Investing in Mexico, Mortgage Funds

I've noticed that Mexican mortgages run from 5% to way north of that. The returns seem to be good. A growing middle class desires mortgages and I have faith in that going forward. As I intend to move there, I might as well diversify there as part of my plan. Returns on realestate mortgage funds here in Canada basically suck. Are there any in Mexico? In case nobody's noticed, inflation is running at at least 5%, I'd say 7% plus. Spencer I've got a feeling you may want to weigh in on this, and if so, I would appreciate it.
Thx
David

You also have to hedge against the drop of the peso against the USD/CDN. That can easily go 20% either way quite quickly. It wasn't that long ago that the peso was 10 to 1 CDN now its 12 to 1. That's a drop of 17% or so. Makes that 10% return on a peso mortgage fund look like a bad investment.

I think your money is far more secure and stable invested in Canada.

I hear you Bob but since NAFTA the Mx peso and Cdn $ basically move in lockstep, that's to say, the US $ is the bad guy and we are the good guys. Really, really curious is all. Another point - since HP is getting out of the hardware biz (ie printers - what's going to happen with that Guad plant - huge local employer? That will continue. The buyer ??? My bet China or Taiwan. Those poor people. It's official. It's now cheaper to manufacture in Mexico than China. No boats, no BS. Expect a ph. call. I've got to get my Legion S*it together.

Because of those recent events at HP I just bought an HP Touch-pad tablet for $99.00 (reg. $499.00) through my employer because we are a big distributor of HP products and they want to blow them all out. I hear Best Buy is stuck with 1/4 million units and may blow them out at the same low price to the general public. It's a great deal if you want a tablet.

HP shut that plant a long time ago. You both better do more research on the history of the Peso vs. the $ and the Loonie cuz you're both off base.

Didn't know HP Had shut that plant down. Confusing since a gringa gal's son (local residents) was still working there for HP, as of May 2011k. So who runs that plant?
Where the hell do you get your info from? I repeat, her son was working in that plant as of June 1, 2011 as an HP employee. With all due respect would you please recheck your sources.

It was in the Guad Reporter. They still have some people here but they're not making printers here any longer.

David wrote:HP shut that plant a long time ago. You both better do more research on the history of the Peso vs. the $ and the Loonie cuz you're both off base.

I don't know anything about the HP plant but I am interested in the original question so please educate me on the risks (or advantages) of investing in pesos. I am all ears....

My strategy is to keep between one and two years living expenses invested in pesos in an interest bearing account at MultiVa. We live in a peso economy so a peso is always a peso. If I like the exchange rate (like now) I use $US, if I don't I use $Pesos. The advantage is that interest rates are much better in Mexico. I see no disadvantages.

OK so lets say you have 60K in a peso account which earns 8% interest. If the US dollar rises 10% against the peso then you have effectively lost 2%.

If that 60K was invested in some US funds that may have risen 5% over that same period (which is likely if the US dollar rises) then you would be down a potential 7%.

Your strategy seems good if you are betting that the US dollar will remain stable or continue to fall against the peso.

OK, first find me an account that pays 8%! They're more like 4-4.5%. Second, given the stock market over the last few years 5% is a coin flip. When I'm saving a fund for living expense for the next two years I'm not going to gamble. Third, up until recently Pesos were getting more and more expensive. So when the Peso was 11.6 to the $USD rather than buy Pesos each month I spent Pesos that I'd already purchased anywhere from 12.5 to 15.5. Regardless of which way the exchange rate moves I'm in position to take advantage of it or insulate myself from it. And, those Pesos earning 4+% are safe and guaranteed and they'll still spend the same when I go to pay my Telmex bill or my maid.

I have no idea what the peso accounts are paying so I was using theoretical numbers........

Anyhow, when you say "they will spend the same" I have to assume that you feel the interest on the Peso account will keep up with the inflation rate in Mexico? That's the part that scares me the most with this plan.

BTW....I'm just trying to understand because I may do the same thing as you.

Check this out: http://finance.yahoo.com/echarts?s=usdmxn%3Dx#chart2:symbol=usdmxn=x;range=5y;compare=cadusd=x+cadmxn=x;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined

Yes, the interest rates in Mexico are much closer to inflation than those in the USA. I don't know about Canada. Exchange rates vary over time. Take a look; the Loonie has varied +/- 5% against the $USD over just the last year! Over the last 2 years the $Cdn to Peso has ranged from 11.37 to 12.69. You can also see that contrary to the other poster that the Peso is NOT "in lock step" with the $Cdn.

You can either ride that and live with it or you can take steps to buffer yourself somewhat. All I can say Bob is that it's worked for me for 6 years now. Having a foot in the Peso is a buffer. When we came here the reference number was 10.5/$, now it's 12.5. If I can buy Pesos and get 12.5 or greater I do. Otherwise I spend Pesos I have here. I adjust the reference number from time to time. e.g. For a lot of 2009 it was 13.0.

Got it. Sounds like a solid plan David. Thanks for the advice.

CanuckBob wrote:Got it. Sounds like a solid plan David. Thanks for the advice.

De nada, es mi plaisir!

Yes, a very good plan David.

BTW I would like to correct a prior post on this subject, in which I made a spelling error. No longer able to edit, I will post the correction here.

I also suggest precious metals as a hedge against currency devaluations. I know that David is not in agreement with that, however since precious metals and fiat currencies are usually inversely related price wise, it just seems prudent to me.

The spelling error was, I used the term Forex, when I meant Comex. Perhaps I was thinking of another word which begins with f.

Precious metals would have been a good thing a couple of years ago. I think now, especially with European monetary crisis, that precious metals will be losing value and the dollar increasing. JMHO.

David wrote:Precious metals would have been a good thing a couple of years ago. I think now, especially with European monetary crisis, that precious metals will be losing value and the dollar increasing. JMHO.

You know David, you could be right, however, I'm kinda betting, and not too heavily, that silver will outperform just about everything. It ¡s currently in backwardation, and is out of whack in its historical ratio to gold, so, maybe once they run out of margin hikes it just might scream up. Frankly I can't think of any other way to protect assets. Also JMHO.

David, you appear to have a self administrated no fee money market fund. Good on yer. I'm sensing Scot genes. My Mx mortgage fund enquiry request appears to have flown out the window. That's where I'm hoping the 8% yield is.
Bob, there's a nice sombrero shop to the left of the main entrance to the Chapala Market. For 35P you'll be able to buy a very stylish replacement for that thing your wife no doubt took and burnt. jajaja. I won't go on.

Talk to Intercasa about mortgages, he'll know.

Investing in mortgages can be done here and many investors specify the currency, i.e. USD, CAD or pesos. The client always has the right to pay in pesos but you can always specify at the exchange rate of the Bank of Mexico on the payment date. This takes care of any and all worries about exchange rates.

Mortgage investors generally get 8 to 14% depending on risk but few arrangers of mortgages locally actually underwrite the files as they have little to no formal experience in such and lack the capacity to check a credit report which is very important and many do not require an appraisal.

Mortgages can be a great investment BUT if something goes wrong you lose your income stream and at time may need to pay the costs of the judicial foreclosure. I have seen one case in the court which was filed in 2008 and is still there with the debtor filing frivolous appeals and the like. Plan on 1 to 2 years in court if there is a problem but if the person arranging your loan does their job right then you'll know if there is high risk or low risk so there shouldn't be (m)any surprises.

I don't know if there are any "mortgage funds" to invest in in Mexico, but I do know there is private money available for people who want a mortgage. I have a friend who has a $30,000 USD mortgage on her house here in Mexico and pays 10% annual - all terms and interest rates and payments in USD. Right now she is paying interest only. But as Spencer mentions above, if something were to happen to her I don't know how the lender would get their principal back. High return usually equals high risk.

CanuckBob wrote:OK so lets say you have 60K in a peso account which earns 8% interest. If the US dollar rises 10% against the peso then you have effectively lost 2%.

If that 60K was invested in some US funds that may have risen 5% over that same period (which is likely if the US dollar rises) then you would be down a potential 7%.

Your strategy seems good if you are betting that the US dollar will remain stable or continue to fall against the peso.

This argument is only valid if you intend to turn your pesos back into dollars. If not, the exchange rate variation doesn't matter ....

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This argument is only valid if you intend to turn your pesos back into dollars. If not, the exchange rate variation doesn't matter ....[/quote]

For you readers who believe this, I have a bridge spanning California´s Golden Gate I´d like to sell you on credit at 100% of value with just the two first payments due up front at closing.

For those of you who carefully read Intercasa´s posting about the inherent risks of investing in mortgage-backed paper in Mexico, risks that render a promised 14% return totally inadequate for the risk undertaken even discounting currency exchange risk (which one should not do), and still are considering investing in those types of securities, I´d like to sell you investment grade (graded, of course, by Dawg) paper backed by the mortgage I am going to take on the Golden Gate Bridge to assure me that I will collect the payments any melonhead has promised me over time for selling him that bridge.

When you folks consider investing in Mexico because of what seems a higher return, just think for a time about not only currency exchange risk, the 20 ton elephant in the room, but:

Sovereign (Political) Risk
Regulatory Risk
Credit Risk
Cultural Risk

And, if you still think you are intelligent enough to assess all of these risks in Mexico well enough to make an intelligent investment decision with transparent risk, I have some bonds to sell you backed by a canal I propose to build across the Isthmus of Tehuantepec from the Gulf of Mexico to the Pacific that is going to kick Panama´s ass.

P.T. Barnum was right on.

I'm thinking about putting that ocean front property in Az up for sale.

Worst case scenario heard from people I have spoken to: Years and years to get your property back, and then, in what condition?