Article
Raise Money Offshore for a Global Business - Real Estate Example
There are numerous benefits to having a global business, including
greater freedom, expanded profit opportunities as well as tax and asset
protection. Another advantage is that currency and economic distortions
often make it beneficial to raise money abroad.
Here's an example from my own experience. A number of years ago I
helped
a New York real estate developer raise money from European investors. He
had been very successful buying up warehouses in Brooklyn and converting
them into residential condos for young upwardly mobile professionals.
Then, in the 1980s, the real estate market crashed. The developer was
over his head in debt and needed quick cash. An oil shortage, a banking
crash and sky high interest rates were on the verge of shutting him
down.
He consulted with me about raising money from Europeans. The dollar was
crashing (as it is now) which might be viewed as a negative for
investments by foreigners in U.S. real estate. However, I thought we
could raise the money he needed if we sold apartments to Europeans,
rather than try to borrow more money.
I chose this strategy for several reasons. First, Europeans like real
assets such as property much more than loans or equities. Second, the
US dollar was at the time at an all-time low versus the British pound,
German mark and Dutch guilder. These Brooklyn condos seemed really
cheap, when converted into these currencies.
So, we placed a series of small, classified ads in the Netherlands,
England and Germany. We offered a real estate investment with a twist
that provided immediate income and locked in a capital gain.
Here's how it worked. To generate immediate income, the real estate
developer leased the apartments to people who wanted a place to live,
but couldn't qualify for a mortgage. He also gave them an option to
purchase the property at a future time when they had had a larger income
(or when interest rates fell).
The developer now had an asset that was very attractive to the European
investors. He not only gave them immediate income, but the lease option
sales price locked in a capital gain. They earned income now,
appreciation later and the entire package was secured by the real estate
itself.
That's just one example. There are many other ways to raise money
abroad. The most successful efforts combine a situation where investors
not only can purchase something at a very reasonable price, but lock in
income or gain, or both, with very little downside risk.
There are also situations that are best to avoid. For instance,
institutional investors such as banks are not usually the best choice
except for large companies with audited accounts and track record.
Institutions that make international loans are looking for substantial
deals, not start ups.
Also, forget about the rich Arab prince or wealthy Tokyo businessman
(or
whatever the story may be) who sends you e-mail offering to bestow
millions of dollars on your new and untested businesses. Such lenders
and investors don't exist, and the ones who claim to provide this
service are scams. If you take the bait, they will ask for a substantial
"advance fee" for the money they supposedly will invest, then disappear.
There is, however, one form of bank financing worth considering. If you
have a portfolio of investment grade stocks, bonds or mutual funds, many
European investment banks will lend you 50% to 90% of its value if you
transfer custody of the portfolio to them. You can normally borrow in
any currency; for instance, right now, yen loans cost only 1.7% per
year. This is a cheap loan, but there is a currency risk if you must pay
back the loan with a currency that depreciates against the yen. You can
eliminate this risk if you invest the loan proceeds to generate cash
flow in that same currency. So if you want to start a business in Japan,
by all means borrow cheap yen!
Another way to raise money abroad is through private investors. This
generally works best if they are attached to your business plan. In
other words if you have a product you want to sell in Germany look for
German investors and (even better) German partners who put up part of
the capital.
An added benefit from this approach is that if you attain 50% non-U.S.
owners in a business that doesn't do business in the United States, you
gain great tax perks. The Sovereign Society can put you in touch with
lawyers who can fill in the details.
As long as the global economy consists of many nations with differing
politics, individual currencies and varying interest rates there will be
distortion in currencies and economies. Shrewd investors and business
people looking for extra profits can use these economic twists to raise
money abroad.
Gary Scott, Jefferson, North Carolina USA
E-mail:
gary@garyascott.com
Web site:
http://garyascott.com/
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