South Brazilian Real Estate: The Largest Returns I’ve Ever Seen in Real Estate
Hey, want to feel really, really bad? You know, that rotten feeling you get when you learn that you missed out on a single guaranteed investment that went through the roof? Well, you did. And so did I, in part. There’s still time to make excellent money in south Brazilian rural property, though the craziest yields are off the table, for now.
I’ve lived in Florianópolis in the south Brazilian state of Santa Catarina for eight years now. I’ve studied real estate for this entire time. The first four years I studied values on the island and the second four years I studied values not only off the island, but off the coast, too, in the gorgeous countryside anywhere from a 40-minute drive to a two-hour drive from the best beaches. Over the course of my first five years here, property values on the island skyrocketed, and everyone here was amazed. Values doubled once, and then again almost a second time. For example, a lot selling for R$20,000 in 2003 was selling for R$40,000 in 2005 and then for R$70,000 in 2008. Today, it probably sells for R$120,000. Over the full eight years, that’s a 500% return. Movement in prices on the island are fairly flat right now.
Feeling bad in gut? That wasn’t the part to feel bad about! Check this next part out.
A Story About Typical Land Appreciation in the Near-Coast Interior of Santa Catarina
Over the past ten to twelve years, while everyone on the island who owned property was doing cartwheels to celebrate their newfound wealth, something even more remarkable was happening 90-minutes away. There are many, many gorgeous cities and countryside towns nearby. This example is of a town named, Anitápolis, in the Sierra region of Santa Catarina, sandwiched between the State park and the Federal Park. The story of Anitápolis is the same as stories of Urubici, Rancho Quemado, São Bonafácio and others. All of these areas were on my radar as I spent several years studying the values of large pieces of rural property, sizes in excess of 50 acres. Here, we use “hectares” as a measurement, which is 10,000 square meters, or 2.5 acres. I will use hectares in this article. 20 hectares is 50 acres.
In Anitápolis, a man named João was showing me property. He wasn’t a realtor, per se, but there are no realtors in that town and he had lived there his whole life and knew everyone and I was introduced to him as someone who knows everyone and everything for sale, and would help me out for a small commission in the end.
João’s Personal Experience
Somewhere between 12 and 15 years ago, João bought a 30 hectare piece of property for R$3000. Back then, you could hardly give away land. The price was practically free. People needed cash. The price was about $25 per acre, seriously. And this isn’t just any land. It had a river running through it and natural water springs, open space with rich topsoil and closed rainforest. The scenery in Anitápolis is breathtaking.
Somewhere in the range of five to eight years after the purchase, the value of this land had “exploded” to R$30,000, a 1000% yield. João couldn’t resist. He needed the money and he sold for R$30,000. Two years ago, when he was showing me properties, this same piece of land, though not for sale, was easily worth R$300,000. The going price of land, though it’s not an exact science, was about R$10,000 per hectare.
A 10,000% Yield
Even as an accountant, I can’t believe that I’m doing the math right, and maybe I’m not, but I’m pretty sure that an increase from R$3,000 to R$300,000 is a 10,000% yield over about a 12 year period. Even if the yield percentage is off, what isn’t off is that you take the value of the land and then add two zeros. Think about that for a minute. If you had come here twelve years ago and made good decisions to invest $100,000 USD’s in semi-large rural properties, you’d have land worth $10,000,000 today.
Now, that’s not even true. You’d actually have land worth $20,000,000 USD’s today. Why is that? Because over that time the Brazilian Real has doubled in value against the U.S. Dollar. So crank up that yield to 20,000% when stated in the dollar.
I’ll add quickly that this is not an isolated event. I’ve heard dozens of similar stories and seen many examples with my own eyes.
Ramping Up that Yield Even Higher
Feeling queasy? We’re not done yet! Here’s another thing to consider. The price per hectare of land here is considerably lower for large properties than for smaller properties, often by a factor in the range of 4-7. For example, a 50-hectare property out in this region may cost R$250,000, or R$10,000 per hectare. If there were a one-hectare property across the street, it would cost about R$50,000, or a factor of five times more expensive per hectare. It doesn’t make sense, but it’s true. It’s simply that there are a lot of Brazilians who can scrape together R$50,000 to buy a piece of land and precious few who have over R$100,000. And, remember, you have to pay cash here, or have something of value to trade, such as a car, or a bunch of cows. And I’m not joking about the cows.
The Power of Subdivision
Enter the process of subdivision, here called “dismemberment”. I’m not referring to a formal, legal subdivision, I’m simply referring to breaking a big piece of land into small pieces to be sold off individually.
For rurally zoned property, there is always a size limit to how small a piece can be broken off and sold without creating a legal subdivision, known here as a rural condominium. The size limit various from city to city, but the variance is small and is often equal to two-hectares. So, if I have a 30-hectare property, I can break it into 15, 2-hectare pieces and sell them off without much difficulty.
Now, because much of this land is forested, and you can’t clear-cut the forest, some of this property has less utility. So let’s keep this example very simple and very conservative. Let’s say our 30-hectare property above can be broken into six, 5-hectare properties, each with space to build and farm, as well as some forested area. At a very minimum, the value of these pieces rises instantly to R$20,000 per hectare from R$10,000 per hectare, though in reality this is going to be closer to R$30,000 per hectare.
Our Final Yield Calculation
Using a per hectare value of R$20,000, we can once again double our yield. Now, this piece of land that began at R$3,000 (and, actually, less than $1,000 USD’s at the time), is now worth at least R$600,000 today. My calculator tells me this is a 20,000% yield, though I still think I’m doing something wrong. In U.S. dollars, because the Real has double in value against the dollar, this would be a 40,000% yield.
This article uses a historical example to demonstrate the extraordinary yields that have been made here over the past decade and a half. It wasn’t so much a “how-to” article, though much can be inferred from what I’ve written, because values out there are still climbing very fast.
I’ll finish by giving you a more contemporary example. After studying rural land values for four years, and aggressively spending two years in search of one to buy for myself, I finally found something with most of what I was looking for, including an honest seller who was desperate to sell. I bought a 44-hectare property in July of 2010. I’m sorry, but I won’t say for how much. What I will say is that today, less than two years later, I’m confident that it’s doubled in value. Adding to this, I know that I can break off one or two pieces that total no more than ten-hectares, and sell them today to recover 100% of what I paid, keeping the best part for myself, 34-hectares in size. Additionally, there is a plantation of eucalyptus trees that in eight years, will be ready for harvest, and will yield, conservatively, 120% of what I paid for everything.
Good luck to you in all you do. Feel free to contact me with any questions you might have at email@example.com.
About Joe Naab
Joe Naab is the author of Brazil for Life!, a how-to living guide for those who want to start a new life or have a second home in Brazil. He offers a two-hour private phone consultation for those who want more specialized information to suit their specific needs. He also coaches people through the entire expatriation process and can help those interested to obtain Brazil’s Business Investor Permanent Visa. He can be found at http://brazilforlife.wpengine.com and reached by email at firstname.lastname@example.org.