Currency Hedge Real Estate

Discussion in 'Trading' started by jem, Sep 5, 2007.

  1. jem


    My brother just went to contract on a ski Condo in Red Mountain Canada.

    His Canadian Mortgage payable in Canadian dollars.

    My brother would like to minimize his currency risk and also change his dollars into Canadian as efficiently as possible.

    His mortgage is 3000 us per month.

    He has a guy in San Francisco who says he can hedge the currency risk up to two years out. He needs 6,000 to control 72,000

    My brother will get the 6,000 back but the guy charges about 2% of the full transaction. plus the bid ask spread.

    Can my brother buy some sort of 2 year option for for 1400 bucks or better?

    How would you best structure this deal. Can you make a longer hedge?

  2. This is a colossal waste of time and money. For crying out loud, he already has the property. This and gold were about the only two things that weathered the Great Depression.

    And I am not so sure I would trust the guy who will "hedge the currency risk."

    Buy the stupid property. Make the payments. Stop making life so complicated. And this can cut both ways. He can lose as much as he can save.
  3. Could he get a time-share instead?
  4. sim03


    There is no meaningful currency risk, and therefore no point in paying any premium to hedge. Should USD/CAD decline further over the next 2 (or more) years, the increase in the USD cost of his CAD mortgage payments will be offset by the corresponding increase in the USD market value of the condo.

    RE ownership outside the US is by its nature an intrinsic hedge against any dollar decay against the local currency.

    "He has a guy in San Francisco"... no, no, that's not a reference to a competent financial advisor... that's just a sticky song from "Brokeback Mountain."
  5. ET has some smart, logical members after all.
  6. jem


    i appreciate the answers.

    He is concerned about the amount of his payments going up, which will be a problem for him if he goes to buy a house in San Diego after the coming housing crash.
  7. Please do not dream.

    Housing is still healthy for most. I hazard to guess over 80% of baby boomers.

    You can buy a house in San Diego and over leverage yourself and they will be flushed out. But, this is a small percentage with poor quality home.

    If we have a depression, yes 20% plus unemployment. No way that will happen...

    Baby boomers would continue to work and they will do it because they love it...Yes, it will be tough for people without good education.

    It always has been and it always would be.

    Tell your brother to simplify his life and forget about hedges...

    US DOLLAR will go down some more, but we Americans are the defacto the only significant consumers in the world.

    Chinese and Indians and Japanese love our luxury goods and so do Middle East Guys....Their count is increasing, but dollars spent in USA will still be over 40 to 50% of world total till 2010 and this will slow down, as the best of the world want to move to USA.

    Being poor and without education and marketable skills sucks, but here baby boomers will come through.

    Our kids under 30 do not want to marry or have children...

    So, boomers will define consumption till 2015 to 2020. Of course medicare will suck, as there are too many consumers...

    So, please do not worry about crashing house prices in San Diego... Crash is drop of 25% or more in 6 months...