Where to invest in today's moments of uncertainty 2.0

After having analyzed the financial sector in a general way and without going deep in the previous chapter, in this one we'll see how real estate assets behave in today's moments of uncertainty.

Real Estate Assets

Real estate assets are immovable property — that is, land and anything permanently attached to it, such as buildings, structures, and improvements. They represent a tangible form of wealth and can generate income through rent, value appreciation, or both.

Key factors to consider before investing in real estate assets

• Market fluctuations: the real estate market can be volatile, with fluctuations in prices and demand.
• Acquisition and maintenance cost: buying and maintaining a property can be expensive, with additional expenses such as taxes, insurance, and repairs.
• Vacancy risk: not finding tenants for a rented property can generate an income loss.
• Effects of the economy: the general economic situation can affect housing demand and, therefore, property values.
• Obsolescence risk: properties can become obsolete over time, which can affect their value and demand.

To avoid falling into errors, certain guidelines or processes must be followed:

• Research and analysis: conduct exhaustive research of the real estate market, including housing demand, prices, and trends.
• Diversification: investing in different types of properties and locations can help reduce risk.
• Choose properties with demand: opting for properties in areas with high demand and low vacancy risk can help ensure a steady income flow.
• Consider ROI: calculating the return on investment (ROI) of a property before making the investment can help determine its profitability.
• Plan the investment for the long term: real estate investment often requires a long-term approach, with the expectation that the property's value will increase over time.

Advantages of investing in the real estate sector

• Capital appreciation: real estate tends to increase in value over time.
• Steady income flow: real estate investment can generate regular income through rent, especially in areas with high demand.
• Protection against inflation: real estate value tends to keep pace with inflation, protecting the investment's purchasing power.
• Portfolio diversification: investing in real estate helps diversify the investment portfolio, reducing overall risk.

Financial Assets vs. Real Estate Assets

Let's compare annualized profitability in two regions: Europe and the U.S.

In Europe, we'll compare the profitability of real estate assets against the main European index, the Euro Stoxx 50.

Europe real estate assets vs. Euro Stoxx 50

Comparative chart of annualized returns: Euro Stoxx 50 vs. Europe real estate assets (2000–2024).

U.S. real estate assets vs. S&P 500

Comparative chart of annualized returns: S&P 500 vs. U.S. real estate assets (2000–2024).

Conclusions

• Volatility: financial assets, represented by the Euro Stoxx 50 and the S&P 500, have shown greater volatility throughout the analyzed period. Economic events and crises have a more pronounced impact on financial assets.
• Stability: real estate assets have proven to be more stable and less volatile, offering steadier growth and cushioning the effects of crises.
• Refuge in crisis: in moments of economic crisis, such as 2008, real estate assets have served as a safer refuge compared to financial assets.
• Diversification: diversifying between both types of assets can be a prudent strategy to mitigate risks and optimize returns under different market conditions.

In periods of political or economic uncertainty, financial assets tend to experience volatility, while real estate assets can be perceived as more stable investments.

By Luis Velázquez Moreno

Account Executive

Larimar City & Resort