How to Compare Returns in Different Currencies Properly

Why currency matters when comparing returns 💡

A headline return in one currency is not automatically equivalent to the same percentage in another currency. Exchange rates and inflation change purchasing power, and commissions, taxes and conversion costs reduce net returns. For anyone investing in Georgian real estate or earning rent in a foreign currency, understanding these effects is essential.

Key concepts to keep in mind

• Nominal return — the rate stated in the contract (rent, dividends, coupon).
• Real return — nominal return adjusted for inflation in the reporting currency.
• Exchange rate — determines how much local currency you receive when converting.
• Currency risk — the chance of losing value due to rate movements.

Step‑by‑step method to compare returns 📊

1. Choose your reporting currency — the currency in which you'll spend or hold profits (living costs, maintenance, repatriation).
2. Convert all cash flows (income and expenses) to that currency using the current rate, and include conversion fees.
3. Adjust returns for expected inflation in the reporting currency to calculate real returns.
4. Model scenarios for exchange rate changes: conservative, base, and optimistic outcomes.
5. Include transaction fees, bank charges and taxes — these often matter more than expected.

Practical calculation checklist ✅

• Decide on the investment horizon: short, medium, or long term.
• Convert all flows into the chosen currency on a consistent date.
• Subtract expected inflation to get the real return.
• Add costs: transfers, currency exchange, maintenance, management fees.
• Factor in local taxes and legal costs for property ownership.

Ways to reduce currency exposure 🛡️

• Hedging: forwards or options can limit downside for larger portfolios.
• Currency diversification: split holdings across currencies matching income and expenses.
• Natural hedge: borrow or pay expenses in the same currency as your income.

Examples for Georgian property investors (no exact numbers) 🏡

• If rental income is paid in a foreign currency but your expenses are in lari, evaluate returns after converting to lari and adjusting for local inflation.
• International buyers should account for bank transfer fees and any restrictions when repatriating income.
• For off‑plan purchases, compare projected nominal gains with the risk of currency moves during construction.

Common mistakes to avoid ❗

• Comparing only nominal rates without adjusting for inflation or exchange rate.
• Ignoring fees and taxes.
• Basing decisions on a single spot rate without stress testing adverse currency moves.

Practical tips for buyers and investors

• Run two parallel analyses: one in the asset currency and one in the currency of your expenses — compare results.
• Create stress scenarios: what if the exchange rate drops or rallies significantly?
• Consult a tax advisor about the tax treatment of foreign currency income.
• Use conservative assumptions for volatility rather than relying on past behavior.

Conclusion: make an informed decision 🤝

Comparing returns across currencies requires a systematic workflow: pick a reporting currency, convert flows, adjust for inflation, include fees and taxes, and model currency scenarios. For real estate, transaction costs and local economic factors are critical.

If you're considering buying property in Georgia or investing from abroad, we can model realistic scenarios and show how returns change with different exchange rate assumptions. Contact us for help choosing the best property and for detailed calculations. 🏠📞

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