10 Advices you must not ignore when investing on real estate

Real estate or properties invest is an investment choice that consists in buying a property as a house, apartment, commercial place or land, and then rent or sell it.

When investing on real estate you acquire a property waiting for its value to increase and then sell it; for renting immediately; for repairing or remodeling and then rent or sell it, or finally to build (in case you acquire a land) and then rent or sell it.

Experts consider the real estate investment as a low risk invest, safe and profitable.

Despite of being considered as a safe and low risk investment, many people that decided to invest on real estate have suffered great loss, maybe by acquiring aa property in a bad location, because of not finding someone to rent or for needing to do repair or remodeling that at the end finishes being more expensive than expected.

Because of that, first we have to consider the following points for not putting on risk our investment.

1. Analyze the property that you are planning to buy and the total invest it will mean.

Taking into account the risk/benefit factors, such as location, price, property status, repairing or remodeling need, the needed maintenance, the taxes to pay, the needed credit to buy the property and above all the possibility that the property could be resold or rented at a price that can justify the invested on it.

2. Think of an investment at long term. Do not sell before time.

The real estate investments are mostly at long term and sometimes at medium term. Because of that we must keep in mind that investment and profits that could be obtained will be at long term, not less than 3 years. Remember that almost always a property capital gain is subject to time and real estate market.

3. Calculate theProperty profitability before investing.

To find the best investing option, in addition to profitability it is recommended to consider other factors as the risk.

The formula to find an investment profitability is: Profitability=(Profit/Invest) x100

To calculate the property profitability, you must consider the investment on the property and the income it has generated, which will be given by the difference between the sale price and the invest (capital gain), or in case of renting it, by the difference between the rent incomes and the costs (cash flow).

For example, if a property had an invest of US$ 30,000 and then it is sold by US$ 40,000, then the property profitability should have been of: (40000 – 30000 / 30000) x 100 = 33.3%

Or, for example, if a property had an invest of US$ 30,000, the rent incomes in a year were of US$ 12,000, and the costs in the same period were of US$ 10,000; the property profitability should have been of: (12000 – 10000 / 30000) x 100 = 6.7%

In case we want to find the profitability we could obtain with a property; to find the future income we could take in account the properties average growth rate in the area, or in case we are planning to rentit, the average cash flow of the properties of the area.

The real estate investment as any investment has a risk percentage and there´s a chance that the property value can suffer a devaluation.Nevertheless, we can find the way to prevent in some way these risk factors and sell the property ahead of schedule to avoid future risks.An ideal benefit is to obtain up to 30% more of what we paid in 3 years of investment.

4. Diversify the investment.

It’s important not to invest everything at the samemarket. For someone who invests on real estate, the recommendation can be on buying a lot of cheaper houses to rent them later, instead of renting just an expensive one.

5. The presale is the key.

Search for projects in presale prices to ensure a big profitability at the time of selling it at long term.

6. Be sure that all the property documents are in order.

You must demand a free of liens certificate, so you can take effective ownership of the property. Seek for the support of a lawyer or a notary for the transaction. Must have the property deeds and land use license. Also, search for the property plans and that the property limits be specified on the deeds.

7. If it is going to be rented.

Be sure that there are guarantees. That the personal guarantee is an honorable person. Search for all the tenant references.

8. When you invest in something that is under construction.

See that the construction company has bonds or deposits to guarantee that the work is finished. Also, search for the copy of the construction license and the wastewater discharge permit.

9. Be careful with no capital gain areas.

In a place where there is so much offer, the price does not increase. There are many factors that can limit the value increase, as for example: the construction of main roads and the lack of planning to face to the vehicular traffic load.

10. Always analyze the market.

Before buying or borrowing money to a developer, you must search for the market indicators. It can happen that the incomes have increased in the recent years, but you must know how much potential is there. If the rental is high but there are a few business premises, empty offices or houses, it is a sign that there you can still grow.

Here, the indicators of sale and rent prices of properties in Peru, by October 2016:

Sources: crecenegocios.com, remaxexpo.com, lamudi.com.pe, rankia.pe