26 September 2008 289 views No Comment

One of the negatives in investing in financial assets is that they can lose all their value very quickly when the environment turns sour. A lot of people are losing a lot of paper wealth as once invincible financial institutions are falling like dominoes and they are realizing that financial assets are not as robust an investment vehicle as they once believed. As people lose faith in the financial system to provide them with reliable returns on investment, they will likely turn to real assets such as real estate. Richard Benson, writes in Money Week:

“My investment plan remains the same. I expect real assets will greatly out-perform financial assets. First, I want to buy gold and silver in physical form whenever I can. In the world of inflation, while cash is king, gold is the emperor! Second, I look to accumulate real assets if they are quality assets and the prices have crashed down. So, I do believe that in a few years even real estate will again be a great inflation hedge!”

If one of the consequences of the 2008 Financial Crisis is a loss of faith in the financial system, we could see more people shift their portfolios to real assets such as international real estate. A shift in investing behavior could help international markets like Mexico, with stronger overall demand for real estate investments. This coupled with factors such as the increasing number of Baby Boomers moving to Mexico full time, should result in good prospects for real estate markets in growing markets like Puerto Vallarta. The flip side, is that many Americans have lost wealth in their financial investments and nationwide home values have dropped significantly. Many Americans can not borrow as much against home equity to buy a second home, or their 401K has now shrunk and they can not cash out as much. However, Mexico is a great place to move, if you want to stretch your retirement bucks as far as they will go, with lower health care costs and cheaper oceanfront real estate. A smaller nest egg may lead retirees to choose Mexico, over a more expensive but similar lifestyle in Florida.

While there is anecdotal evidence of an immediate fall in demand for Mexico real estate (see US Financial Turmoil Affecting Mexico Real Estate), the long term prospects still look very promising.