Secure your financial assets as an expat in Brazil

Disclaimer... I am not an equities person, nor a bonds salesman, i am just a licensed Real Estate Broker.  Caveat Emperor.

Debênture=bond.  Seek the Government Bond type.  The Central Bank ( your FEd equivalent ) lending prime rate, the SELIC , is pegged at 13,5% per annum. So, look for incentives pegged to that rate. That are several of such bonds offered through special programs ( infra-structure, agricultural output ). Also look for Insurance based bonds, such as the equivalent of Annuities. Anything that pays dividends.  Stay away from Private Business issued bonds.  All of the above are Tax Deferred, so you want to investigate them, one by one.

Real Estate.  People need to understand enough to stop asking for rates of return. Americans in particular, tend to be guilible for punishment with their silly spreadsheet projections.Real Estate rates do not offer much of the return, as seen on Government backed securities, in an era of persistent high lending interest rates.

Real Estate, in Brazil, is an instrument to safeguard your assets, the principal. It's called a "Bem de Raiz" for good reasons.  It's a place to park your money, or stashh your money. To protect your principal. Not to bring in Your rates of return might be skewered for things such as idle vacancies, changes in rates.  If you are at steady 5-7% per anum, your numbers,  you are doing darn good.

The only time you will see wild Real Estate spikes, and therefore valuations & rental rates, is when demand exceeds supply. For that, you will need to understand your local marketplace. Employment outlook, new business formation, migration patterns, demographic changes, changes in zoning code, and tax incentives on special zones.

Also, rates of return are not the best way to evaluate Real Estate.  You need to take into account the return on rentals plus the flip sale result ( which takes you through past trends ) , and look for depreciation tax offsets. Until then, you know diddle squat.

Suffice to say, specially when you sit with those pre-construction salespeople at the stand, their Developer's market packages and themselves, tend to spread a lot of misinformation, and exaggerated figures . Everything you will invest will be on the up and up, and it all be rosy and hanky dory.  Just don't. My numbers , on city property tax levies can put down any arguments they make, as straight bold face lie. 

Also, stay away from Brazilian REITS.  A lot of negative outlooks they won't tell you. 

Coca-Cola Stock.  Yes, your read it right. Warren Buffet has it, so did Ty Cobb. Bank on it.  If pays dividends, then contact your broker or financial advisor.  Coca-Cola runs a franchise. They have the syrup whose formula is under wraps, and it is made in Atlanta,GA. and it is sold through franchised bottlers. No matter whose copy cat  Cola is out there ( including Pepsico's ) , they will outsell it by a factor of 10 , when not bankrupting the competition outright. There are places on the World where there's no potable water. People then drink Coke. Mexico being a prime example.

Stateside. In the same line of thought, your local  Utilities ( Gas, Power, Water ). Your typical Water and Waste Plant is going obsolete in many municipalities in the US. Those are not stock, mostly bonds.    Transportation, meehh, there is a lot of talk, but little being done. For my money, they are stringing Peter Buttieg. and he is going along with the con.  Lots of potential pork barrel there. 

If it is a racket, you want in.

Stay away from Junk Bonds. 

Here's a thought, and I will confess, I've been watching quite a bit of Peter Zeihan, the Demographic/Energ/Defense/Government Policy Guest Speaker Circuit  turned Consultant.  He goes about some interest trends.  He misses on quite a few details, but he has been quite good on his  past predictions ( although I find his line of thought too linear, and I take his outlook with a grain of salt ) . So watch his snipets.

Avoid these Brazilian Financial Whizzes with promises of high returns and the sure thing about his strategies.  Like a plague. They are just your rethread of American con artists who already done this back in the 80's and 90's.  Let the Brazilians buy into their stuff. 

Real Vision Finance on youtube is a pretty interesting channel with host Raoul Pal.  A lot of in depth interviews.Be reminded there's a lot of selling there too. And they are big on Crypto. So take all your get there  with a grain of salt.   

Avoid those Metals ( Gold ) whizzes.  They are touting their own stuff. 

@sprealestatebroker Any chance you could repeat some of that in English? I am not being critical, but we would be best advised to offer suggestions, ideas and advice in non-jargon english so all can follow? Some of us may not have pork bellies?

@sprealestatebroker Do you also mean caveat emptor, (latin for buyer beware) not caveat emperor? (Kind of " beware of the Emperor?")

I earn in USD and spend in BRL, therefore exchange rate fluctuation is a big risk for me, as is likely for many others here.   I did not want to face the possibility of a reduction in my spending power if the USD/BRL exchange rate becomes unfavorable.

The approach I took was to accumulate enough BRL denominated assets to get along ok if the Real appreciates significantly.

Of course the counter is, what if the BRL depreciates significantly? My thought on this has been that Brazil has historically had very attractive real interest rates (interest minus inflation), which could buffer some decline in BRL value relative to other currencies. Further, currency depreciation is not so much a risk as inflation when spending BRL from BRL savings, which takes me back to the high interest rates, which also buffer inflationary pressures.

Recently I have been accumulating more USD assets, mostly short term treasuries.  I figure the USD is worth less BRL than in recent history, and since no one knows the future, I'll accumulate a bit more USD for some future opportunity. Further, I prefer not to have all the 'eggs in one basket' and that applies to currencies as much as individual investments.

As far as investing and investments go, I have some experience with real estate, stocks and bonds in Brazil.  With respect to real estate , I find it's not as much an opportunity as real estate had been in the US for some time (less so today with the high prices, and high interest rates). Rental yields, at least in Santa Catarina where I am, seem relatively low (perhaps @sprealestatebroker could chime in).  I have seen asset appreciation, so perhaps there's an opportunity for 'flipping' a home after renovating, but I have no experience there.  Furthermore, a lot of US based real estate opportunity comes from the possibility of using leverage.  A 30 year fixed rate mortgage at a low interest rate is a very powerful tool for funding, and leveraging real estate, which just doesn't seem to exist here in a way that offers the same safety and opportunity as you can find state-side (correct me if wrong).

Stocks seem like a good opportunity.  Dividends are super-high by comparison with developed markets, and PE ratios are low, which appeals to a value minded investor.  I personally stick with large cap pseudo-monopolies to limit down-side risk.  Some examples could be Vale, Petrobras, state utility companies etc.

Bonds are really where it seems to be at currently. The rates have been great the past year or more. An investor can stock away considerable cash in government protected bonds.  Beyond Tesouro Directo (government bonds), Brazil provides something like FDIC protection on CDBs and other types of private bonds, up to 250k Reais, per borrowing institution and CPF, as I recall. Yields are high, and if one is worried about inflation, one can purchase bonds linked to the IPCA (measure of inflation). For example, as of the time of writing an investor can purchase a Tesouro IPCA+ bond maturing in 2029, which pays the IPCA rate (inflation) plus 5.21%; not bad!

Some bond types, like the LCA, are tax free on interest in Brazil.  I tend to avoid those because they offer lower rates then their taxable counterparts, and since I'm also a US tax resident, I'll be taxed on the gains by the US anyways (possibly).

I would not invest in Brazil much if I had a plan to leave, due to exchange rate risk, and complexities of taxation between both countries.

One point on taxation; US tax residents should be aware of the concept of Passive Foreign Investment Companies, or PFICs. Do your own research, but PFICs receive a certain, very unfavorable, tax treatment from the US. Basically they're companies that receive the majority of their income from passive sources.  REITs, ETFs, Mutual Funds that are not from the US are likely going to be considered a PFIC, so as such, I do not invest in those instruments in Brazil or any other country other than the US. Again, do your own research, but individual stocks, bonds and real estate generally do not fall into that category.

@sprealestatebroker Any chance you could repeat some of that in English? I am not being critical, but we would be best advised to offer suggestions, ideas and advice in non-jargon english so all can follow? Some of us may not have pork bellies?
-@Peter Itamaraca

Nope.  I fire it up at the spurr of the moment.  No re-edits. 

@sprealestatebroker Do you also mean caveat emptor, (latin for buyer beware) not caveat emperor? (Kind of " beware of the Emperor?")
-@Peter Itamaraca

Quick fingers on the keyboard.  You are correct on your pontification.  I make a point to let people know when |i am not postulating facts but rather my own opinions. 

I went to an Itaú investment bank in São Paulo to ask about fund investments vs US funds. The guy told me if the rate of the returns are about the same might as well keep investments in the US due to the currency exchange rate.

Hedging against the rate and parking money in BRL in real estate seems the most tax efficient way unless you rent it out. The Selic rate vs US rates has always been favorable for carry trades.

Any investment pegged to the Selic brings in decent returns. They are mostly some type of bond. 

Rental income, that's a conservative investment, so to protect the principal. You won't get wildly rich off it, but your chances of going broke are slim to none. 

On rentals, you need to beware it's not an up and up on returns. When quoted CAP Ratios, most people peddling it purposedly forget to mention your iddle vacancies. They can last a long time. 

Your best benchmark to evaluate a Real Estate Buy ought to be a Cash on Cash Return. So avoid prospectuses with multiples and Cap Ratios, because they tend to be innacurate. 

And for the right calculation of Cash on Cash Returns, one needs to be armed with historical information on property valuations against inflation, zoning change issues, demographic demand trends. 

For those oblivious to what Cash on Cash means....

Cash on Cash Return = (Sum of collected rental tallies + Resale Price at the Exit ) / Property Acquisition Cost

AS for ideal Cash on Cash, it depends entirely on your own goals, and a comparative analysis against other tye of investments. 

And one more thing.... This from my own experiences..

1.Avoid office buildings, unless you have a planned repurposing project in a solid rental market.

2.The perfect residential  tenancy is , above any other, renting out to Medical Residency Tenants.  This is a proven, here in Brazil and in the US ( I was a rental agent in the Greater Boston ).

Your medical student, or medical residency tenant, has to be on a walking distance to the Hospital where he/she reports for some odd punching in and out  shifts.   A 10 min flat. You get your property there, you are in fact printing money.  And , for most part, they tend to be very self disciplined folk. 

They rather live alone, pay on time, have to pay the asking rate and have no time for wild parties. 

@sprealestatebroker

That's great insight.

Just curious, what have you seen for yields in different areas? 

In terms of property attributes, what attributes make difference which attract consistent renters paying good rents?  (location near a hospital, noted... which makes a lot of sense).

Also, any thoughts on short vs long terms rentals (investing in a vacation area, and renting for the 'season', vs investing somewhere with the goal of securing a long term tenant)?

@BRBC I'm wondering the same thing..🤔 have you found any new leads?