In an increasingly interconnected world, investors seek opportunities that offer not only security, but also significant returns. This is where regions with high capitalization rates present themselves as attractive destinations for those who want to see their investments grow. These geographies not only allow for higher returns on equity, but also offer valuable diversification in options portfolios. In this context, the real estate market emerges as an eloquent example.
Historically, investment property has been viewed as a reliable store of value, especially in times of economic volatility. However, at present, the focus has shifted only to regions where capitalization rates are higher, precisely because this old rule does not usually hold in geographies where capital is fought and the resulting rates also known as investment rates. . But what exactly does this mean? The capitalization rate is the indicator that relates the income generated by a property with its original acquisition value; This concept refers to the capital structure, that is, all machinery and tools, equipment and facilities, combinations of knowledge with natural resources and new technologies that provide logistical support to increase the productivity of all goods and services in the economy. in a certain region.
In other words, the higher this rate, the higher the profit compared to the initial investment; a clear example can be seen in the rise of emerging cities in various parts of the world. These cities are not only experiencing remarkable population growth, but are also attracting significant investment in infrastructure. This leads to an increase in demand for properties, which in turn drives up prices and income for those who invest with the intention of their rental placement. Investing in apartments, offices or commercial premises in these areas can generate substantial returns in a relatively short period of time.
However, it is crucial to note that investing in high cap rate regions also carries certain risks. Political volatility, regulatory changes, and other factors can influence market stability. Therefore, it is essential to carry out a thorough analysis and have the right advice before making investment decisions.
For example, in the case of our company, we have responded proactively to the growing demand from clients to invest in regions that provide a more favorable environment for returns, such as Baltimore, Maryland, USA. an hour from Washington, this city stands out as a geography that offers the necessary combination of legal certainty and a tax system that does not stifle business initiatives, to which is added the potential for booming development and where profitability quadruples those offered at the local level.
This choice not only strengthened our competitive position, but has also allowed us to demonstrate our commitment to seeking investment opportunities in environments that promote economic growth and prosperity for the people who trust us with their projects.
In this scenario, the provision of services and infrastructure that facilitate access to these investment opportunities is of significant importance. Legal certainty, respect for institutions and private property as well as low regulations are essential elements to attract and maintain the interest of investors in these regions. Quality infrastructure in the geographic context not only improves the quality of life for residents, but also creates an environment conducive to economic growth and return on investment.
If we look at the world map, we will see that where rents are lower it is because the capital structure of the property region is smaller and rents are higher where per capita investment is higher. Rents in Caracas are not lower than those in Baltimore because in the latter place there is a specific housing culture, more generous landlords or more combative tenant associations. If a property of 70 square meters, in Carmen de Patagones, Province of Buenos Aires, moves with all its characteristics to Houston, Texas, it will see its profitability multiply significantly. This is so because the capital-income ratio is not the same in Texas as it is in Carmen de Patagones. Conversely, if a single-family home with the same characteristics moves from Texas to the same city, its chances of rental income will be significantly reduced.
It should be taken into account that the capitalization rates, or investment rates, not only establish the rental market, but also the monetary and non-monetary salaries of human capital in the region, working hours, job security, and even details such as the functional music characteristics that will be heard in the offices. On the other hand, it must be taken into account that many of the so-called “social conquests” are in truth mechanisms of vile exploitation that unemploy and impoverish the unsuspecting who allow themselves to be deceived by the double discourse of not a few sellers of illusions, which prevent the creation of new markets of potential tenants with more and better economic possibilities.
Contrary to the notion of promoting investment and capital growth, we have repeated for decades the concept of “fighting it”, which raises questions about the redistribution of wealth already assigned voluntarily, in the hands of agents outside the markets, which They are the people exercising the use and disposition of their own. Although economic equity is a widely debated objective, it is essential to critically examine how this approach can impact both income and wages and the consequent well-being of the population. The idea of fighting capital can result in a stricter regulatory framework and higher taxes for companies and investments in the territory, and hence its consequences. Businesses could face difficulties expanding and creating jobs, which would affect income generation for individuals and families. In addition, investors could divert their resources to other, friendlier markets, thus limiting the flow of capital necessary for economic development. It is essential to respect these capital structures to reach a balance that allows sustainable economic growth and social cooperation, without losing sight of the need for incentives for investment and the division of labor.
Probably many of us agree that we are going through a change of times, with the hope that it will give us the opportunity to unleash the entrepreneurial and creative potential of each individual and, promoting economic growth and prosperity for the population. As we move into this new era, what actions can we take to contribute to this process and ensure that it results in a more prosperous territory for future generations? Reflection and action are the key to taking full advantage of this historic opportunity.
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by CEDOC