Is a 20–25% Return ‘Too Good to Be True’? Here’s Why Interest Rates in Brazil Are So High.

Is a 20–25% Return ‘Too Good to Be True’? Here’s Why Interest Rates in Brazil Are So High

Introduction:
When we mention an expected IRR of 20–25%, it naturally raises questions. Is this realistic? Doesn’t high return always come with extreme risk? And what does it mean that Brazil’s base interest rate (SELIC) hovers around 10%? In this blog, we take a closer look at Brazil’s financial system—and explain why such returns are not only possible but justified.

Context: Brazil is not Europe
In the Netherlands, a 3% mortgage rate is now considered high. In Brazil, the base rate has historically ranged between 7–14%, with peaks of 20% in the early 2000s. This structurally higher interest rate is not just the result of inflation, but also stems from a different economic environment:

• Bank credit is less accessible for developers
• The capital market is smaller and less competitive
• Local banks price in significantly higher risk premiums

What does this mean for our model?
ARD does not use bank loans—we operate with equity capital. As a result:

• Investors receive attractive returns in exchange for risk-bearing capital
• Developers can act more quickly without bureaucratic delays
• It creates a win-win: we bring capital, they bring access and expertise

Why developers are willing to pay these returns:

• They avoid expensive bank financing with lengthy approval processes
• They gain access to international investors who offer speed and volume
• They value true partnerships and shared ownership—not just capital

What are the risks?
Of course, no return is ever guaranteed. But we mitigate risks through:

• Thorough due diligence on location, partners, and legal structure
• Investments in regions with strong real estate demand (e.g. São Paulo)
• Use of collateral, SPV structures, and contractual safeguards

Comparison with European real estate projects:
In the Netherlands, IRRs of 6–9% are typical for real estate funds—often with leverage and limited tax optimization. ARD offers higher gross IRRs, but without external debt, with direct developer access, and under a fiscal structure designed to maximize net returns.

Conclusion:
High interest rates in Brazil don’t necessarily mean high risk—they reflect the economic reality. ARD leverages this context to its advantage: through smart structures, local partnerships, and strong risk management, we build projects with realistically high returns. Not too good to be true, but carefully designed to deliver.

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