The Two Risks You Are Probably Worried About

Let’s get this out of the way: investing in raw Central America land has its advantages. But it also has its disadvantages.

If you’re a seasoned investor, then this shouldn’t surprise you because you and I both know there is no such thing as a risk-free investment…

And the name of the game is to mitigate those risks, right?

Well, when it comes to our Latin America investment projects, there are actually only two types of risk that you as a potential investor should be worried about:

  • Project Risk (Will the project lose money?)
  • Personal Risk (Am I safe in this investment structure?)

I’ll answer both those questions in this email. But let’s start with a story about an epic Central American project risk failure by a European developer.

The Colossal French Financial Failure in Latin America

It was non-sense from the start, a sea-level canal across the Panama Isthmus.

Yet, this comes from a man who was fresh off a great engineering achievement, the Suez Canal. Unfortunately that triumph made him indifferent about Panama’s geographical challenges.

Even after he knew the isthmus was studded with a mountain range, choked with jungle, plagued by mosquitoes and subject to the powerful fluctuations of the Chagres River, he persisted.

Ferdinand de Lessep felt invincible.

In less than a year, however, they were way behind schedule from floods to mudslides and yellow fever epidemics to bouts of dysentery. After four years of work, only a few feet of earth had been removed from the top of Culebra Cut out of the hundreds necessary to reach sea level.

De Lesseps and his company eventually ran out of money, going belly up and ruining the fortunes of 800,000 private investors.

Canal Construction

A muddy ditch was all they had to show for their work.

For the hundreds of thousands of French invested money into the project—it was a disaster. For the families of the French and Caribbean workers who died—it was a tragedy.

Why do I share this story with you? This is a perfect example of foreigners thinking they could apply a local paradigm to a foreign country.

As De Lesseps Panama Canal failure demonstrates, it never works. In Latin America, Western logic, whether American or European, doesn’t work.

What We Did to Thrive During the Economic Collapse

One of the things that’s made our projects so successful and allowed us to avoid financial disasters is our ability to navigate this “foreign paradigm.”

It boils down to this: Dealing with a development in Latin America is not the same thing as working your way through a development or investment in the United States or Europe. You have to know the right questions to ask, and you have to be very flexible.

For example, nobody could predict the 2008 global financial collapse. While some of us could see it coming…nobody could comprehend the extent and magnitude of its impact.

How did we keep from getting killed by it? Well, to be honest, we bought the Playa Burica [link to PB project] project before the collapse, meaning we were still depending upon our traditional sales channels. But those channels disappeared as the economy nosedived, and we had to adjust our strategy.

For example, we didn’t over commit in our investment. We had investors holding the project so we didn’t carry any debt. And since we weren’t building anything, there were no infrastructure costs, supply-chain headaches or labor issues.

And because we were on our own now for liquidating the investment, we had to start learning about our market and who was going to buy it.
We probed the market, tested our marketing on our product and iterated dozens of time…slowly building up a database of information on our customers. We eventually reached a point where we understood what they wanted, and how they wanted it.

And since our deals take five years to mature, we could take our time to make sure we got things right, thus thriving in the worst real estate meltdown when everyone else was failing.

But that’s not all.

6 Concrete Ways We Handle Certain Project Risks

I’ve had a lot of great mentors since I’ve been down here. I’ve watched them make lots of mistakes in Latin America, and I watched them make lots of money, too.

Plus, Park and I have studied this real estate business model extensively, both intellectually and as participants in many investments.

We have learned which components of the real estate business are the biggest source of risk and sought to strip those out…simplifying the business as much as possible with a focus on amplifying the elements that boost returns, while stripping out the elements that are the largest sources of risk.

In the end, we figured out how to handle risk and make mistakes that don’t cost a lot of money. For instance, here are a few concrete ways we handle certain risks:

  1. Maximizing return by carrying no debt. Because we don’t borrow money from a bank to buy our properties, we don’t have to worry about debt service payments. Instead, we partner with investors, which allow us the time to market the project for maximum ROI.
  2. Buying low. The general prices in the countries where we operate are a great value globally. But we go beyond that. Through our scouting and due diligence process, we are able to identify excellent prices within the countries with great value and promise.
  3. Finding that property in areas that WILL increase in price. Yeah, we buy cheap. But that’s not enough. We’re buying property in places that are benefiting from improvements to infrastructure. It’s one thing to get a good price on a piece of property that has been stagnant for the last 20 years…and nothing new is happening. It’s quite another to buy property that is experiencing some catalyst that has historically preceded an increase in property prices.
  4. Avoiding the risk of infrastructure. What gets built on top of the land is usually a very large component of the total investment in a real estate project. Our view is that this infrastructure is also a source of great risk. We’re not investing millions on paved roads with curb and gutter, sewage treatment plants, and underground power. Our solution was to go find a market that didn’t want that stuff anyway. It allows us to sell without taking that risk.
  5. Avoiding the risk of management. The more moving parts that exist in a business model, the more management required. The more sophisticated management required, the greater the risk. Usually. Not always. And yeah, we are aware that great managers create value and reduce risk. However, our decision was rather than spending our lives becoming brilliant managers, we would choose a smarter business model that was more forgiving on management. This has allowed us to run $5 million projects with very low monthly burn rates and very limited management.
  6. Knowing how to properly sell raw land. We control our own marketing through our own marketing company, bringing hundreds of thousands of bits of data we’ve collected over the years to the table so that when we look at property we look at it with an eye on how to actually sell it. The way it usually happens is a developer buys raw land, develops it and then hires a marketing company to sell it. Unfortunately, that company may know nothing about selling raw land or developing it. We know both. (By the way, one of the ways we collect all of that data is through our online newspaper Emerging Terrains News. We use it to see what countries visitors are interested in, which stories draw the most people and which pages visitors stay on the longest.)

Risks don’t have to be catastrophic like the global collapse to kill. Local laws could change, and if you’re not on top of those changes, then you may be caught with your pants down, eventually losing your money.

How We Mitigate Personal Risk

Like I mentioned at the beginning of this email, there are basically two types of risks you need to worry about: project risk and personal risk.

I spent most of this email explaining project risk. What about the second one…personal risk? Let me show you how we mitigate it:

  • First off, we are incredibly transparent. We will share any document with you.
  • Second, our investors are our partners (meaning we are in alignment). We are motivated to maximize the ROI on all of our projects.
  • Third, we use U.S. agents with excellent reputations.
  • We’ve got a solid reputation both here in Latin America and around the world. In fact, our investors can vouch for us.

If you would like to learn more on how we structure our projects to minimize personal risk for our partners, then check out this detailed article Why Our International Investments Are So Simple.

You’ll see what a typical investment looks like, how you’ll actually profit if you partner with us and the steps to take if you want to participate in our next project.

In the meantime, feel free to call me anytime. Just dial 888-436-7198 and ask for Josh. I’ll answer any question you might have. We can talk for two minutes or two hours…

Your choice.

I look forward to hearing from you. Until then, I’m heading out to look at properties,

Josh Linnes

P.S. By the way, check out our bios if you want to learn more about us: Josh Linnes and Park Wilson.

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