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Originally posted by eribrav
skier, not to be a wet blanket, but your idea doesn't hold water.
First off, the yield on a 10 year US Treasury is closing in on 5% right now. That's backed by the full faith of the government of the United States. You, on the other hand have no assets and no way to guarantee your investors their money back. That would make you a sub-junk level borrower if you were a corporation. You will need to offer sky-hgh rates to people to take a risk on you.
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Ok, I accept that I would be an extremely unsatisfactory borrower. I would like to say also that while the yield curve is at about 4.75% for a 10 year bond, it is only 1.84% for a single year. Offer a 6% rate compounded every year for 10 years and you have a much better interest rate (albiet extremely risky) than a guaranteed 5% gain over 10 years that is rock solid. It barely covers inflation.
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Second off there is absolutely no way to know if a land investment will appreciate, especially one in a near-third-world nation. Take a look at Tokyo real estate values over the last 20 years. Still think land always appreciates? What will happen to your money in the event of civil unrest?
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Good thing I don't have to deal in absolutes. I have already assesed risk vs. benefit. Sure, there is a chance that there could be civil unrest, or a flood, or maybe some outdated russian nuclear missle will misfire onto the property. I've just been to Latvia, and talking to people from all walks of life there. Lawyers, real estate agents, improverished seniors that live with my grandfather in an aging planned apartment complex, young men in pubs. I heard no mutterings of despair, no longing to overthrow the government. The joining with the EU has been something to celebrate, and there was anticipation in the air. True there are a few dissidents, but they are few and far between- mostly russian immigrants angry at the loss of russian being taught in schools. I do not feel that there is much risk to this opportunity I see unfolding in front of me.
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Third, you will be "investing" in a highly ILLIQUID asset. You may or may not make some positive net return with time, but it likely won't be available during much of the holding period.
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I'm trying to figure out what you were thinking when you typed out illiquid in bold. I've never heard the term, but I think you mean that the assest has little liquidity. I agree that compared to, say, certificates of deposit, or stocks and bonds, land makes a quite solid investment. But property and houses are far more liquid than some other items of investment however, like valuable paintings, commercial buildings, and antiques. I feel that by purchasing property and marking it up 8-12% (depending on the market), in less than 2 years it will be sold again, leaving me with this extra that I can return to investors (if they feel inclined to risk their money with me) or just take for myself.
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Finally, please summarize in one paragraph what will happen to your holdings in the event of a Latvian currency devaluation. If you can't do that much then you better think doubly hard about what you're getting into.
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We are talking devaluation, not depreciation, right? If the latvian government decides for some strange reason to devalue it's currency, I would not be concerned. If their financial department feels the boost to exports and trade would be worth the tradeoff to currency, i'd be happy with that. I would change my asking price to euros, being that potential buyers would be coming from established european union members. Also, the bank of latvia is converting to euros, and current proposals are saying this will happen by 2008.
If you are talking about the depreciation of the Lat, I can say that I would just be fucked- and would have to cut my losses, and work myself out of debt, depending on the severity of that loss, it could be anywhere between 10K and 150K. Which would really suck. But it's a risk that I feel is small enough to be overcome by benefit.
P.S.- Actually i'm not really sure how U.S. treasury bonds appreciate- could it really be 5% compounded annually? You would double your investment in only 15 years. If you took a 20 year bond, at 5.45%, at the end of the 20 years you'd have almost 3 times your initial investment. This can't be right.