Insights
One of the inevitable pitfalls of investment is that you’re taking a risk. There is no surefire investment that will 100% guarantee a return, whether investing in real estate, bonds, infrastructure, or any other type of venture. It’s therefore important to familiarize oneself with the risks of any investment opportunity before taking the plunge.
This goes as much for citizenship by investment as for anything else. Citizenship by investment is, after all, an investment by definition. But there are many ways to invest in order to obtain citizenship, and not all investment opportunities are created equal.
Over the course of this article, we plan to examine the various methods by which one can obtain citizenship by investment, and how much of a financial risk they’ll typically pose to investors. This, ultimately, ought to be of help when ascertaining the right investment path for you.
Before we begin to look at the various methods of investment, however, it’s worth defining the different categories of risk inherent in financial investments.
We can divide financial risk into several categories. Let’s take a look at them below.
Very low risk investments pose little to no danger to the investor’s capital. They are primarily focused on preserving the investor’s capital at the expense of everything else – including ROI. These sorts of investments, then, typically offer almost no return on your investment.
Low-risk investments typically pose little to no risk to investment capital – provided a number of pre-agreed conditions are met. They will often promise a return in a fixed period of time (e.g. five years), and the return will be in line with, or slightly higher than, the capital invested.
Medium-risk investments involve a lower degree of stability than low or very low financial-risk investments. They will generally offer the chance for a decent ROI, but there may be a danger of the investor losing some of their initial investment.
High-risk investments are best suited for those with a “nothing ventured, nothing gained” mentality. The focus is very much on ensuring a high ROI to the exclusion of all other considerations – including safeguarding the initial investment. This means that while the rewards may be high in such an investment, the losses may be similarly high.
Very high risk investments can provide a staggering ROI, but at the risk of losing your entire initial investment. They may even magnify losses beyond the initial stake, which may be borrowed against and thus can incur debts beyond the amount initially offered.
With these risk categories in mind, we can take a look at the various types of investment options typically offered by CBI programs, and categorize them accordingly.
Offered by:
Financial Risk Category: N/A
Donations cannot, strictly speaking, be classified as ‘investments’, since there is no financial return. You make your non-refundable donation, apply for citizenship, and receive said citizenship in return. The donation is, as pointed out, non-refundable. This means that you won’t see any of the money you donate again.
However, if we look at a donation from a slightly different angle – of an investment that returns a passport, rather than a pure financial return – then we can look upon it in a more favourable light. The donation is, simply put, the fee that you pay in order to obtain your second citizenship. And that second citizenship is a valuable commodity in its own right – after all, you are seeking a second citizenship for a reason.
When we examine a second passport through the lens of money saved in the future, then it represents an excellent investment. In most cases, the favourable tax regime of your new home means that you’ll be avoiding punitively harsh taxes on personal income, capital gains and inheritance. After a year or two, then, your new passport will have paid for itself, and you’ll be functionally making a profit.
If we look at the donation in this way, then, we can categorize the financial risk as low.
Offered by:
Financial Risk Category: medium/high
Real estate investment is inherently risky, even outside the purview of citizenship by investment. Within CBI programs it’s no different, but there are a few extra caveats.
One of the biggest downsides of real estate investment as part of a CBI program is that the property you can buy usually has to be government-approved, which really limits your options. Further, the ROI on such estate tends to be quite low – you can expect to see a ROI no higher than 5% on most typical Caribbean government-approved real estate purchases.
Another drawback is the propensity of so-called ‘paper projects’, where you’ll hold shares in a property that the developer hasn’t yet broken ground on. If the project still remains a ‘paper’ one when your lease expires (typically 5-7 years after you’ve purchased it), then it can be difficult to shift.
The minimum required lease period, too, can be something of a drawback. As you must hold the property for at least 5 years (and, depending on the country, sometimes longer), it can be very difficult to predict where the market is going to be after such a long period of time. Getting a decent return, then, is really a matter of luck in many cases.
Bottom line: real estate within a CBI program is, as with traditional real-estate purchases, a risky endeavour. It is therefore not recommended for risk-averse investors.
Offered by:
Financial Risk Category: low
Government bonds are, generally speaking, extremely low-risk. You simply purchase the requisite amount of government bonds ($300,000 for Saint Lucia; $500,000 for Türkiye), hold them for the required period of time (5 years in both cases), then redeem them.
Government bonds have some advantages over real estate. For one, you don’t need to look for a buyer when the 5 years has expired – you can simply redeem them and receive your full stake back. Furthermore, there’s virtually no risk involved at all – the amount you invest is the amount you will get back.
On the other hand, the amount you need to invest is typically much higher than the amount required when opting for real estate, and so you need to be willing to part with more money upfront. There is also zero chance of a return on your investment beyond the amount you put in.
Finally, if you’re looking to pursue the government bonds route, your options are extremely limited. It is, as we can see above, only offered by Türkiye and Saint Lucia. If you’re looking to broaden your options as much as possible, you’re probably better off considering a donation or a real-estate investment.
Offered by:
Financial Risk Category: Medium/High
Comparatively few countries offering a CBI program allow a business investment, and it is, similarly to real investment, a fairly risky enterprise when compared with some of the lower-risk options in this article.
The initial required stake is also quite high in both cases. Antigua & Barbuda require an initial investment of a staggering $1.5 million; this can be reduced substantially if investing as part of a group, however. Group investors may instead invest a minimum of $400,000 each, but the sum value of the entire venture must be $5 million. This makes this quite an expensive endeavour either way.
Türkiye’s options are slightly more flexible – the applicant must create a business worth at least $500,000, or it must create at least 50 jobs. In this regard, it’s the same amount of initial stake as with the government-bond option – with the difference being that you can actually turn a profit with this option.
The risk in the case of either country is, of course, quite high in comparison with some of the other options. By assuming this risk, however, you do buy yourself a considerable amount of freedom. A business investment is much less restrictive than many of the other options – even real estate, which typically requires you to purchase ‘government-approved’ property. With the business option, you are free to do your own research and start a business that works for you.
Of course, that freedom brings its own dangers. There is no guarantee beyond your own entrepreneurial acumen, and if the business fails, you could lose your entire initial stake. Caveat emptor.
As we can see, some of the more traditional investment options on this list (namely real-estate and business ventures) carry a fairly high level of risk, and may not be suited for more risk-averse investors.
Conversely, the low-risk options offer almost no chance of a return on your investment, so while far safer, they are also not going to net you any profits.
That said, the donation option – while initially unappealing from a traditional ROI perspective – does actually offer some decent opportunities for saving money, and thus can represent a considerable ‘return’ that cannot be accurately represented by simply looking at the numbers. It’s therefore the safest and most solid option of all the CBI choices by far.
As we can see, some of the more traditional investment options on this list (namely real-estate and business ventures) carry a fairly high level of risk, and may not be suited for more risk-averse investors.
Conversely, the low-risk options offer almost no chance of a return on your investment, so while far safer, they are also not going to net you any profits.
That said, the donation option – while initially unappealing from a traditional ROI perspective – does actually offer some decent opportunities for saving money, and thus can represent a considerable ‘return’ that cannot be accurately represented by simply looking at the numbers. It’s therefore the safest and most solid option of all the CBI choices by far.
As we can see, some of the more traditional investment options on this list (namely real-estate and business ventures) carry a fairly high level of risk, and may not be suited for more risk-averse investors.
Conversely, the low-risk options offer almost no chance of a return on your investment, so while far safer, they are also not going to net you any profits.
That said, the donation option – while initially unappealing from a traditional ROI perspective – does actually offer some decent opportunities for saving money, and thus can represent a considerable ‘return’ that cannot be accurately represented by simply looking at the numbers. It’s therefore the safest and most solid option of all the CBI choices by far.
Get in touch to discuss how we can help you with your citizenship or residency by investment goals. One of our investment migration experts will contact you to discuss your case. With over 16 years of combined experience our team has helped hundreds of families achieve freedom.
