My Lucrative Long-term Investment Plan for Fortaleza

Wednesday, July 22, 2009

Dear Reader,

You know I’m bullish on Fortaleza. The best way to maximize your return on investment in this market is with pre-construction units with low down payments.

Today, I’m going to tell you about my strategy for the units I have purchased in Fortaleza. As an investor, you need a clearly planned exit strategy and a clear view of who the ultimate end user for your property will be.

My strategy is as follows. I have taken profits from pre-construction investments in Panama and ring fenced them to use for pre-construction investments in Fortaleza. I’m only interested in low-money-down deals that are competitively priced and with at least a three-year build period.

My goal is to have accumulated a portfolio of income-generating rental properties in the city of Fortaleza in three to four years. I’ll continue to buy more units than I expect to ultimately hold. This means I expect to do some flipping along the way to help fund other purchases or to pay outstanding debt on purchased units. However, at no point will I have to flip to make payments. I’ll have a cushion at all times. Flipping is for replenishing the pot, not paying the bills.

The best time to flip units will be in the months coming up to completion or when you get the keys. I’ve made sure I’ll have the resources to carry the units I buy to this point. Given current interest rates where developers offer financing I will keep my debt levels as low as possible. If I enjoy the levels of capital appreciation I expect, my units will be debt-free, as debt payments will be made from profits on sold units.

While developer financing is expensive, the high cost of capital is one of the reasons that rental yields can be high. I expect to net 15% yields on completion of the city units I have purchased. A great yield if your unit is debt-free…not so exciting if you are paying 1% per month on the outstanding balance on your condo while also repaying the principal.

The units I have purchased are in prime locations and will have broad rental appeal to businesspeople visiting the city: oil executives, young professionals, vacationers, and retirees from southern Brazil, Europe, or North America. While choosing a location with broad appeal, I also have to bear in mind that although lots of people would like to rent a 250-square-meter condo right on the ocean, the market will be extremely limited and rental yields much lower than you can command on smaller units.

The units that I have bought offer the prospect of capital appreciation. I got in early at pre-release pricing, with the pick of the best units while paying less than other buyers. The units are located in prime areas and the developers have an established track record.

I expect to see a strong resale market for these units…the same groups that will rent here will also be interested in buying. The same logic applies…you need to aim to appeal to as many market segments as possible.

Ronan McMahon