism, as he calls it. And that's the fact that the people voted like, you can have a revolution in democracy, I think, without it being a violent revolution. I. The same thing is happening in Canada, in the U.S. probably as well, most of the Western world, where basically inflation is happening and inflation is. Is destroying the middle class. Right. It basically inflation inflates the assets of the. Of the upper class, and it deflates the buying power of the. Of the middle class and the lower class. And so it creates this massive disparity where you have fewer and fewer people holding more wealth and more and more people being poor. And what eventually that happens is the more and more people, especially in a democracy, the more and more people get pissed off and vote. And we just saw the same thing happen in the US Right, where people voted for Trump because he said he was going to slash the government. He's tired of all the fat cats taxing everybody into oblivion and spending all the money. Whether or not he does it remains to be proven, because I honestly am not super convinced that he's going to. But from my perspective, I would say Argentina is an important one here.
- [12:11]
B
Well, there you go. See, I'm glad you knew all that about Argentina.
- [12:14]
A
Yeah. And so while. Yeah, I'm obsessed with Malay, man, I've. I've been following him pretty close. So you got to look this guy up. That'll be your. That'll be your toilet reading for later.
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B
Is it on Twitter?
- [12:23]
A
Oh, yeah. You can find Malay on Twitter for sure. Yeah. Yeah. I was thinking about him getting tattooed. Getting Malay tattooed with him holding the chainsaw over.
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B
Come on.
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A
Oh, yeah.
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B
What's his Twitter handle? But just show.
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A
I don't even know. Yeah. What it is, but just Google it. Javier Malay, he's like. He's a beauty. Listen to his interview with his podcast with Lex Fridman. It's great.
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B
So he's got, what, a haircut?
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A
Yeah. Oh, yeah, the sideburns.
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B
Yeah.
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A
Shaviti.
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B
Wow.
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A
He's iconic.
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B
Incredible. So got a strategy.
- [12:54]
A
Yeah. We could use. No, it's okay. We could use that maybe. Like, let's talk about Japan. We'll talk about Japan as well, because Japan's the carry trade. Right. So tell me about Japan.
- [13:01]
B
Have you, have you been to Japan?
- [13:02]
A
First and foremost, I haven't, but I was literally just looking at Tokyo earlier. Like, I want to go so bad.
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B
I would, would love to go to Japan. It's on the list. It's on the bucket list here. Japan, the yen, and the Tokyo real estate. So when the Japanese yen strengthens, US investors hesitate to buy because Tokyo real estate becomes more expensive in USD terms. But when yen weakens, the foreign investment surges, driving higher real estate demand. So look at the sky with.
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A
I'll talk about the carry trade. I'll talk about the carry trade.
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B
Get the, get the, get it going, man. The carry trade.
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A
Yeah, so, so the Japanese carry trade is this really important thing because like Japan for the last like 30 years had like the lowest interest rate in the world because their economy basically got smoked. Like, the US basically did like economic warfare against them in like the 80s when they were worried that Japan was like going to become this global superpower, similar to the way that they're worried about it with China right now. And so basically, investors borrow Japanese yen at very low interest rates and then they convert to higher yielding currencies like USD or whatever. USD is yielding like your 7% is your interest rate in the US right now. And they'll invest in assets like real estate in the US as an example. So this is where you can get. Again, we've talked about this a couple of times on the episode, but you can go and borrow money in one country super cheap and then go deploy it in another country and get a higher return and you make the spread. Right. And so this creates this massive global liquidity and it affects property markets worldwide. But when the yen strengthens unexpectedly, which is kind of happened recently, and they've actually had to start increasing the rates, investors have to quickly unwind those positions and that causes market volatility. And so a lot of people think that the yen, whenever that yen trade flips whenever the, the yen goes up in value and the interest rate starts to rise, it could really have a big impact on global currency markets. So that's one thing to watch as well. I also want to touch on Turkey because Turkey is another good example. Turkey known for exporting hair transplants.
- [14:52]
B
I was going to say that was my comment. You stole it right from me.
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A
Was it? Yeah, I had to. I saw your eyes light up and you're. I got to make the hair transplant joke. Lots of dudes traveling to Turkey these days. Big tourism destination.
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B
That's right. You see the airplanes coming. Lots of Bald dudes, all the bandages on the heads. No offense. If you got it, if you're getting a hair transplant, it seems like it'd be a good trip, to be honest. On top of that, I want to go back to Japan because I'm going to be honest, I'm learning here with you. Okay. What's the UN or un, what's the, what's like the currency doing right now in Japan? Because I got in this argument with my fiance. Okay. She was trying to get me to go there for, for. I think she wants like Japanese skin care. Okay.
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A
Right, okay.
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B
She's trying to argue, drop some facts on me about the Yen and to the USD and to cad. I think she's full of shit. So I need, I need some, some lessons.
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A
Ripping against USD.
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B
Wow.
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A
Yeah. But relative to long term, like in a, that's a one year but it's ripping in the last month, like it's up. I don't know, I don't know what that would be. It's up 3% since. But if you go like historically like you look back at like 2011. Right. You know, go back to. It's like, you know, it's, it's down pretty massively over, over time. The bigger piece is the interest rate. Right. Because people won't borrow it without if, if the rates aren't low.
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B
Right.
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A
So let's, let's quickly. I'm going to quickly chat on Turkey. So The Turkish liras volatility 24, 2024 lost like 50% of its value. Right. Which made real estate in Istanbul extremely attractive to foreign buyers. $500,000 USD property in early 2024 could have been purchased for around 250,000 USD by year end due to currency depreciation. However in early 2025. So far this year the lira has actually shown surprising strength against the CAD in the USD. It's actually outperforming CAD growth against the USD. It's one of the top performing currencies against USD. And a lot of that is because it's bouncing back off of like an extremely deflationary environment or sorry, inflationary environment, but kind of demonstrates how quickly these currency advantages can shift. Right. Where you get a big, you could get a big growth relative to other currencies. And so one of the, like, you know, usually I'm not a timing the market kind of guy and you know, a lot of people will say time in the market rather than timing the market. Right. I'm sure you've heard that one, Dave, Something like that. But I think in a place like Turkey, just like hair transplants, they say you got to get them early, right before you lose too many of your hair follicles. Real estate is. Can be about timing as well when you're. When you're thinking global markets, because currency markets are a lot more fast paced than property markets.
- [17:39]
B
Right. I'm deep into the Twitter turkey right now. That's pretty cool, actually. Yeah.
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A
Did you book your hair transplant or what?
- [17:46]
B
I do. I got two.
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A
You got a full head of hair.
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B
Actually, I got too much hair. You can come to me for a hair transplant. I can give you some. I got enough done. That's it. What's okay, you want to jump into. I know that you're gonna love this one. Cap rates. I've been hearing you talk about cap rates since I think when I was a realtor.
- [18:04]
A
It's another thing I'm getting tattooed on my body.
- [18:06]
B
Yeah, absolutely. I remember when I was a newer realtor and I'd hear you talk about cap rates, and I like, I guess I should learn this. So you're the reason I know cap rates. Just so you know.
- [18:15]
A
That's awesome, actually. I take pride in that.
- [18:17]
B
The godfather of cap rates.
- [18:19]
A
Cap rate. A cap rate is basically your net operating income divided by the purchase price of the property. You the. The best way to think about this is like, it's kind of like a yield, but it's really about the property's operating performance, while your yield is kind of your actual financial impact. Yield calculations account for mortgage payments and leverage effects. So, you know, a 5% cap rate property might actually have an 8% yield when you know, if it's leveraged with a mortgage and you're doing kind of a cash on cash. International markets do use different yield metrics, but cap rate is really like a property analysis. So it doesn't matter how you're measuring your yield. It measures matters. What is the net operating income of the property? So you're all of the income that the property makes, deduct the expenses. That's your net operating income. And you divide that by the purchase price of the property. That is how you get your cap rate.
- [19:06]
B
And so it's less focused on like, the economics of that city.
- [19:10]
A
Well, you could use it to say, okay, on average, you know, New York City multifamily cap rates are 4%, for example, as a class A multifamily property in good locations. And the reason you would want to do that is because you want to maybe compare them against London cap rate, institutional Grade residential blocks for three and a half to 4% cap rates or Singapore for 2.7 to 3.5% residential cap rates. You know, cities like Sydney, you're seeing like 4.25% or Vancouver, you're seeing like 3.75% cap rates. So it's really useful as a comparison. So it's really, it's.
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B
Yeah, no, that's huge. Okay, so it's just another tool. Here we go. It's another tool in the toolbox.
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A
It is. That's why we're saying that's what this episode is all about. The key, the tools. We're giving people the four key tools. Right. So, and it's the easiest way to, to really illustrate the value to you is take two properties, Dave, take, you know, give me two, two random properties that you know in Tulum right now and say one's going to give me. Literally just give me two. Give me, give me. Let's go. Property number one. What's it listed for?
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B
Okay.
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A
250 USD.
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B
No, let's go villas. Ready?
- [20:19]
A
Okay, so yeah.
- [20:20]
B
Okay, we got, these are real villa, three bed, three bath, 519,900.
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A
And what would that, what would that make rent wise?
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B
Annually?
- [20:29]
A
Yeah, well, you could do it monthly. Whatever.
- [20:32]
B
Let me do this. Let me get some real numbers for you because I don't want to, I don't want to embellish this. I'm going to use two. This one's a bit unique because of the location. However, we can still use it. Okay, bear with me. Okay, let's go. It's going to be at like a 65% occupancy rate. 400 bucks a night. So what's that? It'll be like 400 bucks a night. What's that monthly? Hold on. Calculating.
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A
95,000 a year.
- [20:56]
B
Yep, that's about right.
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A
Okay, so 95,000 a year. And then what are your costs? Probably 30% of that.
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B
About that. So you got your, you're going to have HOA fees which are about let's say 50amonth. So what's that? 3000 a year. Okay. You got your maintenance, let's say 1500 for the year. Electricity, about 2000 for the year. That's not even important. Internet, let's say 500 for the year. Property tax, about 1300 for the year. So your, your total annual expenses you're carrying would be like 8,500, let's say.
- [21:38]
A
So 86,000 per year, give or take, approximately. Okay, so we take 86,000 and divide it by 5195-190005-19000. And we get calculated. I do something wrong there. I did something wrong there.
- [21:54]
B
Give me a second. Should have asked AI, man.
- [21:57]
A
I know, I should have.
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B
I got 16. Yeah, I got.
- [22:00]
A
It's pretty insane. I got 16 cap.
- [22:02]
B
I got. Yeah, I got. That's what I got too.
- [22:06]
A
Yeah. Now I would say like a, like a 16 cap rate is insane. Like that's, that's like.
- [22:11]
B
Let me explain this one. Let me explain this one. It's different.
- [22:14]
A
I will, yeah, I'll just, I'll mention. Because you, you mentioned it was an Airbnb as well. Yes, I consider Airbnb like it's a very lucrative investment. But you, it's, it's also a job. Right? Like there's some work to it.
- [22:26]
B
Right.
- [22:26]
A
You got to manage whatever away.
- [22:28]
B
I don't think we added in there a management fee. We got to take away a management fee, which would probably be 20% of profits.
- [22:37]
A
Okay, so then let's just drop that by.
- [22:39]
B
Let's give them the real. Let's give them the facts.
- [22:41]
A
Yeah. Explain to me why this one's different though.
- [22:43]
B
This one's different because it's located on. This is a big plug. This guy should owe me. It's located. That's called Zamia Fitness. Basically, this is like a, that's that. Yeah. Like a world class fitness facility with only 46 villas around it. They're going to have like big retreats there. It's like a very unique global brand. I think that will bring in significantly higher ROI than most other, like, average investments. But I have another one that I'm going to give you that's more realistic in a second that we'll use. That's cool, huh?
- [23:14]
A
Yeah, it is. Like, I remember you've talked about this.
- [23:16]
B
Last time, so you can see it's like, go ahead.
- [23:19]
A
But even the net, like that's a, that's like a 13 cap rate net. Okay. And so, so the point of this whole thing is, is really just how you can use this to compare properties side by side. So give me the other property, a more realistic property. So we'll say, okay, this one obviously is really a really high cap rate. And maybe it's because this is the very first unit that this guy's going to sell and you're taking the risk in this project, right? Realistically, probably. And then you get a really good return or, or you're taking the risk that maybe the occupancy rate isn't as high as you think or Whatever.
- [23:49]
B
Yeah, let's do. Let's do a realistic one here. Okay, so we got. Let's go 439,000 purchase price. Okay. Now I'm going to give you the carrying costs. Cool. Or your. Your operating operating expenses. Yeah, well, same thing. It's going to be Airbnb, but I'm going to give it to you. I'm going to give you all the operating expenses. So the rent first would be. I'm going to say 300. How do we do this here? 300 bucks a night at an occupancy rate of like, 65%.
- [24:19]
A
Okay, so 300 times 365 times 0.065.
- [24:24]
B
Yeah.
- [24:25]
A
Okay, so you're 71,000 a year.
- [24:27]
B
Exactly. Okay, now we need our. Okay, so we got a 25% management fee annually. You want annual?
- [24:36]
A
Well, I'll just. I'm just going to knock this down to 0.75.
- [24:40]
B
Perfect.
- [24:42]
A
So, yeah.
- [24:43]
B
Okay. Property tax. Ready?
- [24:46]
A
Yeah.
- [24:47]
B
Annual. 750. Insurance annually. 1100. HOA fees. 4200. Electricity, 2,400. Water is about 250.
- [24:57]
A
Okay, that's it.
- [24:58]
B
That's it.
- [25:00]
A
So your net operating income. Very crude. Net operating income. I did it in a calculator, not a spreadsheet, as you can see. Would be 45,000, give or take. Let's say 44. We'll be pessimists here, not optimists.
- [25:13]
B
I like that.
- [25:15]
A
Banker math, not realtor math, if you ask me.
- [25:19]
B
That's 50.
- [25:21]
A
Round up to the nearest 75.
- [25:23]
B
Hey, man, hit.
- [25:24]
A
Okay.
- [25:25]
B
Crunch the numbers.
- [25:26]
A
I need. I need the price. I'm waiting here. What's the price?
- [25:32]
B
I didn't say 400.
- [25:34]
A
Okay, sorry. 439,000. You probably did. So it's a 10 cap. Just over 10. 10 points. So that's 10. And I would just multiply this by 100, by the way, to give you a. A number. So 10.1% cap rate. I guess, actually, the other catch on this would be you can't really, like, you guys don't use debt in Mexico. We've talked about this a couple of times on the show. So. So the big catch is your yield actually might be lower than buying a property. And we'll. We'll have to do another episode, actually, like, just breaking down yield. And I'll do. Basically, I'll analyze a property like this where you're using no debt versus a property, you know, Canada, somebody could buy. Yeah. Where they can use, you know, 75% loan to value mortgage.
- [26:11]
B
Oh, that'd be a good episode. This would be a good episode.
- [26:14]
A
Yeah. You should compare buying cash versus yeah.
- [26:17]
B
You know what we should do is we should compare, like multiple properties with real time calculations across different major cities with and without leverage.
- [26:27]
A
Yeah, no, that. That would make for an excellent episode. I agree with you.
- [26:31]
B
Look at that.
- [26:32]
A
Good idea, Dave. You're good at this, big podcast guy.
- [26:37]
B
It's the gaming setup I got back here.
- [26:39]
A
Yeah. So I feel like we've sufficiently covered cap rate.
- [26:42]
B
I think so.
- [26:43]
A
I mean, basically, a higher cap rate is typically a higher return, but potentially more risk. The risk in these scenarios where we've looked at a couple of deals in Mexico that have insanely high cap rates. From my perspective, maybe the project doesn't get completed. Maybe the, you know, the market gets devalued or overbuilt because it's Airbnb. Maybe it gets saturated and hard to, you know, hard to book. Maybe you don't see that 65% occupancy rate, whatever it is. Right. Lower cap rate typically means lower return, but often more stability. So in, you know, this, the couple of cities that I mentioned, your New York City, Toronto, do you want to cover those?
- [27:14]
B
Maybe the average caps.
- [27:16]
A
Yeah, so. So your average cap rates, New York City, 4%. Again, for comparison, we just brought you two deals that are over 10%, right. London, 3 and a half, Singapore, 2.75. Sydney, 4.25. Vancouver, 3.75. But you, but, you know, I mean, these are not emerging markets. They're not tulum. They're not cities that are just getting built up where you're kind of getting in on the early. You know, you're getting a bit of a speculative boost in that investment. Right. You're. You're buying in established cities where lots of, you're competing with lots of buyers, and there's a lot of, There's. There's a lot of money chasing it. And so you have to pay a bit of a premium, and that means that your cap rate is lower. But really the point of the cap rate here is to compare properties side by side. So we just compared two properties side by side. We saw that one had a higher cap rate than the other. It's the easiest way to, to measure two properties side by side and how their price performs relatively to their income that they produce.
- [28:09]
B
Just a couple of guys giving you a couple tools for the old toolbox, isn't that right?
- [28:14]
A
Yeah.
- [28:15]
B
You want to cover international financing?
- [28:18]
A
Well, yeah, I think we should talk about probably, you know, I think one of the Key things. That key metric that you really want to think about is, is there even a lending market in the country that you're buying in? Is that is the lending market willing to lend money to foreigners? And how do we compare lending rates across countries? And we're gonna have to do an entire episode on this, like you just said. But you know, like, if I'm buying in, like, dude, every Canadian right now is trying to buy some property in the U.S. right? And I'm like, guys, your interest rates are literally 50% higher than here you're paying. Your dollar is 30% lower. Right, right. Like, explain to me what makes it such a compelling investment for. Honestly. And show me a spreadsheet. Well, yeah, just show me a spreadsheet. Two spreadsheets side by side. The two Canada versus whatever deal you're trying to sell me in fricking Ohio or whatever, right? It's like if I'm going to buy some property in like some r, like, you know, town or like some like small town in, in like snowy place near the Canadian border, I'll just do it in Canada.
- [29:16]
B
Right?
- [29:16]
A
Like, you know, for sure.
- [29:18]
B
I think like the, the, like you said, the one thing to touch on is even if they, even if financing is even an option for you, but from speaking to a lot of people looking to invest here, it sounds like a lot of the, the, the these places, you're looking like a minimum at least 30% down. It's not like a traditional loan that would be used to in Canada or, you know, the US with like a low down payment. And that's actually what trips a lot of people up over here. I actually texted you about this today because I think it's the biggest hurdle for foreign or global investors is that we're so used to in North America leveraging debt. It's actually super common in these countries, even I'm only speaking for Mexico, actually. But from what I've heard, it's fairly uncommon in these countries for anybody, even the local people that are born and raised here to. To use some sort of financing. It's not that common. Most people here don't really utilize debt like we do in North America. It's just not the way they operate. You know, they like to be honest, when I bring it up to people in Mexico, a lot of them think that we're crazy for doing it. Like they can't. It doesn't make sense to them because they're raised on not leveraging debt, right?
- [30:23]
A
Yeah, for sure. Yeah. So I think that that's like such an important factor to consider, right? Like if the country even has a credit market, it. If they, if they don't or sorry, if they do, what are the down payments? Like, maybe, maybe even they do have, they do have mortgages. They just got them Mexico, you know, they're like, all the Americans want to buy property here. We got to get the mortgages. They're willing to pay stupid interest rates. But the down payment expectation is what, they're like 30, 40. Yeah. So whereas in Canada, in the US people are like used to buying the first time homes with, you know, 5% down. Canada, same thing. Right. And now, you know, even if it's your investor 20% down in the U.S. and Canada, right. Offered for DSCR loans in the U.S. it's like. Or in Mexico, it's minimum 30, probably closer to 50 for most of these deals. You get some countries where they have cultural oppositions to debt, Right. Like, you know, where it's against the religion to take debt on. Right. So this is one of the big things where you have to factor in, okay, yeah, maybe I'm getting a way better cap rate in a country like Mexico, but if I'm buying it at 50% levered or, you know, I'm not able to scale as quickly because I can't use debt, is my return really better?
- [31:28]
B
Right.
- [31:29]
A
And so that's one of the things that I think a lot of people don't think about. The last piece I want to touch on here is I guess also in the rates. Think about interest rate volatility and future rate changes. But the last metric I want to touch on here that I think is important, and I know we're getting tight on time, is vacancy rates across markets. Like, talk to me about Mexico. Is there like a seasonal ebb and flow in, in kind of like vacancy?
- [31:50]
B
For sure.
- [31:51]
A
In market. By market, yeah, for sure.
- [31:53]
B
I mean, like I can only. It depends on the city, obviously, but I can speak for, for like this, like Quintana Roo, which is the state. Like I shall speak more specifically for Tulum, but the vacancy rate, it's seasonal here. Not, not many people are coming to Mexico to visit. So your Airbnb occupancy rates are going to drop drastically. You know, you would make, with an investment in Tulum, you would make the majority of your money, you know, December, January, February, March, April, May. And then truthfully, you're not going to see many bookings. You'd see your occupancy rate go from, I don't know, 60 to 70% during those times, ranging, you know, for whatever, but down to probably like a 10 to 15 occupancy rate come the summer months. Because this is not too hot here, right. So your vacancy rates would probably be changing. And I think a lot of people here, like, you know, if you're investing here, your tenants are probably going to be six month contract terms. Right. If you're not doing Airbnb, if you get a one year tenant, you're, you're laughing because you can kind of avoid that whole down, downtime. But most people here are signing six month contracts.
- [32:50]
A
Yeah. So to really think about that, you need to analyze that exceptionally well when you're underwriting your investments. Right. Like you need to include a allowance for vacancy. Because a lot of people, this is one of the biggest mistakes that I see people make is like, they just assume that all of their suites are going to be leased out all the time. You know, if you're buying a multiplex, it's like, well, you know, if the market vacancy rate's 7%, but it's like, oh, well, all my suites are leased. It's like, okay, cool. Well, if the market vacancy rate 7% statistically, it's saying that when you do have a vacancy come up, it's going to take you a month or two. Lease that up. Right. Like, usually that's not uncommon. I own a lot of multiplexes in the Canadian market. And, and the truth is when a suite comes up, it's not typically not leased immediately. I, I'm usually burning at least a month. You know, we got to do some renovations or whatever to turn, turn it over. And, and a lot of people don't even put that into their, into their proforma. Right. They're just like, oh yeah, I'm going to collect rent every single month forever. Right. That's not how it works. And so you really got to understand vacancy rate, the, the turnovers, landlord and tenant factors within that local market and how that's going to impact your ability. So these from my perspective, are the key jumping off points for diving in and research in local markets. Google these things like just say, you know, Mexico vacancy rate. Right. You maybe not, you're not going to get anything, but you might. And I think that really understanding those is key to formulating a good investment thesis and choosing a market that makes sense.
- [34:18]
B
Yeah, I agree. I think, I think what we do, I think we kind of uncovered a big, grander purpose for this episode is I think we do like a live, or maybe, maybe not live, but a pro forma and do a side by side for different, different, you know, properties in different cities so that they can see how we, we should or how they should run a proper performer to make a smart, sound investment. You know, like we're. And again, that's why we made this podcast honestly. It's to help you make, make educated decisions, understand what you're getting yourself into when you're getting into global investing. I think two of the. Well, not really. I guess maybe, maybe two of these four points are maybe unique to what you're. You're used to. Currency exchange for sure, is something that you're not factoring into your current performance, you know, so it's like if we can help you with that, you know, we all win.
- [35:04]
A
Yeah, 100%. I think that's it, eh?
- [35:07]
B
That's it, man.
- [35:08]
A
Okay. Thanks for tuning in. Do Real Estate Without Borders. As always, make sure you hit the subscribe button and join us for our next episode and share this with at least one of your friends. That's all we ask. I really appreciate it. See you soon.