Investing Abroad and Repatriating Funds: An In-Depth Analysis
This is a guest post.
The world is truly a global village. It is a dynamic set of interrelated systems allowing investors and traders in Country A to transfer financial resources to Country B, C etc. When these global payments transfers generate profits, many investors prefer to repatriate those funds back to their home country, in their home currency. Banks are the default option for these funds transfers, but they are certainly not the most cost-effective, or timely means of transferring funds.
Banks are limited by all sorts of bureaucratic red tape, including lengthy application processes, processing times, and exorbitant fees, charges, and commissions. As financial technology evolves, banks are playing a secondary role to FinTech Enterprises specializing in low-cost, reliable international money transfers. These corporations have picked up the slack where banks have failed their clientele. Minimal fees, near-zero commissions, and low spreads are now readily available to private and corporate clients on a global basis. Money transfer companies now serve a global base of clients, and their services are provided at a fraction of the cost of High Street banks and associated financial institutions.
Why Invest Abroad To Begin With?
The Brexit is a classic case of how geopolitical factors can affect currency. When Britain voted to leave the European Union on June 23, 2016, the value of the cable plunged from around 1.47 to a 31 year low. At the time, a £100,000 home in the United Kingdom was worth the equivalent of $147,000. Barely a few months later, the sterling depreciated to around 1.21 against the greenback, dropping the value of that property to $121,000. While the UK value remained steady at £100,000, the dollar-denominated value depreciated by $26,000. This may appear to be negative for a US investor, but it actually presents an opportunity to buy on the dip.
US buyers, Canadian buyers and European buyers who believed that the UK was a favourable investment haven were able to cash in and purchase £100,000 homes (or other real estate) at a fraction of the price that it was worth prior to the Brexit. Fast-forward to 2018, the sterling is rapidly approaching its pre-Brexit levels. At a rate of 1.37/1.38 to the greenback, that same £100,000 home that was purchased for $121,000 is now worth $137,000 (April 30, 2018). While currency values change daily, the trend is important. The sterling is appreciating from its multi-decade lows against the greenback and this is paying dividends to foreign investors of UK real estate.
Say ‘No’ to Banks
Investors seeking the repatriation of profits from abroad are advised to avoid banks at all costs. Banks do not offer the best rates for repatriating funds from one country to another. Their spread is highly unfavourable to clients, and this results in clients typically paying more on every transaction than they ought to be. If the GBP/USD is trading at 1.37, a High Street bank in the UK may charge a client 1.3850 to buy and may only offer 1.350 to sell. Sometimes these fees and commissions can eat up as much as 5% of the value of the repatriated funds on two-way transfers.
That’s why it’s important to use internationally tried and trusted money transfer service companies such as World First, Currencies Direct, FC Exchange and others to avoid the exorbitant fees charged by banks. All funds are wired domestically in one currency and they are received domestically in the other currency. In other words, the same money transfer company has offices around the world and it doesn’t need to worry about moving money from one country to another since the rates are locked in at the domestic branch and they are received on the other end in the client’s own currency.
A word of advice for anyone investing and repatriating funds: every percentage, or fraction of a percentage matters when real estate transactions or large transfers are being conducted.