5 Important Things To Know before Investing In Properties

5 Things To Know Before Investing In Properties: For most, it is not a secret that real estate is an excellent alternative when it comes to investing your money, provided you choose well where to invest. And it is that a bad decision when buying a property as an investment can mean a lot of headaches for your finances.

This article gives you 5 important things to know before investing in properties or advice when investing in properties.

Why should you invest in property?

We started this article by mentioning that properties are a great way to invest your money. If you are not very convinced of this statement, here are 5 reasons why it is convenient in Investing In Properties.

  1. They represent a relatively stable investment: To the extent that you manage to tie it with a good lease, you can generate stable cash flow overtime for your property’s income.
  2. They generally acquire value over time: The economic, social, and urban development generally ends up favoring the capital gain of a city’s properties.
  3. They allow investment flexibility: Being a type of investment secured by the mortgage on the property allows up to 10% of the investment to be financed with the investor’s funds, which gives flexibility in how to structure financing in terms of amounts and terms.
  4. They can be self-financing: Thanks to the flexibility mentioned in the previous point, you can structure the financing of your investment so that the payment of the debt month by month is completely covered by the lease, with which the investment does not become a financial burden for your pocket.
  5. It carries tax benefits: For the properties you invest in, you must pay contributions. This land tax is considerably less than the tax you could pay on the profits you get from the lease (except if you lease a furnished property ). This is a tax advantage over other types of investment.

Compare the price with other while investing in properties.

Objective: Evaluate the price of the property you will invest in, comparing it with that of other similar ones in the market to estimate its convenience about the price.

If you seem to buy a property as an investment and not like your next home, it is logical that you wonder if the property you are about to buy is the best alternative in the real estate market. For this, it is recommended that you compare the property with others of similar characteristics (number of bedrooms, area, etc.).

Comparison with other properties will allow you to assess if the property you will invest in is within the price range for that type of property or above or below the average price. Logically as an investor, you will seek to avoid investing in a property that is overvalued, and you will celebrate investing in an undervalued property.

Check the square meter value for reference.

Objective: Evaluate the property’s price in which you are going to invest, contrasting it with the real estate market’s general price level to estimate the suitability of its price.

Continuing with the previous exercise, it is advisable that you also make a comparison with the general price level of the real estate market for properties with different surfaces and different facilities. A metric that allows you to make this comparison is the value of the square meter.

This exercise will allow you to have a general frame of reference. By reviewing the historical evolution ​​of the square meter values in recent years, you will understand when the real estate market is and its prospects in the coming years.

Check the value of the tax assessment as a reference.

Objective: Evaluate its commercial value in contrast to its tax assessment to estimate its potential for surplus-value.

Another value recommended reviewing as a reference when investing in a property is its tax appraisal, which is the value that the tax authority gives to the property.

Estimate when you can get a lease

Objective: Estimate the property’s income in a period to evaluate the cash flows, financial viability, and expected profitability.

The most common goal of investing in properties is to lease it for regular rent. If that is your case, it is logical that you ask yourself how much is the potential lease that you can obtain from the property before investing.

Knowing the value, you can lease your property; you can make a financial evaluation of your investment project. Among others, you will be able to calculate the dividend that you could pay month by month to finance it with credit so that the dividend can be paid with the lease obtained.

Calculate profitability and compare with other alternatives

Objective: Evaluate the investment return on the property to estimate the convenience of investing in that asset compared to other financial assets.

With the calculation of the profitability of your possible investment, you should do two things:

  • Compare the calculated value with that of other properties: Be careful with discarding a property because it is a priori more expensive than others. Perhaps that property you are discarding can give you higher levels of income, and by calculating it. You could get better profitability.                                                                                                                                                              In short, only choose one property to the detriment of others to the extent that it can give you greater profitability.
  • Compare the calculated value with other investment alternatives. Compare the annual profitability of your eventual real estate investment with the profitability that could be delivered by other assets in which you could invest your money: mutual funds, term deposits, stocks, investing in a business, etc.

Finally, you must remember that you are acquiring a property as an investment. In that sense, you should consider some important things to know before investing in properties. Logically, you wonder if the property you are interested in is a more attractive financial asset than other properties or other investment instruments.

Thank you very much for reading. You can visit our Blog section for more articles.

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