How to invest your capital to ensure a secure return
Talking about “safe investments” might seem counterintuitive. In fact, most investors have learned – often at their own expense – that a certain degree of risk is inherent in the very concept of investment. Some even go further, arguing that there are no completely safe investments and that there is a direct correlation between the riskiness of the investment and the potential for gain.
However, there is a series of investments considered “safe” by most investors. Low volatility and certain returns, although often moderate, are the main characteristics of these asset classes.
Basically, when we talk about safe investments we refer to:
- Government bonds of developed countries considered low risk
- Bonds of large corporations
- Postal savings bonds
- Interest-bearing deposit accounts
- Money market funds
- Certificates of deposit (CDs)
- Real estate
The main limitation of most of these investments is the inability to beat inflation in the medium to long term. The certain returns offered by these safe investments are essentially nominal. To give a concrete and current example, imagine a government bond or a bond that guarantees a 4% gross return in the form of coupons in a period when real inflation is around 5/6%. In fact, this safe investment yields -1/-2% from which taxation on coupons must be subtracted. Furthermore, it should be considered that the profitability of these assets is linked to central bank rates, which tend to follow – in a proportionally reduced form – the inflation rate.
From this point of view, the only exception among the mentioned assets is a particular type of real estate investment: income properties. As we have seen previously, these assets offer a double return: rental income + capital gains realized at the time of sale, linked to the performance of the real estate market. The main advantages offered over inflation are threefold:
- Rental income generally outperforms inflation
- Inflation increases rental rates
- Inflation increases property values, hence the capital appreciation at the time of sale
Where to make safe and profitable real estate investments
Any property in the world can be purchased by an investor, in their own country or abroad, and rented out at an agreed rent. However, this alone does not guarantee a safe investment, as it is not exempt from:
- Currency depreciation risk
- Property depreciation risk
- Tenant insolvency risk
- Ownership-related risks
- Management-related risks
Comparing legal systems, currency exchange rates, and real estate market trends, the best social and economic context to avoid these risks is the United States.
Income properties in the USA are a safe investment from a currency perspective because they are transacted in dollars, a stable currency used as a global reference. Just think of oil or gold prices, which are quoted worldwide in dollars.
Income properties in the USA are safe investments because they are typically rented to families of workers who tend to live in rental properties, thus, they are based on the real US economy. An economy that, after the 2007-2008 crisis, emerged as the most stable and resilient in the world even in the face of the pandemic challenge, reaching increasingly high levels of employment and lower unemployment rates. Moreover, after the Lehman Brothers bankruptcy that triggered the 2007-2008 crisis, the system has implemented laws and practices capable of preventing the risk of a new real estate bubble.
Income properties in the USA are safe investments because the legal system is very clear, and if a tenant fails to pay rent, it protects the landlord with an eviction procedure that takes several weeks. Besides not paying the rent within the stipulated terms – with at most a few days’ grace period and a penalty for late payment – eviction can occur for violating the contract and the laws of the statute.
Income properties in the USA are a safe investment because the system protects ownership through a series of guarantees such as Title Insurance, which insures the owner against financial losses resulting from defects in the title of real property and the unenforceability or inapplicability of owner mortgages.
Income properties in the USA are safe investments for foreign investors because management can be completely delegated to a Property Management company that takes care of everything, including rent collection, relieving the owner of any burden and the risk of costly travels from their own country.
For all these reasons, income properties in the United States are not only safe investments but also excellent long-term investments.
Make your safe investments with OPISAS
To learn more about safe investments and income properties you can purchase in the United States, contact contact@opisas.com to schedule an appointment with a consultant who speaks your language.
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