Investing in real estate: 6 steps to succeed
Investing in real estate is an excellent strategy to increase your wealth, boost your finances in the medium or long term, or achieve that financial independence that you have dreamed of so much.
In addition, today you can make investments in the real estate market with just a few clicks, there are already digital platforms to carry out this type of operation successfully.
Today we will explain how to acquire or sell properties without putting your money at risk, how to make investments in a simple and safe way and we will even present you the greatest risks and benefits related to real estate investments.
1. Benefits of investing in real estate
Properties revalue over time:
These assets tend to increase their value significantly over time since the capital gain of the geographical area where your property is located will make your investment generate good returns on its value, and therefore, the level of profitability will be higher. Of course, there are places where you can only get the value of inflation (the minimum, you will always get that) and there are other areas that have more developments and the percentage of profit is higher.
However, you should be aware that you will not get the return on your investment overnight, since investments in real estate generate long-term benefits (who wants to invest 1 or 2 million pesos during a year for only receive 4%?).Read more: Find Out What Questions to Ask Short Sale Buyer Agents
Investments are stable:
Without a doubt, the real estate market will prevent you from waking up one day with no money in your wallet.
Normally a property is not worth $ 0, because although the property is lost, the land maintains great value too and obviously people do not rely on the news to put a price on their houses, so you will not wake up one day when a 2 million house only cost 1 because our president said something.
Consequently, it is more stable to invest in real estate than in raw materials or in the stock market, since market fluctuations are much more controlled.
Generate new sources of income
Real estate creates long-term value for you and also allows you to accumulate significant profits over time.
This is because you can rent your properties and earn significant additional income month after month.
Especially since more and more people are interested in renting apartments or houses since they do not have the necessary capital to become owners or they live in other places for work for a time.
2. Risks of investing in real estate
It is no secret to anyone that any investment carries risks and, therefore, it is important to mention some of those that are linked to the real estate market.
The investment is not liquid:
It may happen that you have a frozen fortune in your properties because it is difficult for you to sell them. In simpler words, if you have an emergency, it is unlikely that you can sell your property in less than a week and be able to cope with the emergency. Although of course, most of the investments that give good returns are not liquid, since it has to take time for you to get them out.
Economic volatility can be generated:
Especially if a specific area is disadvantaged. An example was the earthquake two years ago in Mexico City, in which there were areas of the city that had many problems (collapsed or severely cracked buildings) and others with no problem, not even a cracked one. Do you think that after this, the two zones will be worth the same? No! The troubled areas dropped a lot in price and the trouble-free areas went up like foam.
3. Step by step to invest in real estate
Define your budget:
The starting point to invest in real estate is to define your budget, that is, to know the capital you have available to buy real estate without risking all your money. Remember to use only the money that you DO NOT need to cover your fixed expenses.
Analyze the market:
Study the real estate market to determine the type of property that best suits your budget, interests, needs and requirements.
Just remember that there are multiple purchase options: from apartments to industrial land or commercial premises and that each one will generate a different return and also analyze well the areas where your property could be located and what are the developments (houses, buildings, hospitals , schools, jobs, etc.) that they are doing around. Later we will see this, we will delve a little more into this.
Study the profitability of the property:
Keep in mind that the return on your investment will take a while to manifest itself, especially since the revaluation of the properties occurs gradually. Now, if you are looking to rent the property, do your homework by looking at how much the properties that are in the same area are rented.
For example, a house of 1,000,000 pesos would be ideal for rent at 0.5% of its value (it is a common rule in real estate, since it guarantees you a 6% annual return on your initial investment of 1,000,000 pesos), that is, at 5,000. If you search the area and find similar properties at $ 3,000 rent, you will know that your return on investment will be much lower. Instead, if you find the rent is $ 7,000, it may be the first popcorn on your list.)
Now, this profitability will be improved if you find the property at a discount or it will be decreased if the property needs many repairs. Looking at the rent or sale of the other properties will also help you determine the purchasing value of people in that area. For example, if you are in an average area, where the houses cost around 1,000,000 pesos, it will not occur to you to buy a house of $ 5,000,000 because those who want to live in the area will not be able to reach them and those who reach them will prefer others. areas of the city according to their income.
Another point to consider if you plan to rent is there are many houses for rent in the area? If yes, is there too much offer? if not, will there be too much demand?
Evaluate various investment options:
If you are more conservative, you can ask for a loan to invest in real estate, but if your investor profile is much more avant-garde, you should evaluate the benefits that real estate crowdfunding platforms offer you.
Some of the most notable is that they leave the bureaucracy aside and that their interest rates are really low compared to those offered by traditional banks.
4. How to get real estate to invest
I explain how to start investing in real estate in the best way:
By pre-selling new properties:
One of the best decisions you can make is to buy properties during the real estate development phase, since they are in presale. This means that their prices are lower and, therefore, it is possible that the savings on your purchase are between 10% and 30% during this stage.
Through real estate auctions
The first thing you should know is what are real estate auctions? Well, they are generated when the owners of a property cannot cover the entire bank loan they received to buy it, therefore, the property given as collateral is repossessed and the bank finishes it off to recover their investment.
In other words, the owners do not pay the bank, the bank gets angry, takes the property from them and ends it in court with a discount of up to 40% so that it “comes out quickly”.Do you want to look for real estate auctions? The only thing you have to do is Google “Finishes in ______ (your city)” and voila! There are pages that even put the list of properties up for auction and when the auction will be in court. Of course, remember to consult with a lawyer who has carried auctions, but here are some points to consider:
- You have to pay in cash or by certified check in the same court. Being auctions, banks do not accept that you borrow again to be able to buy them.
- It is possible that other people are interested in the same property, so you must take 20 or 30% more money to have bargaining power. Remember to take your numbers already to know how much you can offer and it is still a good investment.
- You cannot see the properties inside, that is, you will not know what conditions they are in. It may be that the previous owner was angry that the house was going to be taken from him and he decided to break it all or it could even be that he could not be evicted! So when you buy the house, you will have to ask the police to evict it and those are extra problems that I do not recommend (in the list it usually says if it is inhabited or not).
- Just as you cannot see the property inside, you cannot know whether it owes water, electricity, gas, cable, etc. You can physically go and steal your receipt, yes, but take into account the possibility of these expenses.
- After the trial, the property is usually handed over to you 1-3 months later.
As you can see, it is not easy to buy houses at auction, but do not be afraid, with a good lawyer who is an expert in this, you will surely succeed (although remember to also save for your payment).
Taking advantage of discounts:
Believe it or not, you can buy discounted properties today and all you have to do is study the real estate market a bit.
Notice, there are always people who are urged to sell their properties and therefore, they become more flexible with the payment agreements, to the point that they even offer you significant discounts to close the sale-purchase as soon as possible. Imagine if the owner has an emergency and she needs quick money, what would you do? sell at a discount to make it sell faster.
This strategy lasts time, since there are not always people willing to do this, so you have to study the area and prices in advance and keep reviewing them week by week for a long time until the option is presented. It is always better to research the sales / rents of the area on the internet, but, to have good discounts, you usually have to go in your cart or walk to the area and see the ads outside the houses.
5. Strategies for investing in real estate
We already know what type of property you want, but a vital fact to decide on a property is what strategy are you going to take? Here are the most common:
Buy, remodel and sell:
This is one of the oldest and most popular strategies to generate significant profits in the real estate market and consists of acquiring properties at low prices (generally low-end properties, that is, with not so fine finishes), but that They have a lot of potential if they are professionally remodeled.
So if you already have a background in remodeling, construction, or are simply not afraid of doing the dirty work, you can minimize labor and material costs efficiently so that your profit is higher (usually those who do this, they live the remodeling time in that house and they do all the work themselves).
Before buying a house with this strategy, you should take these points into account:
You have to know what people like , not what you like. Red accent walls may look good to you, but people who rent generally like more light floors and walls. For you, the bathroom and kitchen may not be important, but this is where the quality of the finishes is most noticeable.
Take a good look at the costs of remodeling before buying the home. It may be that it has hidden defects that a professional could detect in time and you do not, so you can request a “site visit”, that is, that the professional accompany you to see the house, check it from head to toe and quote you before taking the step.
Do not want to add so much value to the house that it is outside the budget of the people who live in that area!
Buy and rent the property:
Right now applications for everything are in fashion and here is no exception: You have two options:Rent your property for a few days through an application such as Airbnb or HomeAway at a higher price, but also by investing more in its furniture, amenities such as the internet and having to hire a cleaning service every time the tenants come out (wash the sheets, towels, etc.).
Another more stable option than the last one is to rent the property the old-fashioned way, putting a sign outside and uploading photos to ad pages on the internet, to be able to rent your property for a year with monthly payments. Lower price, but guaranteed for a year and without so much investment, since you can rent without furniture, without the internet, etc. (Just take into account the costs of any damage to the structure of the house that are the responsibility of the landlord). Oh and use a contract!
Buy, wait and sell:
This strategy requires a little more time and patience, but it needs less work than the others: Acquire a property in presale (at a lower price), wait for the surplus value to increase the value of the property and finally sell it at a higher price. than you initially paid for. This can imply a profit of 10 to 30% of your investment in the time it takes (since they are variable).