Investing in real estate or real estate is an investment alternative that consists of buying a property such as a house, apartment, commercial premises or land, and then selling or renting it.
When investing in real estate one acquires a property to expect its value to increase and then sell it, to rent it immediately, to repair or remodel it and then sell it or rent it, or to build (in the case of having acquired a land) and then sell it or rent it
Experts consider investing in real estate as a low risk, safe, and profitable investment.
Despite being considered a safe and low risk investment, many people who have decided to invest in real estate have suffered great losses, either by buying a poorly located property, not finding who to rent it later, or having to make repairs or remodeling that in the end ended up being more expensive than expected.
That is why before doing so we must consider the following points so as not to put our investment at risk.
1. Analyze well the property you intend to buy and the total investment it will mean : taking into account the risk / benefit factors such as the location, the price, the state of the property, the need for repairs or remodeling, the maintenance that will be necessary , the taxes payable, the necessary credit to buy the property and, above all, the possibility that the property may be resold or rented at a price that justifies the investment.
2. Think of long-term investment. Do not sell early. The investments in real estate are, for the most part, long-term and in some cases medium-term. That is why we must take into account that the investment and the profits that could be obtained will be long term, not less than 3 years. Remember that almost always the surplus value of a property is subject to time and the real estate market.
3.Calculate the profitability of the property before investing. To find the best investment option, in addition to profitability, it is also advisable to take into account other factors such as risk.
The formula to find the profitability of an investment is:
Profitability = (Profit / Investment) x 100
To calculate the profitability of a property, you must take into account the investment of the property and the profit it has generated, which will be given by the difference between the sale price and the investment (capital gain) or, in case of renting, for the difference between rental income and expenses (cash flow).
For example, if a property had an investment of US $ 30,000, and then sold for US $ 40,000, the profitability of the property will have been: (40000 – 30000/30000) x 100 = 33.3%.
Or, for example, if a property had an investment of US $ 30,000, the rental income in one year was US $ 12,000, and the expenses in the same period were US $ 10,000, the profitability of the property will have been of: (12000 – 10000/30000) x 100 = 6.7%.
In case we want to find the profitability that we could obtain with a property, to find the future profit we could take into account the average growth rate of the value of the properties in the area or, in case we have planned to rent it, the flow of average cash of the properties in the area.
Real estate investment, like any investment, has a percentage of risk and it is possible that the property suffers a devaluation. However, we can foresee these risk factors in some way and sell the property ahead of schedule to avoid future risks. An ideal benefit is getting up to 30% more than what we pay in 3 years of investment.
4. Diversify the investment. It is important not to invest everything in the same market. For someone who invests in real estate, the Diversification-Real Estate Recommendations can be given by buying more cheaper homes and then renting them, instead of a single more expensive one.
5. Presale is the key. Look for projects in pre-sale prices, this ensures you even more profitability at the time of the long-term sale.
6. Make sure that the property papers are in order. You must demand a certificate of freedom of encumbrances, so that you can take effective possession of the property. Seek the support of a lawyer or a notary for the transaction. Have land titles and land use licenses. Also get the plans of the property and specify the limits of the property in the deeds.
7. If you are going to rent. Make sure there are guarantees. That the endorsement be honorable. Find all the references you can of the tenant.
8.When you invest in something that is under construction , see that the construction company has bonds, to ensure that the work is completed. You also get the copy of the construction license and the wastewater discharge permits.
9. Care for areas without goodwill. In a place where there is a lot of supply the price does not grow, there are several factors that can limit the increase in value between them: the construction of road axes and the lack of planning to deal with the vehicular traffic load.
10. Always analyze the market. Before buying or lending money to a developer, market indicators are sought. It may happen that rents have risen in recent years, but you have to know how much potential there is. If the rents are high but there are very few commercial premises, offices or empty houses, it is a sign that you can still grow.