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Old 02-26-2010, 07:54 PM   #1
Julius
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Join Date: Oct 2008
Location: Montreal, Quebec
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Default Rent it or sell if for cheap?

Hi Folks,


I have some property in Mexico that I took out a large mortgage to buy it. I've been trying to sell it for over 1 year at cost price and having a tough time. The reason is mainly that the banks in Mexico have tighten the rules on getting a mortgage making it almost impossible...also there is rumors Mexico might go bust once oil runs out there and they have to import from Venezuella.

Anyways, here's my question. If there is a devaluation of money, what happens to your mortgage?
Would it be better for me to hold on to the property in Mexico and just rent it out or GET OUT OF DEBT as quickly as I can?

Thanks
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Old 02-26-2010, 08:03 PM   #2
Steve_A
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Default Re: Rent it or sell if for cheap?

Hi Julius,

Your question is very vague as you don't say where you got your mortgage (Canada or Mexico) nor your current situation. It also depends on how much of your mortgage you have already paid of in relation to the value of the property (do you owe only 10% of the value of the property or is your mortgage more than the curent value of the property, making it a 'walk away' mortgage).

Another aspect would be the area where the property is. Does it have a high rentable value? Are rented properties in demand in that area and also do the people have the acquisitive power to pay the value of the rent?

Whatever your decision, always go through professional companies, never through friends or self employed professionals.

Good luck on your endeavours.

Best regards,

Steve


Quote:
Originally Posted by Julius View Post
Hi Folks,


I have some property in Mexico that I took out a large mortgage to buy it. I've been trying to sell it for over 1 year at cost price and having a tough time. The reason is mainly that the banks in Mexico have tighten the rules on getting a mortgage making it almost impossible...also there is rumors Mexico might go bust once oil runs out there and they have to import from Venezuella.

Anyways, here's my question. If there is a devaluation of money, what happens to your mortgage?
Would it be better for me to hold on to the property in Mexico and just rent it out or GET OUT OF DEBT as quickly as I can?

Thanks
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Old 02-26-2010, 08:31 PM   #3
Julius
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Default Re: Rent it or sell if for cheap?

Thanks Steven.
I'll put it this way:
The mortgage is in Canadian funds and I have only paid interest on it.
It can be rented quite easily.
To give you an example:

Say the mortgage is worth $100,000 at 2.25% at the moment. The home is worth $150,000. Rent can get me, say $500. Say the Canadian dollar devaluates (hypothetical speaking) in 2 weeks..and I have a chance to act on this tip (hypothetical speaking), what action would put me out ahead?


People, I'm not saying the Canadian dollar will devaluate nor do I have any hidden inside information..I'm just hypothetical speaking.

Thanks
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Old 02-26-2010, 08:41 PM   #4
Steve_A
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Default Re: Rent it or sell if for cheap?

Hi again Julius,

Sorry about the questions, but they are necessary. Is the mortgage a fixed rate mortgage, is it dolarized or is it an endowment type where you only pay the interest and a part of your capital is placed into an investment fund?

If the property is easily rentable and you do not intend to use it soon, I would rent it anyway independent of what you are thinking to do for several reasons.

You will get an income;
The property will be maintained of for (almost) free;
The property will be protected for free;

If everything is done legally and you have the right kind of mortgage (fixed dolarized) you can be rest assured that if your currency collapses you can get your rent to pay off your mortgage and even have some left over to do your groceries. I know this as I bought a car here in Brazil with fixed payments in Reais (national currency). When the value of the Real was halved against the dollar and inflation rose the car became almost for free!


Best regards,

Steve


Quote:
Originally Posted by Julius View Post
Thanks Steven.
I'll put it this way:
The mortgage is in Canadian funds and I have only paid interest on it.
It can be rented quite easily.
To give you an example:

Say the mortgage is worth $100,000 at 2.25% at the moment. The home is worth $150,000. Rent can get me, say $500. Say the Canadian dollar devaluates (hypothetical speaking) in 2 weeks..and I have a chance to act on this tip (hypothetical speaking), what action would put me out ahead?


People, I'm not saying the Canadian dollar will devaluate nor do I have any hidden inside information..I'm just hypothetical speaking.

Thanks

Last edited by Steve_A; 02-26-2010 at 08:46 PM.
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Old 02-26-2010, 08:59 PM   #5
Julius
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Default Re: Rent it or sell if for cheap?

Thanks Steve for responding as I know your Country went thru some tough times.

The mortgage right now is open variable. I can also pay it off at anytime. The only restriction is that I have to make the minimum payment which is the interest. So in the above example, the minimum payment is $208. This amount will not reduce the principal, but only service the debt. Of course I can pay down more if I choose to.

No, I don't need this home as I have my own home.
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Old 02-26-2010, 09:05 PM   #6
Julius
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Default Re: Rent it or sell if for cheap?

"When the value of the Real was halved against the dollar and inflation rose the car became almost for free! "

Can you explain...so your car payments were the same? The loan was fixed and was the same payments? But weren't you making less money because it was halved?

thanks for your help
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Old 02-26-2010, 09:16 PM   #7
bigmo
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Default Re: Rent it or sell if for cheap?

Julius,

It shouldn't matter if the Mexican currency devalues as your mortgage is in Canadian dollars, so Canadian currency will rise compared to the Mexican currency. The value of your property should increase by the amount of the devaluation of the Mexican currency, and rents should follow suit, all things being equal. (of course that doesn't account for civil unrest, nationalizations, price controls, etc. that can accompany a currency devaluation)

That should make you look better on paper with your Canadian bank. Of course the caveat, 'best laid plans of mice and men...'

Peace
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Old 02-26-2010, 11:06 PM   #8
Steve_A
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Default Re: Rent it or sell if for cheap?

Hi Julius,

As inflation goes up the currency becomes weaker as there is more currency floating about.

When you have a high rate of inflation, workers receive a pay rise (which isn't really a pay rise in real terms as it just about keeps in parr with inflation) and receive more money.

The deal I had with the car was in fixed sum payments. When the deal was struck the Real was a relatively stable currency at around R$1 per US$. Then the Real had to be weakened as Brazilian exports were suffering so the government inflated the currency, in otherwords put more currency on the market and made it worth R$2,20 per US$. This more or less for Joe Public came out of the blue. The day it happened the banks wouldn't exchange US currency in Brazil.

So anyway, basically as the deal was in fixed payments I got the car for around half the price as I thought I would have to pay as the currency weakened. Living costs remained in parr with inflation, along with % in banks and wages.

There were other people who bought imported cars with a fixed $ payment and they had to go to court to try and annul the contracts, which for a lot of them they managed to do (for political reasons more than legal ones).

I could explain how when you get a quote from a company for a service, if you delay a month, the cost could be different, but that would take time.

Even some people in the UK couldn't understand how the Real has violent swings in value from day to day these days, being valued more against the $ by over 1% on one day (which in financial terms is a lot) and the next day could be worth 1.6% less. Peter Schiff probably deals with this curency as there is loads of money to be made with these swings in value.

I arrived in Brazil at the back end of hyper inflation. That was an interesting experience, but once you understand it's not that bad really. Inflation is more a perception than a reality.

Anyway, I hope I answered your initial question.

Best regards,

Steve


Quote:
Originally Posted by Julius View Post
"When the value of the Real was halved against the dollar and inflation rose the car became almost for free! "

Can you explain...so your car payments were the same? The loan was fixed and was the same payments? But weren't you making less money because it was halved?

thanks for your help
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Old 02-26-2010, 11:48 PM   #9
bigmo
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Default Re: Rent it or sell if for cheap?

Wow Steve,

That is quite a cut! Were there no political repercussion or mass protest? A frugal person with savings would take a 120% hit on their savings... OUCH!

That's not nice!

Peace
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Old 02-27-2010, 01:00 AM   #10
Steve_A
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Default Re: Rent it or sell if for cheap?

Hi bigmo,

Beleive it or not my American Express credit card % rate is 12.99%..... per month! My Visa and mastercard are both 11.5%. There are even smaller cards (Hipercard) which is 15% per month!

Frugal people don't have bank accounts, they don't have enough money.

Even so, it is a lot better now with inflation at around 6% per year. There is a lot of complaints about the parity between inflation and interest rates on loans which can go between 7% and 12% per month, but in a corrupt political system the best way is to make a deal with shop owners to buy larger items or buy special offers when they appear.

It's like another world down here, but it is enjoyable once you understand the stupid system. The secret? Don't get in debt!

Best regards,

Steve


Quote:
Originally Posted by bigmo View Post
Wow Steve,

That is quite a cut! Were there no political repercussion or mass protest? A frugal person with savings would take a 120% hit on their savings... OUCH!

That's not nice!

Peace
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Old 02-27-2010, 02:31 AM   #11
Julius
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Join Date: Oct 2008
Location: Montreal, Quebec
Posts: 37
Default Re: Rent it or sell it for cheap?

Thanks Steve for explaining that. It doesn't sound that bad, but I worry about your last statement..

"The secret? Don't get in debt!"

I think I will try and rent it and keep it. Thanks for your input!!
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