Seeking economic independence is one of the biggest challenges today. There are several types of businesses and investments in the market that make this goal possible, however, although investing in real estate is one of the best ways to do it, it is also one of the most arduous.
Investing in real estate has become one of the most popular ways to achieve financial freedom. This can be a broad and difficult topic for beginners in this industry to tackle. For this reason, the best way to start is with the knowledge and experience of one of the best Proptech in Latin America such as La Haus.
In this text we will teach you what are the fundamental variables so that you understand what real estate investment is and how you can apply it according to your objectives.
What is real estate investing?
We can describe investment in real estate as the process that is carried out by investing capital in one or more properties with the aim of generating profits and having greater financial freedom.
An investor can come from anywhere and it is not only the people who have the immediate capital. If you have a good investment plan, with established times and clear objectives, you will achieve profits faster than you think.
There are several investment options in real estate in Mexico, which allows developing plans for each type of pocket and for different periods of time. Later we will review which are the best known so that you can adapt it to your investment plan.
Why invest in real estate:
This form of investment is one of the surest ways to generate profit. There are several reasons why it is a good decision and you enjoy different benefits such as the ones we will show you below:
High return on investment: the return is calculated depending on various factors such as the conditions of the property, the amount of the purchase, the surplus value and the price that is sold, but in general, the return is usually 30% or much more.
Your money works for you: through the capital gains that your properties acquire, your property acquires value over time and helps you build equity while you invest in other properties or other types of businesses. Unlike other investments, it does not demand periodic expenses from you while its value increases day after day.
Security and flexibility: this type of investment is an action that will protect your pocket in case of an emergency. Additionally, having a property serves as a backup for applying for a mortgage loan, to invest in a larger business or to receive income when you enjoy your retirement.
Housing as a financial instrument has a higher degree of security and confidence than other types of investment.
Varied investment options: investing in real estate is not limited only to taking out a house or an apartment with a mortgage. You can create an investment portfolio that includes homes of different sizes, apartments of all types, housing developments, commercial premises, and more.
This option allows you to diversify your money and not depend on a single source of income or a single property. With a good plan, you can program yourself to pay off one, two or more properties at the same time while earning profit on each one.
Types of investment in real estate:
Since we reviewed what are the benefits of investing in real estate. Now yes, we will explain what are the most recognized ways to invest in real estate.
There are many types of investment in real estate in different sectors of the economy such as agriculture, industry or commercial. Here we are going to show you how you can do it in residential real estate.
Trust: this scheme is a tool used by various builders and developers. This consists of transferring the property title to a fiduciary that manages the real estate project that will later transfer the built units to the beneficiaries of this group.
This is one of the favorite options for investors because it does not have much operating expense and is suitable for developing real estate ventures with third-party funds.
Rent or rent: this is one of the modes that has gained the most strength in recent years. Acquiring a property in a strategic location can generate good profits if it meets the demands of the market.
The advantage is that you can choose the rental format you want to use. For example, you can agree to a rental contract that lasts one year to ensure a permanent cash flow or you can rent it through platforms such as Airbnb or Booking on certain dates and be able to enjoy this property when you want to.
An important point that you should keep in mind is that this can take a good amount of time. You must be willing to accept reservations if you decide to publish on platforms or to be aware of your landlord’s requests.
Real estate crowdfunding: this is one of the first options for people who are starting to invest in real estate and have little capital. This is a method of raising money for construction companies that are looking for many people willing to invest small amounts of money in exchange for generating profits in the short and medium term.
We can call this format the purchase of shares of a property, since a person can buy several fractions and, therefore, become the majority shareholder of a property.
Real estate investment funds: this system is more common among people who have been in the sector for a long time and decide to invest in different real estate developments. This fund works by bringing together a group of participants who contribute capital in a significant way, which is managed by a market specialist.
Thanks to the fact that they have formidable capital, it is normal that they do not concentrate on a single type of property, but rather invest in different properties such as residential, commercial or industrial.
This description may seem similar to that of the trust that we told you about in the first instance. The difference is that the funds are created with the main objective of generating profits for investors, while the trust is the management of a resource until the owner decides to claim it after certain conditions are met.
Remodel and sale: This is a method that is used for both new and used housing. It consists of acquiring a property at a low price and remodeling it with the aim of remodeling it and selling it at a higher price.
This model, also known as House Flipping , is based on buying used houses with a certain state of disrepair to remodel them and sell them at a considerably higher price.
In the case of new housing, it can be done with the apartments that are delivered without many finishes or without furnishing. Ideally, you should buy homes on plans so that you can adapt it at the end of the work and generate the highest dividends.
This system is highly recommended for people who have knowledge of construction and decoration because they can be fully involved in the remodeling process to generate the greatest amount of profit.
Buying off plans: this is one of the best options to start investing. It is the stage in the development process of a property in which it has not yet been built and the developer seeks to attract as many buyers as possible to move forward.
Another of its advantages is that even if you pay a lower price, as the project progresses, it will gain added value, so you can start offering it from the day it is delivered to you.
Builders tend to sell projects in stages and the earlier you buy, the cheaper it will be. If you want to know more about how to earn money with pre-sales, here is a link so you can learn more about this model.
How to invest in real estate:
It is important to know that each investment is different from another, so you must be prepared for the challenge that comes with each one. Here we leave you some tips so that you have a clear investment plan and do not fail in the attempt:
Define your budget: this is the pillar of any investment you make, not only in the real estate sector. You must consider how much money you are willing to invest, and therefore, the time you will have to wait to see the profits reflected. Remember that there are different ways to invest with little money and you should be aware of expert advice to know what to invest money in real estate.
Do not rush: being one of the safest forms of investment, it is also one of the most delayed when it comes to returning profits. Each time changes depending on what is the investment purpose that we talked about earlier. The crucial thing is that you be patient because it is not a sector that generates profits overnight, but one that generates great profits if you wait the necessary time.
Consider what type of investment you will make: investing in real estate is not just putting capital in a certain method and hoping it will generate profits. If you have an adequate plan, you can generate profit in different ways, for example, you can buy an apartment in pre-sale, have it for two or three years for short-term rental, remodel it and sell it for a much higher value than what you bought it for.
No investment is exclusive of another, so you should consider very well what kind of investment you will make so that you get the most out of it.
Investigate everything you can about the property: even if you live in a specific city, you can invest in other locations within Mexico. Look for the cities that offer the greatest added value and that are attractive to both investors and other sectors of the market.
Choosing the property is one of the most important steps. The location, the price, the age and the environment are some of the characteristics that you must take into account so that you can make the best investment.
Aspects to take into account when investing in a property:
Let’s review what are the elements to consider when investing in real estate.
Location and environment: this is one of the main reasons for accepting or declining a property. The proximity to places of interest, the supply of transport and shops are aspects that will increase or decrease the value when buying and selling.
Orientation and floor: this component refers to the bioclimatic characteristics such as the luminosity and noise pollution of the property. In the market, properties that have more natural light and are on higher floors are valued more because they have a better view and are further away from noise.
This element is more appreciated in the departments.
Buying off plans: this is one of the best ways to generate profits since you can purchase a property at an introductory price while paying the initial fee in installments. At the time of receiving the properties, you will see that the price will increase considerably thanks to the added value that it has acquired over time.
Age: the newer a property is, the more expensive it is. The properties, with the passage of time, tend to reduce their price, even more if they do not have proper maintenance and they look deteriorated.
Keep in mind that this is a factor that is not decisive and is one of many that determine the final price of a property. For example, a property on Paseo de la Reforma in Mexico City, no matter how worn it may be, will still be one of the most expensive in the country.
Common areas: these areas are the ones that give additional value to your property thanks to services such as shared parking, swimming pool, sauna, green areas and others. With the new normality, more spaces such as coworking, game rooms or collective kitchens have been valued.
Investment costs:
The costs involved in this process are all those related to the purchase and sale of a property. Here both the seller and the owner of a home participate, since each actor has to carry out different procedures in order to achieve a transparent and legal operation.
For example, if a property has a total cost of $8 million pesos, an approximate amount of $512,000 pesos must be available in the investment plan to cover these costs.
The costs can be divided into four groups:
Deed costs: they are the documents related to the operation such as registration procedures and notary expenses.
Financing costs: these are the costs associated with the use of financial products to acquire housing. They depend on the financial institution with which the procedure is carried out and the interest rate policies of each one.
Seller costs: these expenses are applied when you decide to sell your property after earning a certain capital gain. This includes expenses such as Income Tax (ISR) and the commission of the seller or real estate agency that you chose to work with.
Buyer’s Costs: These are the costs associated when you already have a property in your name, such as home insurance and property taxes.
How long should I wait to receive earnings?
How long you should wait is related to a concept known as the investment horizon. When talking about this idea, we refer to the effect of time on the value of the assets they own, that is, it refers to the time you wait to have a return on your investment.
The way that companies and investors use is to have several assets at the same time, which generates a constant cash flow. However, it is important that you know how appreciation and surplus value increase, since time is not the same in a car as it is in a house or an apartment.
Experts consider that the ideal time is to wait between three to five years to obtain a profit of up to 30% in case you have chosen the property considering its capital gain and that there are no factors that can reduce its value.
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