Buying STRs in a distressed market outside the U.S. for high upside potential

0:00The three countries are Argentina Colombia and and what was the other one was it Venezuela Venezuela okay and what about these three is it that stands out from the rest we were just actually traveling to Costa Rica in February we spent some time there and it seemed like as I was looking at potential airbnbs there could be potential there depending on the property so what sets these three apart from other Latin American countries yes I think that is that is the key to the issue you as as an investor you might be prioritizing by cash flow if you do Costa Rica could be a great you know country to invest in I cannot talk to I cannot talk about that in particular but if you're if you're trying to optimize for appreciation what you see in Venezuela in Colombia and

0:48Argentina is that prices are historically lows the problem about Venezuela we researched it we found the properties were priced at a similar you know the price of construction was similar to the price to the commercializing the asset so it seemed that it was it was it seemed like the like the attitude of Being Greedy was reasonable right cuz when you when you spot that you say that something might be off right the thing about Venezuela is it's it's it's strange to us because it's a it's a dictatorship you don't know if anything is going to change there to be honest and as an investor to represent some you know to to raise money in to invest in Venezuela to to us seem like too extreme the thing about col col was the opportunity wasn't clear there were some cities where prices were were low

1:37But we didn't have certainty that if something major happened like it will happen in Argentina in the coming years we we will like for example mortgage is being reintroduced that prices would you know Spike so to me I I I kept you know kept coming back to the idea of a margin of safety which most investors are familiar with which is you know if the price of the of the asset is similar to to its cost in this case the cost of construction there is some certainty that that the investment might be safe now there's a different issue which is how you approach appreciation so how we know that we're buying it at a decent price but why is this a good you know why might it be a good investment for you or for anyone else we

2:26Operate under one hypothesis which is that in Argentina in particular there have been 18 years of of left ruling the country that when that happened those type of types of government really like to print money so they can keep you know so there's money about that here in the US well in Argentina inflation last year was 100% so let's not compare but it sounds bad but it's on you know what I found when I came back to Argentina 2018 it was like I was thinking like this is an amazing opportunity right every but I looked I looked at it with different eyes I was thinking about as an investor and in 2024 there's an election coming in 2023

3:15The the the the leftist the left the left parties are expected to get less than 30% of the votes so we had the experience with a rst go for you know a democratic government in in 2016 which reintroduced the mortgages and we expect the same to happen as as as inflation is becomes a priority because otherwise it's not and the other thing is mortgages are one thing and how they impact prices the other thing is prices for real estate in Argentina are at historical lows so so you can buy you can buy properties in Bones City for $150 per square foot compared to 2500 or more in 2016 and so forth wow right so there's the two things it's mortgages and the

4:03Opportunity because prices are low so those two things combined make it makes makes Argentina attractive for investors looking for appreciation got it okay yeah no that and I appreciate that summary because that's those are some of the main issues that people ask about financing being probably the the biggest one and then the second one is is I think around safety you know safety of themselves and then also safety of the investment you know I I used to invest in Chicago so I understand corrupt governments but that's always a concern in some countries like you mentioned Venezuela and so I imagine you still have to go through like when you're developing projects you still have to go through a permit

4:53Process and inspections with the government and stuff like that so is that an issue is there an issue of you know having to know the right people to get things done or or is it pretty straightforward I think I mentioned earlier that when we were discussing about building a a a tech startup in Chile for example and that that in some aspects the country wasn't wasn't you know safe enough for for building a company the thing about real estate is that property right property rights are enforceable as they are in Argentina as in the US for example or in Colombia and so forth that in particular Works about I I

5:41Can there's I do not identify issues about corruption for example needing to pay people off to get a permit or whatever I think that's no longer the case that was probably you know in the 90s and and so forth I think that I think as a you know you don't have access to financing but you can buy a brand new apartment for 70,000 and you would you would expect to sell twice as for twice as much in seven years and so forth so you need less Capital that is one thing the other the other question is how to structure how to structure correctly your you know set up a legal structure correctly so so everything works I can I speak for the process that we applied because we incorporated a company the

6:29US to purchase properties in in Argentina and so forth and we had to go through all of the process and it's pretty similar of what would happen if someone wants to buy real estate in the US as a foreigner you would need to you would need to find a an attorney what we did and this is I think what anyone should do is you just look for the best you know studio Legal Office in the country for Real Estate I used I used we used a website called chambers.com they give up you know they they select the top three real estate Studios per country and you will pay a little bit more but you will but you will find a law firm that's really professional speaks the language you know and can serve you in this country and and in in any foreign country so you

7:18Need to set up you need to you need like a social it's not a social security number but you need a a tax ID mhm so what you would do with this legal is you will process a tax ID as a foreigner and using that you give you might give this Law Firm for example power of attorney so they can buy the assets for you that's what that's what we do we have we have we find someone who's who has that power in Argentina to sign documents for us for example and then you would continue to pay taxes in the US we can dive deeper into that afterwards but you you need to find a very good law law firm and need to find a real estate agent and in our case in our case

8:08We just kept it simple we went to Keller Williams we asked who has had expertise on short-term rentals and that's how we started I think if you find any any International real estate firm or or brokerage they they will give you an agent that speaks the language and and will help you with the process and there's and as if you're managing a short-term rental you would Pro not sure but you might look for a property manager as you do in the US in some in some occasion so tourism is usually it's you know tourists speak English and property managers too as well so you would find you need to find you need to find the right professional who's also English speaking as you would do when you you working on a different state in the US got it yeah and

8:58I want to get get into some example numbers here but I'm I'm really curious when it comes to inflation you know you were mentioning how inflation was you know about 100% last year but yet prices are the lowest they've ever been typically those that's not the case you know inflation push up pushes up the the value of of real assets like like real estate so what I guess how how did that occur and what's making you think that it it will turn around what's the I know you mentioned you know new new financing coming on board which obviously would allow leverage and be a big boost to to real estate but it seems like the correlation is almost off well yes but but the price of real estate is is it's

9:46It's all about supply and demand right so what happens for example when when in the US when interest rates go up there's less less people willing to take that to buy properties so demand may go you know it's slightly decrease and prices went fall then follow but well that was in the US what happened is interest rate came up but demand remained stable for a bit and so did Supply so that's what that that's why so many people were concerned what happened in Argentina is there's we should take two different things when mortgages were reintroduced in in 2017 only for one year the total the number of people buying properties increased by 40% because now there were people the only people that were

10:35Able to buy properties before that were those that had had cash in hand right yeah the thing about the thing about mortgages which I think is the key factor here and that's why we would invest in Argentina and not in Colombia is that you have you have certainty what that with the reintroduction of mortgages prices will come up so you're betting on financing you're not you're not you're not forecasting demand or or any any anything else that's why I mentioned a margin of safety right we know that at some point mortgages will be reintroduced between 2025 and 2027 which which normally is expected to happen so we know that there will be a price correction and we bet on that for the for those properties we bet on only only for holding for five years and to resell them right after mortgages have been

11:25reintroduced a