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Safe Rate
The safe rate is the rate of return that an investor is guaranteed of making on investment if he choose to do so.
Such investments have very low to zero risk and thus serve as a benchmark for investors to make calculated investing decisions.
The default investment vehicle for safe rates are government treasury bonds.
Should the return on safe rate investments be 2% and the projected return on a rental property investment is less than that, then the investor would be financially better off by putting his money on bonds instead.
The question of why don’t people straight out buy these safe rate short term assets instead when they are assured of returns.
The reason why investors continually want to beat the safe rate is that inflation is often higher than safe rates.
This means that even if they generate returns, people’s capital would be losing value as time goes on.
As such, there is a constant desire to beat the safe rate among investors.
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