High Yields on a $124k Condo in Brazil

Brazil is on the up. The world can’t get enough of its food, minerals, energy and manufactured goods…and the South American nation is reaping the rewards.

Fortaleza in Brazil’s north-east, where the country’s new middle class comes for its beach vacation, is doing particularly well. With over three million visitors each year it has cemented its place as Brazil’s biggest domestic tourism destination.

However, Fortaleza’s strategic location close to Europe and the U.S. means it has also become a logistics hub. And, with the help of a tax-free zone in nearby Pecem, it is also the location of choice for export-orientated manufacturers. There’s oil offshore, new businesses are opening by the day and executives are locating here en masse.

The short- and long-term rental market is strong. In fact, it’s very difficult to find a quality rental.

Fortaleza’s boardwalk, where you’ll find the five-star hotels and luxury condos, is where it’s at…and the boardwalk has just been extended to Iracema beach. Dingy bars are being replaced by mixture of chic cafes and major tourist attractions.

A further $6 billion is in the process of being invested in tourism and infrastructure in the lead up to the soccer World Cup, set to take place in 2014. Despite all this, prices in Iracema are a whole lot cheaper than they are minutes away on the old boardwalk.

Here are the five reasons why a condo on Iracema beach could represent a great income opportunity:

1. Low prices. Real estate prices in Iracema can be as little as half what you would pay along the original stretch of boardwalk. However, rental and occupancy rates are still strong in Iracema and are likely to catch-up with boardwalk rates as the upgrades and new amenities are finished.

With rental property, the most important figure is the rental yield. All other things being equal (rental rates, and occupancy numbers, for example) buying the property at a 50% discount gives you the opportunity for double the gross rental yield.

2. Multiple sources of renters. You never want to have all your eggs in one basket, right? At Iracema beach you can rent to visiting executives, young professionals, retirees and vacationers from Brazil or Europe. This means you have a cushion if one market disappears.

3. Shortages in supply of hotels and short-term rentals. Today in Fortaleza, there is a shortage of quality rentals and hotel rooms. In fact, it’s highly unlikely you would be able to find a short-term rental still available for any of next year’s peak times, like Carnival, Easter and over the New Year period. If you are lucky enough to find one you will pay through the nose—maybe $2,000 a week for a small condo.

It’s not just during peak periods—both demand and prices are strong throughout the rest of the year with relocating young professionals snapping up quality long-term rentals as they become available.

4. Increasing visitor numbers. I’ve already mentioned the $6 billion tourism and infrastructure investment. The same plan calls for more than doubling the capacity at the airport. Specifically, in Iracema $135 million is earmarked for the new aquarium (set to be the largest in South America). Another $30 million is being invested in a general upgrade of the area, including the extension of the boardwalk. And $10 million is allocated for the renovation of the cultural center (which is Fortaleza’s art and theater center).

5. Constraints on future supply. The original boardwalk area is now fully built out. Development can’t move east because of the port and industrial area while west at Iracema beach there isn’t a great deal of land left that could be developed.

The area was rezoned a couple of years ago bringing the maximum height down from 72 meters to 48 meters, so buildings approved under old zoning laws will always have unobstructed views from the higher floors.

Members of Real Estate Trend Alert have bought in one such building where condos start from $124,000. Units are still available and those who buy could see gross rental yields pushing 10%. And I expect these rents to rise over time.

This is a must-see opportunity which you should check out first-hand. And as a Real Estate Trend Alert member, you could do just that on one of our scouting trips. (The best bit? The developer picks up the tab.) This Brazil deal is available for Real Estate Tends Alert members. To find out more or to become a member, see here.