Real Estate Investment Guide: Saving implies making a great effort, so once you have the money saved, the best thing is that you put it to work so that it gives you a return. Would you like to multiply your savings? Well, pay attention, this time I’m going to talk about real estate investment as a way to get more out of them.
Real Estate Investment Guide
We will see the obstacles that we can find, the mistakes to avoid, and some investment options that are especially profitable. Let’s go for it!
Overcoming obstacles To Real Estate Investment
Don’t worry if thinking about investing makes you feel a little dizzy or even scared, this has happened to all of us. After so much time making sacrifices to save, now you see that it is necessary to “play” that money to make it grow.
But think that without risk there is no profit. Of course, you do not need to invest like crazy, think carefully about your options to make the smartest decision.
In this case, we are going to focus on the possibility of investing in real estate, an option that is among the most chosen by those who want to make their money grow. We will first analyze the obstacles that you can find in this type of investment.
Lack of Capital To Invest in Real Estate
One of the peculiarities of real estate is that it is not usually cheap. So it may happen that no matter how much you save, you will not be able to get the amount you would need to buy a home.
But you must be positive, you have several options to overcome this obstacle.
The first is the most classic: go to the bank and apply for a loan. It can be a mortgage loan or even a personal loan if the amount you need is not very high.
I advise you to choose the mortgage loan since the interest applied is usually lower and the repayment term is longer. Of course, keep in mind that some banks have a minimum limit below which they will not grant you a mortgage.
In other words, if you ask for, for example, €30,000 in a mortgage, the bank may not be able to offer you a mortgage loan and you will have to settle for a personal loan.
The other option is to search, or rather, rummage through the market.
You could go to public real estate auctions to get a cheaper home. But you can also opt for homes to reform and even houses in not very populated areas that may have potential as tourist homes.
The Risks of Borrowing
Real estate investments always carry associated costs such as the payment of taxes, the appraisal of the home, or the possible reform that must be carried out. This implies that it is quite likely that you will have to resort to external financing.
Getting into debt is not something that anyone likes, but in this case consider it as if it were a business: you are going to spend money to earn money.
Of course, beware of over-indebtedness!
Study the market very well and calculate how long it will take to recover what you invested, since only then will you start making money. This will help you see whether or not you are really looking at a profitable investment.
Possible Defaults By Tenants
Non-payment is the greatest fear that a landlord has since it implies that you are left without income, possibly having to face expenses associated with that house, and on top of that without access to housing.
Today you can cover this risk with rental insurance. You assume a small cost per month to pay the insurance, but in return, they take care of everything if your tenant becomes a debtor and they pay you the rent every month until the situation is resolved.
Another option to reduce the risk of non-payment is to offer the home as a tourist apartment instead of a traditional rental. In these cases, work is done through Airbnb -type platforms that take care of everything related to payment, which reduces the risk that you will not be paid.
Do The Necessary Works
Depending on the state in which the property you have bought is in, you will have to do more or less reform, which implies assuming an extra expense.
The house must be in optimal conditions, but that does not imply making a great investment. There are small renovations like a painting that you can do yourself, which will help you save money.
You can also opt for “dry” reforms, which are faster and cheaper to carry out. For example, covering the old floor with laminated flooring or vinyl flooring, or updating the bathroom with a coat of tile paint.
If the house is simply old but not too deteriorated, with a facelift of this type you can leave it as new.
Real Estate Market Volatility
The real estate market is not stable, but in reality, neither is. If I have learned anything over these years, it is that there is no investment that is 100% safe. We always run some risks. But to win you have to be brave.
In recent years we have seen the real estate market fall like never before, but we have also witnessed how it has recovered in a short time. Think about the price of rentals before 2012 and the price of rentals now, the rise has been spectacular!
No matter how much the market fluctuates, people will always need a house. So tenants are not going to miss you. It is clear that it is not the same to enter €1,000 per month in rent as to enter €450, but it is rare that a house for rent is empty for a long time, so you always earn something with it.
Main Errors in Real Estate Investment
One of the keys to success when investing in real estate is to avoid typical mistakes. If you do it right from the beginning, in a short time you will be seeing the fruits of your effort. My advice is to avoid these mistakes:
Underestimate The Associated Costs
With the change in the Mortgage Law, now the buyer has to assume much fewer expenses than before. But even so, it should be taken into account that if you buy a house you are going to have to face some cats that can be more or less high depending on the case.
If it is a new home, you have to add VAT to the purchase price, which is 10%, and the Tax on Documented Legal Acts (AJD), which can be up to 1.5% depending on the Autonomous Community.
In the case of second-hand homes, you do not pay VAT, but you do pay Property Transfer Tax (ITP), which ranges between 6 and 10% depending on the Autonomous Community.
If you have requested a mortgage, you will also have to pay the cost of the property appraisal and deal with possible bank commissions or links that it requests to facilitate access to the loan in better conditions (hiring a credit card, insurance, etc. )
What I want to tell you with all this is that if you have €60,000 saved, do not think that you can buy a property for that value. In order to make a real estate investment without having to borrow anything, you should look for a house that is below that value, since the associated expenses can mean that you end up paying more than you thought.
Buy Too Expensive
The real estate market has been going up for a few years, but we have already said before that there are also fluctuations. Do not launch into an investment that is too risky thinking that prices are going to go up and up and that if for any reason you have to sell quickly you will be able to do it.
Think carefully about your real estate investment and never buy too expensive. Research the market well, surely you can find interesting options at a good price.
Rent Too Expensive or Too Cheap
Do not make the mistake of not adapting to the market. It is possible that you want to recover your investment as soon as possible and that is why you are tempted to put a very high rent. This can make it much more difficult for you to find a tenant. And every day that your house is empty you are losing money, so it is something that you cannot afford.
On the other hand, if the price is very high, it is possible that your tenant will have problems paying it if at any time they go through a bad economic situation.
Nor do you put the house for rent at a very low price. This will ensure that you do not lack tenants, but it will take much longer than it should recover your investment.
You can play with the price going up or down, but always within the average of your area. If the average rental price of a 3-bedroom apartment is €800, you can offer it for €780 to be more competitive or €825 if your home has some extra that is interesting but does not deviate too much from the average price.
Do Not Reinvest Profits
When we invest in other products such as shares, it is quite common for us to apply the compound interest formula and reinvest the profit, thus expanding the capital invested and making money grow faster.
However, when investing in real estate, this is often not done and the owner simply enjoys the income obtained. But, this is a mistake.
The first thing you have to do is amortize the investment, recover what you have invested, and repay the borrowed money if you have had to resort to it. Everything you enter from that moment will be earnings and you should take advantage of them well.
Don’t let that money go to waste. You can reinvest it in other products such as a PIAS or an investment fund, or even in new properties that bring you more benefits.
In the end, what we are looking for is an investment that is as intelligent as possible and that gives us the best return.
Real Estate Investment Ideas that Can Be Very Profitable
When we talk about real estate, we usually think of houses. But you can also acquire other types of properties from which to obtain profitability, or even invest in real estate that you are not going to exploit directly. Let’s see it in more detail.
The parking problem is present in many cities. This is because, in most houses where more than one person lives, there is also more than one car.
Looking for a parking space for 10 or 15 minutes every time we go to work or come home is something that ends up getting tiresome day after day. Whoever experiences this situation ends up so saturated that he is willing to invest in renting a parking space. So buying parking spaces can be quite profitable.
Depending on the area, a space can cost between €2,000 and €30,000, and the monthly rental price is between €50 and €150. It is not a very large return, but it is a sure return since a parking space will always be in demand.
As the price of these properties is not high, as soon as you recover your investment you can consider buying more places and gradually growing your assets.
No matter how booming online commerce is, traditional stores will never disappear. In the end, we all need a cafeteria nearby to have a coffee, a stationery store, an accessory store, etc.
Spain is a country that has many entrepreneurs and there is always someone willing to open a business. However, most establishments open to the public are located on rented premises. This tells us that acquiring business premises can be a good investment.
The question is whether to choose it in a central location or in a newly built neighborhood. The first option will be more expensive but it allows you to ask for a higher monthly rent.
On the other hand, keep in mind that today the premises in new neighborhoods are very popular since they are areas where everything is lacking and it is likely that you will be able to rent the premises much sooner. In addition, these properties are usually larger and more modern, which makes them more attractive to entrepreneurs.
And if at any time you see that your real estate investment is not as profitable as it should be, take a look at the regulations of your City Council to check if you can convert it into a home. So you can rent it as a house or even sell it at a higher price.
As this article from El Correo Gallego points out, they have been a great boom in recent years. You don’t have to think about big cities like Madrid or Barcelona, there are houses of this type throughout the Spanish geography, even in rural areas.
People love to travel, and much more if they can do it at a reasonable price. If you buy a cheap home, give it a facelift and equip it well, you can offer it for short stays through platforms as popular as Airbnb.
Of course, keep in mind that this type of investment requires a little more dedication on your part. You have to be attentive to reservations, hand over the keys every time a client arrives, clean the apartment once it is empty, etc. In return, the profit can be much higher than with other forms of real estate investment.
Flats and Apartments
You may have already noticed that the demand for rental housing has grown remarkably in recent years. And this has increased prices. Today having a closed house is throwing money away.
There are areas with very high rents where it may be difficult to buy a flat, but if you go more towards the neighborhoods on the outskirts of the cities you can find good purchase options.
Banks still have a large real estate park. Consulting with them, you can find quite cheap flats from foreclosures. Many times they need a thorough reform. But since they are much cheaper than other properties, in the end, the purchase of the apartment plus the reform can come out for a price that is still lower than what that house would have on the market if it had been sold under normal conditions.
Think about the type of tenant that usually lives in that neighborhood and adapt the flat or apartment to their needs. If you offer a price that is within the normal market, it is most likely that you will have it rented in a few days.
And if you don’t want to complicate your life with rent, you can focus on looking for cheap homes, renovating them, and selling them. With what you get you can buy another one and do the same operation, and so on.
Real Estate Investment Funds
If you have some money saved and you want to invest in the real estate sector, but you don’t want to have the worries of a landlord (paying taxes, looking for tenants, making repairs, etc.), there is another interesting alternative, real estate investment funds.
The fund collects money from various participants and invests it in real estate. What is usually done is to buy or build buildings to allocate the homes for rent or to sell them at a later time and thus obtain profitability.
It operates like any other investment fund, so you will receive benefits in proportion to the capital you have invested.
Did you imagine that there were so many real estate investment options? Whether you have a lot of money saved or not, you can find a viable alternative for yourself. Property is still a safe value, its price can drop from time to time due to market fluctuations, but in the end, you will always end up getting a return on it.