Updated 23 October, 2022

Why invest in real estate?

The return on an investment depends on the relationship between profit-investment. That is, if you invest in an apartment, parking or warehouse

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Among the benefits of investing in property are profitability, high capital appreciation, constant rental demand, among others.

A real estate asset is a profitable asset with a high capital gain.

The profitability of an investment has to do with the relationship between profit and investment. In other words, if you invest in an apartment, parking lot or warehouse, which you can rent month to month to pay the dividend, then your investment is profitable. On the other hand, a piece of land may not be as profitable as an apartment, but it will be profitable once you sell it, since its value will have increased over time (capital gain).

You do not need to have savings to invest (only credit capacity).

The footing of an apartment is the percentage that you have to pay after requesting a mortgage loan. The higher the footing, the lower the monthly installments of the dividend, since the bank will be financing a lower percentage of the property. Generally, the foot of an apartment represents 10%, 15%, or 20% of its value and you can pay it in monthly installments as long as the project is for future delivery (green or white).

There is a constant demand for leasing.

It is not news that many people spend a large part 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 dividend, while in the second you will, and it will depend 100% on you to be able to do so.

It is simple: there will always be people looking to rent, and what better than paying your dividend with the rent of your apartment.

If the lease does not cover the entire dividend, it will still be profitable.

Let's take María and Sebastián as an example. Each invests in an apartment of the same value, 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 María and Sebastián have received a monthly rent of UF 8. Maria, who bought the apartment in cash, i.e., paid UF 2,350 out of pocket, recovers her investment and also earns a total of UF 2,020 in her favor.

Apartment sale

-
UF 3.290
UF 2.350
UF 940

Rental

UF 8 x 120 = UF 1.080

Total investment

+
UF 1.080
UF 940
UF 2.020

Profit

On the other hand, Sebastian, 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 dividend installments of around 10 UF. Sebastian also recovers his investment and also earns a total of UF 1,163 in his favor. Sebastian invested a total of UF 611, which is the sum of the footing plus the monthly difference he paid between the dividend and the rent.

Apartment sale

-
UF 3.290
UF 611
UF 2.679

Now, from that value, Sebastian will have to deduct what he has left to pay in credit after 10 years of paying amortization and interest.

Total investment

+
UF 2.679
UF 1.516
UF 1.163

Profit

Maria, who invested UF 2,350 and earned UF 2,020 had a return of 85% in 10 years, while Sebastian, who invested UF 611 and earned UF 1,163 had a return of 190% in 10 years.

By way of conclusion

Investing in an apartment is not the same as buying an apartment to live in. Both would be yours, and both would increase in value over time, but the big difference is that the former is paid by your tenant, and the latter is paid by you.

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