What’s Your Dollar Worth?
By Patricia Tan
Currency Considerations for International Investors
In addition to looking at the real estate investment itself, an overseas investor must also consider the relative strength of the U.S. dollar against their home currency. Consideration has to be given to this at the time of purchase, and also at the projected time of sale. This adds a whole layer of complexity to the purchase and sale of U.S.A. real estate.
Currency exchange rates, the relative value of one currency versus another, are constantly changing. A major shift in an exchange rate during a real estate transaction can have a significant impact. Let’s consider the following example:
In late August 2012, a European buyer’s offer to buy a to-be-built home at $300,000 was accepted. At this time, the Euro was trading around $1.22. The investor, who traditionally thinks in his home currency, believes he is paying 245,901 Euros for the property. The sale closes in mid-January, by which time the Euro is trading at $1.34. When the investor converts the purchase price to Euros on the day of closing, he is actually paying €223,880 for the property – a saving of €22,021 or almost 9% of the purchase price calculated only a few months earlier. While this story has a happy ending as the currency moved in the investor’s favor, consider how the investor may have felt if the movement was in the other direction, or if he was the seller and making less money on the sale than he had anticipated.
The moral of this story is that we should never under estimate the impact that currency exchange can have on a real estate transaction and the level of return an international investor may see from his investment. Investors will consider what the exchange rate may be in the future, but without a crystal ball it is difficult for them to assess this risk.
Whether the investor is buying or selling, the best possible advice I can offer is to plan early for currency exchange. Take an interest in what rates are doing, and the economic events that may influence a rate in one direction or another. There are many internet resources which can be used to gather data and opinions, but savvy investors will use specialist currency services to help them manage risk and plan for the future.
A specialist currency company can help in a number of ways.
• Forward planning for currency needs. A currency specialist will allow you to “lock-in” a favorable exchange rate now and benefit from that rate for up to two years into the future. Fixing an exchange rate into the future will help with budget planning and making regular payments such as HOA fees.
• More attractive exchange rates. Even a change of 1% in the exchange rate can mean a big dollar impact on the price of a property or profits realized from it. A currency specialist typically operates on much lower margins than a bank, and some of my customers have saved up to 6% by simply shopping around for the best exchange rate.
• Exchange rates change constantly. Working with a currency advisor allows funds to be exchanged at the best possible moment. Some companies allow a target rate to be set. Once the rate reaches the target, an investor’s funds are traded automatically.
• Transfer of funds from one country to another is usually achievable at a lower cost using a currency specialist.
• The time taken to get money across borders may be reduced, as the currency specialist is transferring directly to your desired destination, rather than working through a third party correspondent bank for instance.
Overseas buyers and sellers of real estate will most certainly benefit from monitoring the currency market and planning early for their needs to move funds from one currency to another.
[1]Patricia Tan was born in England, and her career in international sales and marketing led her to live and work in many countries around the world before moving to Sarasota in 1997. Patricia is a Certified International Property Specialist (CIPS), Graduate Realtor Institute (GRI), and Transnational Referral Certified (TRC). She is involved in global activities of the Sarasota, Florida and National Association of Realtors, and currently serves as NAR President’s Liaison to U.K. Her real estate business operates from Coldwell Banker on St Armands Key, where her focus is to bring international buyers to the local market. She regularly makes marketing trips to Canada, Asia and Europe, to promote Florida’s Gulf Coast and the Sarasota area in particular. Patricia may be reached at 941-504-9232 or Pat@PatriciaTan.com [2].
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