Real Estate

How to recognize a good real estate investment opportunity

Investing in real estate is one of the best ways to protect your money and your assets. We give you some recommendations to recognize a good investment opportunity.

While there are several ways to make money from real estate, you need to consider the level of profitability of a property before investing in it.

Although almost all real estate investments are good, there are a few factors that will help you recognize an excellent real estate investment opportunity that allows you to obtain a shorter-term return on capital. Take note!

Opportunities don’t happen every day, which is why some people tend to think that it is a matter of luck. In fact, the key is to know how to find them, to have criteria to recognize them and to be attentive when they appear. Think about it: there is no business that does not require methodology, and the same goes for real estate investing.

Having a professionalized system is crucial for successful results, and this is what distinguishes beginners from experts. Write down these keys so you can recognize real estate investment opportunities when they arise in

How do you know if a real estate investment opportunity is profitable?

  • Consider operating and maintenance costs.
  • Calculate the capitalization rate.
  • Conduct market research.
  • Do a real estate appraisal of the property.

Consider operating and maintenance costs.

If you are going to invest in real estate to live on your income, it is important that you take into account the expenses of renting a house and keep it in the best possible condition.

These expenses may include paying taxes such as income tax and property taxes; carry out eventual repairs and cover the monthly costs of basic services such as electricity, water and gas.

Once you take these expenses into account, you can calculate the Net Operating Income, known as NOI, for its acronym in English (Net Operating Income). This indicator helps us to know the real profits generated by the property.

To calculate this figure, you must subtract all operating expenses from the amount of gross income you earn from the property. For example, if you rent your home at a price of 15,000 pesos a month and for operating expenses you spend 5,000 pesos a month, then the NOI will be 10,000 pesos ($ 15,000 – $ 5,000 = $ 10,000).

Calculate the capitalization rate.

The capitalization rate or “Cap Rate” is a calculation that real estate experts use to determine the profitability of a real estate. This indicator allows you to know the flow of money that you can obtain annually with respect to the value of the property, and therefore, to know how long you will be able to recover your investment.

To calculate it you can use the following formula:

Capitalization Rate = (NOI / Home Market Value) x 100

As an example, we can put a property with a value of 2 million pesos, who’s annual NOI is 240 thousand pesos, therefore it would be as follows:

Capitalization rate = (240,000 / 2,000,000) x 100 = 12

Therefore, this house will have a capitalization rate of 12%, which means that you will be able to recover your investment in approximately 8 years.

Conduct market research!

Norma Canales, financial economist, points out in one of her columns for El Financiero that most people wonder what the best type of property is to make an investment in real estate; whether commercial, industrial or residential.

His recommendation is to carry out a thorough investigation on the market trends that prevail in the place where you want to invest.

This way you will know which is the best option for you to reach your goals. As an example, Norma Canales mentioned the way in which it has become popular to put a property on vacation rental platforms and attributed this phenomenon to the fact that many of those who decide to invest in real estate perceive it as a more profitable business than an income long-term.

Do a real estate appraisal of the property.

The best way to know if you are investing the right amount for a property is to carry out a real estate appraisal before making the purchase. In this appraisal, all the characteristics of the property must be taken into account, such as its location, the number of rooms, the amenities it has, the quality of its finishes, its access to services, etc.

That way, you can set a good rental price after purchasing it. In addition to being able to more accurately calculate the NOI and your capitalization rate to decide if the purchase will give you the return on investment you are looking for.

Take these recommendations into account to recognize the best real estate investment opportunity for you and ensure the stability of your wealth. Present that Tajarat properties real estate portal, helps you in your real estate search by putting at your fingertips a wide variety of properties.

Investment opportunities often have a number of fundamental characteristics that make them easy to identify. When conducting an investment property analysis, you will want to look for a trade that comes close to achieving a number of elements that are based on key indicators.

1. Good profitability or ROI

Return on Investment is a key indicator for analysing real estate investment opportunities. It is calculated by dividing the return, that is, the profit, by the investment, and a percentage figure is obtained by multiplying the result by 100.

It is essential to know the ROI to decide if an opportunity is interesting, since this way the investor can evaluate how much it is going to earn in relation to how much you invested.

 Absolute figures are not interesting, because knowing how much one will earn does not provide enough information. One can say that he will earn a million pesos, and this in itself is not necessarily an opportunity.

Getting a million can be a very good profit if you invested 500,000 pesos, or it can be a very low profit if you recover a million pesos having invested 20 million for example, or even 200.

As if you start a start-up or open a restaurant, the fundamental thing is to know the investment data in relative terms that link the profit with respect to the investment, and thus you can calculate the ROI and see if there is an interesting opportunity worthwhile.

Let’s take a common example related to renting an apartment, house or office: 

The way to obtain the profitability of the Monthly Flow involves a very simple formula: which involves dividing the monthly flow by the value of the foot.

If, for example, you have a foot of 5 million of a property of 50 million pesos, you have to know other variables, such as the value of the rent. Suppose you rent the property for 250 thousand pesos per month, from this value you must subtract the cost of the dividend, which would be 200,000 pesos.

Therefore, the calculation would be the following:

 ROI (Flow) = (Lease Value- Dividend Value) / Foot x 100%

ROI (Flow) = (250,000 – 200,000) / 5,000,000 x 100%

ROI (Flow) = 10%

Finding opportunities means obtaining highly profitable instruments that can even reach 500%.

2. Cap Rate or Capitalization Rate

 The capitalization rate is an investment indicator that analyses income in relation to property values. As with ROI, it is essential that it provides contextual and relative information, not absolute. If we know the value of a property we cannot determine if it is an opportunity in itself.

We will also need to know the sum of the rents for the year to see their profitability. The key is to know through the Cap Rate how much the property generates in relation to what it costs.

For example, 300,000 pesos could be a good income for a property that costs 1,000UF, but it could be very bad income for a property that costs 10,000UF. The Cap Rate is calculated by dividing the NOI by the value of the asset, multiplied by 100 to find a percentage figure.

In this way, with these two indicators, we can compare an asset A with one B, another C, etc. until you find a good opportunity in the real estate business and decide to take it.

Other keys to analyse investment opportunities:

Don’t just analyse the numbers, but also take into account other factors of another nature, such as the following:

  • The state of the property, if it requires an initial investment to get profitability and how much maintenance it may need, as well as possible structural damage that it may have and that should be taken into account.
  • The location of the investment opportunity, if it is in an area that is expected to increase in value in the coming years or vice versa.

Now you can recognize real estate opportunities when they arise. In addition, these indicators that we will mention will serve you especially today, a particular context of the economy that encourages unusual opportunities to appear in a less changing context than the one we are experiencing.

Keep in mind in any case that there are many other variables and factors that one must analyse when deciding. Operational expenses, CBR registration, mutual tax, etc. For this reason, it is convenient to have training and advice from experts to make an informed and strategically interesting decision. tomers.�L4TZ�