A little about me. For the time being I’ll refer to myself as Sirsandals. I plan to remain anonymous for an undetermined period of time.
So, about me; well, us actually. There is also a Mrs. Sirsandals, and we have an adult daughter. Mrs. Sirsandals and I have been married for about 20 years. We met in the United States, and have relocated to Brazil, about 2 years ago. We began intentionally working toward Financial Independence in early 2019, which relates to our present location.
I’m in my early 40s. When I was in my late 20s I got a job opportunity at a very small company. It was not a startup, per-se, but it felt like it. This was a company with an existing product, but the company had no brand recognition, was losing money, and required a turnaround effort. The company got a small influx of cash from two investors who also now actively participated in the management of the company. They were looking for someone with experience in the industry that I worked in, who could help them with product strategy, sales team formation and structure, networking with partners and prospects, raising capital etc. I took the job, for which I had to relocate across the country. It was a huge risk, because the company could fail, and frankly should have. The main motivation to go was the management team was offering me stock options which should have been worth a considerable sum. Their plan was to exit in five years, at which point I hoped to realize a gain in those options..
That was my retirement plan.
5 years came and past; I ended up spending 15 years in the company, with no exit. So, I decided a few years ago (early 2019) that I needed to take retirement savings into my own hands. I had no traditional retirement savings at the time. No 401k. No IRA. No Roth. No HSA. Nothing.
At the time, I had two homes in the US. I sold my first home in late 2018. You see, I bought the house in 2006, near the height of the US housing bubble which subsequently popped in 2008. I actually moved to take the job in 2008, right when the cracks were being to form in the housing market. That forced me into a position of accidental-remote-landlord, for a decade. More on that later.
When we decided to sell, I had discovered, via Zillow, the property was finally worth more than I bought it for. On top of the increase in market value, my tenants had been helping to pay down the mortgage via their rent payments. I had I had enough equity in the property to give me a running start with my finances.
Coincidentally, Mrs. Sirsandals and I had been seriously looking at buying a beach property in Brazil. You see, back in 2018 the Brazilian Real (currency of Brazil) had become quite devalued as compared to the dollar. The exchange rate was 3.8 to 1, meaning you could get 3.8 reals for each dollar you exchanged.
For most of our time married, the exchange rate was below 2 to 1, meaning now we would get almost twice as many Reals for our dollars. That’s like a 50% off sale!
Oh, did I mention Mrs. Sirsandals is from Brazil? That is an important detail. Before you go thinking I’m some sort of genius who tracks every conceivable international market for arbitrage opportunities, in realty I was following the Real and the Brazilian market by luck and osmosis more than by intention.
…Back to the story. So, we found a property for about 125% of our budget; the location was amazing; a very safe and desirable town, with views of the ocean and only steps from the beach. If we exchanged the proceeds form the sale of our rental property at about 4:1 exchange, rate we would have had about 80% of their asking price, so that’s what I offered… And it was accepted. Of note, is that sometimes you can get fantastic discounts in foreign markets with cash deals; there is a lot of opportunity because real estate markets abroad are quite imperfect… there is no MLS, so pricing information is a bit more challenging to aggregate. This can work in your favor or against you. More on that in a later post.
Ok, so now we have our vacation beach home in an exotic location. Everything is great right? As you’ll recall this story is about how I needed to take retirement savings into my own hands, so let’s get back to that.
This experience taught me I could get a LOT for my money in Brazil, at least for now. Over the coming months, and particularly after a trip to the property, I began contemplating a retirement in Brazil. You see, I loved it there, and also with the exchange rate so favorable, I could transfer my money and instantly increase my purchasing power.
So with that, we worked on a budget. We went from saving almost nothing to around 50% (at the time of writing I haven’t actually done the calculations, so a later post will detail this more accurately). With each paycheck I would ‘pay myself first’ and transfer the savings to Brazil to lock in the gains in purchasing power.
Fast forward to middle of the year 2020. I got a new job in the same company. I may expand on the details of that in a later post, but the relevant fact here is it came with nearly a 40% compensation increase.
We were able to multiply the amount we saved. At the same time, due to COVID-related market conditions, the Real took a further fall from the dollar. The current exchange rate was over 5:1 (5 Reals for each dollar). This really turbo charged the savings in Real.
Around that same time, mortgage rates had fallen to new lows.
Our primary residence was located in a bustling area of the US at the time. The property had appreciated quite well and I had considerable equity. However, my mortgage rate was >5%, while market rates were hovering right around 3%.
With those conditions in place, I decided it was high-time to refinance. Not just any type of refinance, but a cash-out refi. If I could take equity out of my property without selling it, I could continue to live there and benefit from the appreciation. Given the exchange rate was at such exceptional and unprecedented levels, I wanted to lock in the purchasing power arbitrage. I did the cash out refi, and ended up with a bit over half the amount we had paid for the beach property in cash and a lower mortgage payment. Once I sent that cash-out-refi cash to Brazil it became a very decent base I could use to invest, or live on for several years. Between that and savings I had already accumulated I had enough to begin looking at other investment properties.
Now wait a second, how do we know that exchange rate is really a purchasing power arbitrage opportunity? Good question; let me explain. First, there is a concept I’ll explain in detail in a later post, called Purchasing Power Parity (PPP). In short PPP is the exchange rate equivalent as measured by the cost of a basket of goods, as compared to the same basket of goods in the US. When compared to the actual exchange rate of the currencies it loosely tells us how much less or more expensive items are in a country verses the US. Let me give you a more relatable example from real life, instead of real estate. Right after buying the first home in Brazil in 2018 (we’re going back in time a bit for this example), I went to the grocery store to buy meat. I love Filet Mignon; in Brazil it’s sold by the Kilo, instead of the pound. A kilo is 2.2 pounds.
A kilo of filet at the local store was $44.99 Reals. A pound of filet in Texas at the local grocer at the same time (choice grade), was $24.99 USD. $44.99/2.2 = $20.45 Reals per pound of Filet in Brazil. $20.45 Reals at the exchange rate at the time (3.8 BRL to 1 USD) was equivalent to $5.38 USD. In the US a pound of filet was selling for $24.99 and in Brazil it was selling for $5.38 USD. Using this example my purchasing power was almost 5x as compared to buying the same thing in the US. The PPP figure at the time would indicate an average closer to 2.25-2.3x for a broader basket of goods and services.
Back to the story…
We had been renting out our first beach property when we weren’t there. It did Ok. The rents from vacationers more than paid for the expenses. I wanted to buy another income property. I thought real estate was a safe way to keep our funds inflation protected and generate some income.
In the middle of the pandemic, we took a trip down. I’ll tell you what… the flying and airport experience is so much better when terminals and flights are not packed. And we never had any issues with health as a result of traveling.
Anyhow, we were looking for an income producing property. We started in a big city thinking we could rent to a long-term tenant. After spending a few weeks touring available inventory, I was not impressed with what we could get for the amount we had to invest. There were no deals, as I saw.
With a bit of frustration, we decided to give up. At that point we shifted gears into vacation mode and rented an AirBnb at another beach town. We had always been excited to try out this new location. It is a much more urban area with lots of things to do, unlike the quieter town we already had a property in. We got there and fell in love. So of course, we started hunting for deals. Low and behold, after an extensive search we found our property just by walking along the beach. We looked up and saw “for sale” signs in some windows, and called one. This place was ocean front, relatively large, great layout; it was really perfect. It was a bit out of our price range. I’ll detail the whole saga in a future post, but for now the sellers were asking for 125% of our budget and we landed at 80% of their asking price. Coincidentally we’ve negotiated exactly 20% off asking price with each purchase so far.
Ok, connecting this back to the main story, we now had a property we wanted to live in permanently. This solidified our long-term plan into a short-term plan. Now it was time to figure out, how fast could we get out of my job and to Brazil permanently. My plan was to go from business-man to beach-bum ASAP.
After buying the future-primary-residence, we immediately had put in place a plan to relocate. I estimated I could save enough for 4-8 years of spending in Brazil by the end of 2021; my plan was to go with that cash on hand. I didn’t know how my employer would react so I needed that as a cash cushion, to prepare us while I either figured out a plan for income, or waited for the company to sell so I could cash in my stock.
Luckily things turned out in my favor. By mid-2021, the real estate market had accelerated further. I sold my home in the US, and walked away with a surprise gain after paying off the recently cash-out-refinanced mortgage. At this point I had to fess up to my employer. The conversation went well and they wanted to find a way to keep me on; bonus!
Also, the car market was very hot. As you may recall there was (and still is, at the time of writing) a chip shortage which limits new car production, therefore driving up the cost of used cars. I sold my two-year-old car for 6% less then I had paid for, which not bad considering I bought it brand new. I gave my other car to my daughter.
We continued to sell off, donate, and give away items. When all was said and done, we had our possessions down to 6 suitcases. Instead of having my originally anticipated amount I ended up with about 2.5x that amount, as I had not previously considered proceeds from the sale of our possessions. The car and housing markets were changing so fast it was hard to predict.
At present, I’m not working in a formal job. I spend my time with exercise, Jiu Jitsu training, this, and generally enjoying time. A friend once said “you might think I’m wasting time, but it’s my time to waste”. I loved that.
-Sirsandals