Investing in real estate is one of the most reliable ways to save money. An insured property rarely ever loses value and, what’s more, it can earn its owner a decent income while sitting at home if rented out properly.
Why invest in real estate?
There are at least 4 main reasons or answers to this question that must make anyone considering an investment think. Real estate investing is, in short, an opportunity that must be considered by anyone with some money to spare.
- Return on investment in property
- Low risk of losing the investment
- Excellent liquidity in real estate
- Double appreciation of money
Return on investment in property
A professional real estate investor and a layman more or less accurately tries to calculate the return on his investment in the property. This can be influenced by several factors, ranging from the estate’s location and its surroundings to things like access to public transport.
But you can’t expect to make all your money back in a year. As the saying goes, good things take time. That then leads to another question: how much time is too much? How long does it actually take for your money to return?
Generally speaking the return within 10 years is very good. A return between 15 and 20 years is normal and acceptable. By 25 years it is already an average to slightly below average return. Above 35 years, it is a so-called heart investment. The investor has bought the property for a purpose other than the efficient appreciation of money.
The return on investment cannot be calculated by simply adding up the rents. It is also necessary to take into account the insurance of the property and wear and tear. These two items can bite off between 10% and 30% of the monthly rent.
There are many calculators on the internet for return on investment, where you can find out the net income from the property after entering variables such as purchase price, rent, insurance or projected funds for repairs. If you’re interested, here’s one such calculator
Low risk of losing the investment
Stocks and gold are experiencing strong fluctuations and unpleasant falls. In real estate, these risks are much smaller. But if you still aren’t persuaded, perhaps this article about risk reduction might help you decide.
You can insure your home or apartment at a reasonable price and you don’t have to worry about losing your investment due to, for example, a fire or other unexpected event. Though you have to remember, even the insurance company wants to make money. So read the terms and conditions of your contract carefully.
Investing in real estate is one of the safest and, in terms of risk/return ratio, one of the best possible investments. A safer investment is, for example, savings accounts, which have increased their interest rates in recent years, but still do not cover inflation! Mutual funds can already add a percentage above inflation, but there is more risk than with a property investment.
Excellent liquidity in real estate
Properties are selling well and there is usually a good demand for them. It is also true that you will usually sell a property for more than you bought it for a few years ago. The exception is during the financial crisis. But even during a crisis, people will still be looking for a house or an apartment, so the demand for your estate won’t go down.
Double appreciation of money
In particular, investors buying apartments during the crisis between 2008-2010 and then selling in 2018-2019 have more than appreciated their investments.
Properties have more than doubled in price in less than ten years. In some cases, they have even quadrupled in value! The other income was from rent, which has been running for the entire time investors have been investing.
Sometimes it may not be worth it to renovate an apartment expensively in times of high demand, but it is better to price out an unrenovated property. As both an investor and a landlord, you need to enter into a good lease agreement that will protect you from defaulters and vandals. The landlord should also not forget to have a detailed handover report if the apartment or house is in good condition.
The other option is to delegate the rent to a real estate agency, which will take care of everything, but you have to take into account that your income from the property will be reduced by about 20-35%.
Investment rental: where to invest?
Better smaller than bigger. Small flats are more desirable than 4+1 flats, as there is a higher demand for them and also a better benefit for the investor.
The demand for small apartments is also much higher than for large apartments. Due to demographic and lifestyle trends, people are more likely to live one to two people per unit.
Realtors recommend investing in a 2+1 or 1+1, which is the ideal square footage with the highest market demand.
Also, since real estate prices have been going up quite a lot, a lot of people will most likely want to rent, rather than outright buy you property. This is great for you, because even though someone lives in it, it is still your house.
Students and foreigners
Renting larger flats can be done separately and you can only rent out places in that flat. You can accommodate 5-7 students or foreigners in a larger 4+1 apartment. Student are an exelent demografic for larger flat, because most of them don’t really care about who they live with.
This type of renting is more difficult to manage, but also brings higher financial value. Six students can pay 6 X 200 USD for a 4+1 apartment, which is 1.200 USD, but a family will pay only 700 USD in total.
Students and foreigners are looking for shorter-term rentals, which are more expensive than traditional long-term rentals. Renting an apartment to this group is more demanding, but with higher financial interest for the investor or property manager.
If you’re looking for ways, to earn money from home, we have just the article!
Renting a family house
Investing in a family home and renting it out properly can earn you more than an apartment. A family home in a suitable location can be converted into multiple dwelling units or a small hostel. Especially rural houses, which often have more than one floor, allowing for even more renting possibilities.
A classic larger family house can be turned into, for example, 3+1 and 2+1 with a potential rent of 1.500 USD or 2.200 USD in New York.
Advantageous locations for buying real estate
New York has become overpriced and buying an apartment in the centre in 2019 no longer makes sense. Cities within a 1 hour commute and connected to rail transport are much better off.
The prices of apartments in these cities are many times cheaper than in New York, and if the apartment is close to the train station, this advantage can be nicely reflected in the rent.
In New York, on the other hand, thanks to new applications, it is worth renting apartments to tourists for short-term rentals. New York is visited by between 6 and 8 million people a year who want to spend the night in the city.
The income from renting to tourists is more than double that of traditional rentals. Although there is higher maintenance associated with such use of apartments, the earnings are sometimes very attractive indeed.
Airbnb is thus one of the options for quickly appreciating a property and making the most of its potential. This profitable venture is becoming more and more restricted by cities and municipalities, and Airbnb may lose some of its profitability.
Transport accessibility of real estate
Everyone wants to live near a metro or bus stop or close to a supermarket. All these benefits increase the price of real estate. It can be interesting to invest in properties where some of these advantages are yet to appear in the future.
Land is already harder to lease, but it works well as a deposit. Again, it is a good idea to choose land around large cities where this land could be turned into building plots in the future.
Investing in someone else’s property
Investing in property that does not belong to you is risky, even if you know the owner very well and intimately. Since you’re not listed as an owner, you technically don’t have any legal ties to the property in question. That could be counted as an upside, since if anything bad happens, it’s not “your” house, but remember, it’s still your money.
Investing in a foreign property
Buying an apartment or a small house somewhere near the beach abroad can be a very nice thing to do. Beware! It doesn’t have to be an astronomical amount. You can easily buy a small apartment in Italy or Croatia for 150.000 USD.
If you cast your nets, after 14 days you will occupy the apartment and you can earn a good profit on real estate abroad. The catch is that you still have to manage the property. And remote property managment is battle many before you have lost.
Apart from apartments by the sea, American investors are also interested in cottages in the mountains or small apartments in major cities. Some people might just be more interested in hiking and the cold freshness of the mountain air, than in sunbathing and swimming in the sea.
Croatia and Italy lead the way for American investors, as prices are the most affordable. Spain and Austria have similar attractiveness, but prices are already higher.