Updated 23 October, 2022
Why invest in real estate?
Among the benefits of investing in property are profitability, high capital appreciation, constant rental demand, among others.
We imagine that, with everything that is going on in the world, you may have some doubts about whether it is a good time to invest your money. The answer is yes, (a thousand times yes) it is always a good time to unfreeze your money from your bank account and make it grow through investment. Here are some simple reasons why to start today:
A real estate asset is a profitable asset with high capital gains.
The profitability of an investment has to do with the relationship between profit and investment. That is, if you invest in an apartment, parking lot or warehouse, which you can lease month by month to pay your mortgage, then your investment is profitable. On the other hand, a piece of land may not have returns like an apartment, but it will be profitable once you sell it, since it will have increased its value over time (appreciation).
You don't need to have savings to invest (just creditworthiness).
The down payment of an apartment is the percentage that you must pay after applying for a mortgage loan. The higher the down payment, the lower the monthly payments, since the bank will be financing a lower percentage of the property. Generally, the down payment of an apartment represents 10%, 15%, or 20% of its value and you can pay it in monthly payments if the project is of future delivery (“green” or “white”).
There is a constant demand for rent.
It is not news that many people live much of their lives renting the place where they live. This happens for the simple reason that not everyone can/wants to buy to live, so renting is the only option. The big difference between buying to invest and buying to live is that in the first scenario you will not pay the monthly payments, while in the second you will, and it will depend 100% on you that you can do it. It's simple: there will always be people looking to rent, and what better than to pay your monthly payments with the rent of your apartment.
If the lease does not cover the whole monthly payments, it will remain profitable.
That’s right, what matters is that you are covering most of the monthly payments with the rent income. Look at Tom’s and Maddie case: Both decide to invest their money on apartments located on the same building at the same price of UF 2,350, and both sell it after 10 years, for a higher value thanks to the appreciation of the property, let's say UF 3,290. During those 10 years, both Tom and Maddie have received a monthly rent of UF 8. Maddie, who bought the apartment in cash, paid UF 2,350 out of her pocket, recovers her investment and earns a total of UF 2,020 in her favor.
Apartment sale
Rental
Total investment
Profit
On the other hand, Tom, who bought his apartment with a 30-year mortgage loan, paying a 20% down payment and with an annual interest rate of around 4.70%, pays monthly payments of around 10 UF. Tom also recovers his investment and earns a total of UF 1,163 in his favor. Tom invested a total of UF 611, which is the sum of the down payment plus the monthly difference he paid between the mortgage and the rent.
Apartment sale
Now, from that value, Tom will have to deduct what he has left to pay in credit after 10 years of paying amortization and interest.
Total investment
Profit
Maddie, who invested UF 2,350 and earned UF 2,020 had a return of 85% in 10 years, while Tom, who invested UF 611 and earned UF 1,163 had a return of 190% in 10 years.
Sounds good, doesn’t it?
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