By Ronan McMahon

Many of you are fearful about the medium term prospects for the dollar. This is one of the reasons investing in real estate in Brazil is so attractive. Real estate here is denominated in the Brazilian currency—the real. Brazil has energy, food, manufacturing, water and a young middle class population. Exactly what an emerging economy needs.

The real/dollar exchange rate has fluctuated wildly in the past couple of years. Exchange rate fluctuations have a direct impact on your investment.

The units I have recommended and have purchased myself will be perfect for short-term rental. They will generate real-denominated income. I like the idea of a future real-denominated income stream.

Today, we need to consider how we mange payments during the construction period. To remind you: A typical condo purchase in Brazil involves monthly payments of 1% during a three-year build period. Once you take possession of your unit you typically have the option (although this can vary from deal to deal) to continue to pay 1% per month plus interest on the outstanding balance.

What options do we have that will hedge this exchange rate exposure? Let’s assume the unit you are buying costs 200,000 reais ($106,000 at today’s exchange rate).

The real isn’t forward traded so you can’t hedge using a standard forward contract. We need to be more creative.

Read the full article here.