The topic of what real estate is profitable to invest in is always relevant, and with economic changes – especially. In this respect, real estate continues to be one of the most common means – residential and commercial assets remain in demand and can provide good returns.
Investment objectives
- In simple words, investing is putting your money somewhere to make a profit. Invest in real estate for the most part to:
- Obtaining a passive source of income. For this purpose, they use the available free housing or premises in the property, buying a new one for cash or taking out a mortgage loan. After that, find tenants and earn monthly income from them.
- Savings preservation. To prevent the depreciation of money under the influence of inflation, it is often invested in the residential and commercial sector. In doing so, different kinds of premises are purchased. The kind that will not get cheaper. Acquire commercial real estate should be in points with high traffic, and residential – where there is an active development of the area.
- Earn on resale or exchange with a premium.
Key points
There is almost always a need for real estate, but not every property turns out to be profitable. Let’s consider what advantages and disadvantages are available here.
Pros
- Stability. If you approach the choice correctly, your assets will always be in demand.
- Passive income. You do not need to make significant efforts to get profit from the purchased apartment.
- Minimal risks. Even in the worst-case scenario, you will always be able to sell it.
- Price growth. Stably rising prices, there are no problems with inflation.
- Multiple investment options. There are a variety of solutions on how to make a profit: daily or long-term rentals, secondary sales, splitting into small segments, etc.
Cons
- A large initial capital. You will need a considerable amount of money to get started.
- Long payback period. The first real income you can get in about 5-10 years.
- Other expenses. This category includes such payments as taxes, money for repairs and payment for housing and communal services.
Is it profitable to invest in real estate?
This is a fairly easy and safe method of saving finances. However, it should be done responsibly to avoid unnecessary spending and losses. Let’s say you bought an apartment on a boom and without any plan, from a potentially profitable investment makes it a burden, requiring constant expenses.
What type of real estate to invest in?
Demand gives birth to supply and in big cities it is more noticeable. Let’s run through the main options.
Residential. The most common type of objects. Most often it is chosen by inexperienced investors, because the level of risk is low. Often this method of investment is used to save money. Income brings resale or rent. When deciding to buy residential real estate, pay attention to all its parameters: location, age of construction, layout, location of infrastructure.
Commercial. It is good for people with enough experience – they can more easily find the best premises. Its renting brings more profit, compared to resale.
Land plots. Land plots are profitable to buy, because it is cheaper, compared to other options. They are easy and quick to register. There are no unnecessary expenses in the form of utility bills and repairs. During the purchase, attention should be paid to the intended use. More liquid is considered sites for construction. Agricultural land is suitable for long-term investments.
Suburban real estate. Country houses as an investment object are gaining special demand from residents of big cities. A cozy and comfortable house with a beautiful view and surrounding nature will be in constant demand.
Buildings under construction. In order to increase buyer demand and interest potential customers at the initial stage of construction, developers put up the lowest prices. At the same time, buyers at this stage will have to wait longer compared to those who take ready-made options, and the developer compensates for this inconvenience at the expense of the cost factor.
What are the risks involved in investing in real estate?
Investing always involves risk, and there are no exceptions here either. And here’s what should be noted:
Poor location. The investor expects that the area he has chosen will develop and the price level will increase. In the absence of such development, there will be little demand for the site and the owner will be left without revenue.
Force Majeure. There are many factors that can lead to a drop in value, as an example: environmental problems in the area.
Unscrupulous tenants. It is not always possible to get money on time, and they can simply spoil furniture or repairs. After such people will have to spend on updates.
Depreciation. After a while there is a cheapening. Say, next door to the once promising house grew a new building, and the apartments in it will have a higher price and become more attractive to tenants.
Construction freeze. In order not to invest money in the building under construction and not to face the risk of receiving it significantly later than the stated deadline, focus on developers who have accreditation.
Investment methods
There are two main ways to generate additional income: renting and reselling with a premium.
The options of renting and reselling are different, so let’s analyze them in order
Renting out
Long-term rentals. This method is for those who don’t really want to bother with anything and just want to get money from it. The plan is not tricky, find tenants, sign all the necessary papers and that’s it, take your money every month. But the downside of this is that it is sometimes not easy to find decent tenants. However, the profit in this case is not great and your investment here will pay off not soon. It is not worth thinking about a mortgage for this too, most likely your expenses will be higher than your income.
Renting an apartment by the day. The main advantage here is the opportunity to make money quickly. With long-term rent your profit will be about 5%, then in the case of daily rent, these figures can increase to 30%. However, do not rejoice early. This is a very labor-intensive business, you will have to check in and check out tenants every day, find them, clean up after them. There will also be more unexpected spending on repairs and furniture purchases.
Country houses and cottages. They bring a good income. Especially they are in demand during vacations and holidays. There is still an option to divide the house, if the size allows and rent one part, and live in the other. The negative side of this choice, again, bad people who do not respect other people’s property.
Reselling
Buying housing at the initial stages. At the transaction at the stage of excavation, you can save about 30% of the final price. The minus – you will have to wait for the completion of construction work. A number of companies-developers in the CDA prescribe that the sale will require their consent to resale. There are cases when they refuse in such cases.
Resale of the land plot. Here everything is very simple, bought the land, waited until its price rises, sold. You will not need to invest extra money in it. However, when it will rise in price is unknown, it may take several years.
Buying an apartment without repairs. Plus – not a bad benefit. Buying housing in poor condition, you can do their primary repair and sell already with a markup. Minus – it is very difficult to find such apartments, you will have to look for them for a long time.
Investment plan
There are a couple of steps you can follow to increase your income:
- Study the local market and determine what is liquid right now, which neighborhood is booming and where the exciting locations are. Analyze the average cost per square meter in the selected neighborhood and its surroundings.
- Whoever you buy real estate from, make sure you can do business with them. Ask people you know about them, research information about them on the internet. Check if there are any legal problems on their part.
- And based on all these factors and information on hand, choose the most suitable option.
Relative to other industries, this sphere is more stable. Even as a beginner, with the right approach, you will be able to increase your start-up capital.
How to earn more money
Several methods will help to increase the rate of return on investment by times.
Redevelopment. With the help of this simple tactic, you can increase the value of the object by about 30-40%. However, it is important to coordinate all this with the BTI and draw up the documents properly.
Expansion of the premises through completion. On the ground floor you can always add a small veranda, make a slightly wider basement and increase the balcony. This will give an increase in price of 20-30%.
Conversion of premises from residential to non-residential and back. Buying commercial premises always requires a lot of money. But there is an option when you buy an apartment on the first floor and from residential, transferred to the non-residential fund.
