An Easy Way to Buy Foreign Currency

As you know I am bullish on the real estate market in Fortaleza, Brazil. Fortaleza was Brazil’s #1 domestic tourism destination last year. Visitor numbers were up by 16% in the early part of this year. There is a hotel and short-term rental shortage. Soccer’s world cup is coming in 2014. Over $5 billion will be spent on infrastructure and tourism upgrade in the lead up to the tournament. Best of all there is a limited supply of developable land in the prime boardwalk area.

The type of real estate I recommended to members of Real Estate Trend Alert (and bought myself) have been pre-construction deals in these prime areas. We got in with preferential terms such as a 1% down payment with monthly stage payments of 1%.

Real estate in Brazil is priced and sold in the local currency—reais. Buying a condo for BRL 190,000 involves a down payment of BRL 1,900. You then make monthly payments of BRL 1,900. Today BRL 1,900 is $1,060. Who knows how many dollars the payment of BRL 1,900 will be next month?

Locking in today’s exchange rate would seem like a sensible option to make sure you know what your cash flow will be. Here’s a way you can do this:

Move your U.S. dollars or other currency into a Brazilian real (BRL) CD and you will lock-in today’s exchange rate while earning 5% interest on the BRL deposit.

Some members of Real Estate Trend Alert do this. I wrote to them about this early this year. This is an e-mail I recently received from a member:

“I hedge the Brazilian currency through a Brazilian Real CD account. I did that for the Beach Class project....Had I not done that, I would have lost nearly $18,000 just in the first few months! Instead, I hedged the currency so it has not cost me anything above what I budgeted, and the property has appreciated $18,000 and I have earned about 7% on my money!”

The real isn’t forward traded. You can’t hedge using a forward contract. That's why a BRL CD is the best way to lock in today’s exchange rate, fix your monthly payments in $ terms and see your real deposit accumulate interest.

I'll be discussing this idea in detail with a renowned currency expert on a teleconference next week. We'll also talk about a safe way (i.e. zero downside) to invest in currencies that you probably haven't heard about. To listen in on our conversation (it's free) simply let me know here.