Beachfront property not only makes sense as an investment–after all, they’re not making anymore of it–but it can also make a great second home. And if you only plan to live there part-time, why not rent out your coastal paradise the rest of the year? The rental income can mean your beach house is covering its costs–and maybe more.

You can make a sure-fire investment in rental property in any country in the world with an established tourism market–once you know what to look for.

You need to spot the distortion that can briefly occur in certain markets between what a property sells for…and what it rents for. Typically, worldwide, the average rental yield on property is about 4%. That is, if the property sells for $100,000 you’d expect to take in $4,000 a year in rental income. If the yield is much smaller than 4%, it could be an indication the property is overpriced; if it’s a lot higher, it could mean your rental numbers are unrealistic–or it could mean you’ve found the “sweet spot.”

The sweet spot is when rental demand spikes and property prices haven’t yet caught up.

This happened in Punta del Este in Uruguay a few years ago.

Known as the Saint Tropez of South America, Punta del Este is one of the region’s premier seaside resorts, and its beautiful beaches, dazzling casinos, world-class restaurants, and upscale shops have kept people coming from around the world for almost a century.

There’s a hotel shortage in Punta, so during peak tourist season (January to March), every available short-term rental fills up–the population swells from 10,000 to 200,000 during the height of the Uruguayan summer.

How to Profit From the “Sweet Spot”

When International Living made this call in 2006, readers who took our advice were able to buy homes for $140,000…and within a year take in rents of $6,000 a month during peak season. Larger homes were selling for around $210,000 when we first made that buy recommendation. Had you grabbed one of those, your rental income in peak season would have been $14,000 a month.

As is typical in situations like this, new building increased in an attempt to catch up with demand. Sale prices moved to adjust. And the window of time to buy and lock in rental yields in excess of 10% didn’t last much longer than 12 months.

But the real beauty of catching a sweet spot like that one is that not only are you’re getting a good rental yield, but as house prices move to adjust to that rental yield, you’re getting capital appreciation, too.

Where can you find the sweet spot right now? Fortaleza, Brazil.

Fortaleza is Brazil’s biggest domestic tourism destination, and visitor numbers increase every year. Last year it attracted 3.25 million visitors. Three million were Brazilian–mostly from congested areas of the south like Sao Paulo.

No country has seen a new middle class emerge as quickly and as strongly as Brazil–and if you live outside Ceara (the state which Fortaleza is in) the first thing you do when you can afford it is to visit these beaches.

Foreign visitor numbers are still growing despite the global economic problems. This year has been a bumper year so far for tourist numbers. Short-term rentals run at almost 100% occupancy. Hotel figures are similar–during April (low season) hotels were booked out. Next year work starts on an airport expansion that will increase capacity 260% to 13 million passengers.

In addition to domestic and foreign tourism, the short-term rental demand is driven by business travelers, company executives, and retirees from southern Brazil.

Rental yields are in the double figures for the right type of unit. The best way to play this is a small condo in areas where tourists want to be–like Fortaleza’s boardwalk or the famous red stone cliffs east of the city. A shortage of developable land nearby means that new supply will be limited…and this kind of property will be increasingly desirable.

Pre-construction condos purpose built for this market are your best bet–global real estate guru Ronan McMahon makes some good recommendations here.

But you can buy something already built–Lee Harrison’s gives you some Fortaleza property picks starting at $38,600 in the June issue of International Living Magazine.

Len Galvin
Managing Editor, IL Postcards

Here’s what else you can read in the June issue of the IL Magazine (subscribe now):

Buy an Argentine Vineyard for $5,000 an acre

A home on the beach for $63,000 along our favorite stretch of coast

Condos along Asia‘s spice route–$35,000

Condos for $51,000 in Ecuador‘s perfect getaway spot

Profit from South America’s best artisan market

Silver–buy low in Ecuador, sell high in the U.S.

Beach houses that earn you rental income

Profit from Brazil’s thriving electricity sector

Save thousands on cosmetic surgery in Panama

Open your own beach café in Mexico

Save $744 on your London vacation

The best airlines in the world

Lost luggage–make sure it never happens to you

Discover the unknown museums of Europe

The Maldives for 50% off

Last-minute travel deals to Paris and Rome

Residency programs in France for writers and artists

Live large for less in Panama City

Barcelona–the chicest city in Spain

Rent for $300 a month in Cuenca, Ecuador

Run your own restaurant overseas

Your own house on a golf course from $170,000