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Real Estate Investments: How Does It Work and Why Consider?

Real estate is among the favorite goods of Brazilians. Not only having your own home and getting out of rent, but also making real estate investments and making good long-term profits with the countless possibilities that the sector offers.

In fact, there are many opportunities in this area. In addition to the property being a physical asset, the market offers security and a diversity of profitable alternatives for any investor (in the construction and sale of properties, in rent, in land negotiation, for example).

But do you know how they work and what are the best options for investing in real estate? Want to understand more about the subject and plan your next choices? So read on and find out why investing in real estate is worth it right now.

How does real estate investing work?

Investing in the real estate market basically consists of using your money to do some business involving real estate, whether residential or commercial.

Profits can be made both with the appreciation of assets in the long term and in short-term businesses – such as construction or renovation for later sale or traditional renting.

The real estate segment has a lot of strength in Brazil and is considered one of the most traditional investments in the country. Who has never heard the popular saying that “Those who buy land don’t make mistakes”?

Previous generations already saw the real estate market as a sure-fire investment. In addition to being valued as an asset with high added value, which increases the family’s equity and avoids monthly rental costs, the property has always been seen as a great investment for the future.

Today, this reality has not only remained, but has become even more popular. Many people even plan a supplementary retirement with income from renting apartments, houses, sheds and commercial rooms, for example.

And, depending on the valuation of the sector, it is possible to have a profit far above the average of other investments available in the market.

What are the ways to invest in this market?

As we said, one of the main advantages in relation to real estate investments is the diversity of paths to be followed. They all have positive points. So, the choice of investment depends on your possibilities and personal preferences.

In this regard, it is worth mentioning that, currently, it is possible to invest in the real estate market without necessarily making the physical purchase of real estate or land.

This is because there are alternatives in the financial market – this is the case, for example, with real estate funds, available on the stock exchange, and real estate crowdfunding offered through collaborative platforms.

However, physical properties remain the most traditional, interesting and safe way to invest. After all, once you buy the good, it is yours until the sale. Therefore, it is not subject to capital loss risks as in the financial market.

But what are the main ways to make this investment? Check it out below!

Investment in rental property

Buying or building rental properties is among the preferred possibilities of investors when it comes to real estate investments. It is not by chance, since rent becomes a passive and practically lifetime income for homeowners, bringing good profits year after year.

The market is quite diversified and a good tip to maximize your results is to analyze the particularities of your region. Flats and kitnets, for example, usually bring great returns in university towns.

Many students move out of their parents’ home for graduation and need a place to stay – which can be an interesting rental opportunity. On the other hand, there are cities or regions in the country where vacation homes or inns are more successful in the rental sector.

We must also not forget the opportunities in commercial rooms, stores and warehouses. If you intend to invest in a central city or in places with good prospects for industries, take advantage of this market’s growth.

Real estate construction

Construction is another great alternative to increase your equity when doing good real estate deals. With efficient management, it becomes feasible to build good properties at a balanced cost. Therefore, profit margins on sale can increase significantly.

Keep in mind that those who buy ready-made properties are not paying the “cost price” used in their construction. The costs of preparation and sale are also embedded in the sale value – in addition to the profit, of course.

Therefore, choosing to invest in construction instead of buying ready-made properties can make you evolve to the most profitable point in this relationship. The downside is that it involves more work, bureaucracy and often unpleasant surprises and higher costs along the way.

Investing in land 

Another profitable example of real estate investments is the purchase of land. The purchase of land can be seen in several ways. Just like real estate, you can keep it until it appreciates and you can sell it for a higher price.

A tip in this regard is to acquire land in places with good expectations of appreciation. For example, regions of the city that are not yet very populated, but that are located in an area where the municipality is expected to grow in the future.

There is also a land rental market for some businesses. A jet washer, for example, is a great example of a company that can operate on unbuilt land. Parking lots can also function without large structures.

Finally, you can choose to use the land in the future to build apartments, commercial rooms and other developments for rent. Do you see how this is a very versatile investment?

Invest in real estate on the plant 

Purchasing real estate on-plan is an attractive alternative for those who want to reduce the investment cost without investing in construction. This way, you pay a much smaller amount for the good and wait for the delivery by the responsible construction company.

The disadvantage of the option is the longer waiting time until passive income or profit from the sale of the property is earned. However, this wait is usually worth it. After all, on the delivery date of the property, it is very common for the property to have already appreciated in value – thus being worth more than the price paid for it on the floor plan.

So this is one of the best real estate investments you can make. The investor pays the value for the property on the plan and waits for delivery to sell it at a higher price, or chooses to rent it to obtain passive income.

High standard properties 

When it comes to real estate investments, the luxury sector has been growing a lot in Brazil in recent years. Higher-class families spend more and more money on houses and apartments that meet their needs. Therefore, it is a market that moves high values.

For those who want to invest, buying high-end properties in the Brazilian market is a good choice. But it is necessary to pay attention to details, because the demands of this audience are also higher.

Is it possible to invest in real estate without buying a property?

Property investments.

The answer is yes and this investment can be made with less than you think, starting at R$100.00. And for this, there are some options, such as the Fundo Imobiliário (FII), loans to construction companies and real estate crowdfunding.

Check it out below:

Real Estate Fund (FII)

A real estate fund is similar to a stock fund. The difference is that, instead of investing in stocks, he invests in real estate, obviously. And you can buy a share of a real estate fund, which means you’re getting a small share of all the real estate the fund owns.

So, if these properties appreciate in value, the tendency is for your share of the fund to appreciate together. Some shares of real estate funds can be purchased for values ​​less than R$ 100.00. See a list of all real estate funds on the stock exchange here.

In addition to the gains from the appreciation of your share, you will receive a monthly amount for each share you own. After all, the fund’s properties are being rented, and you, as the owner of a small part of these properties, are entitled to part of the rent.

A great advantage of this scenario is that this monthly amount received is exempt from income tax for individuals.

Loan to builders

Through CapRate, you can lend money to homebuilders.

After all, when they are at the beginning of a new expansion phase, builders need money to create their new projects, but now, instead of borrowing from the banks, they can borrow from you.

See what CapRate president Paulo Deitos says:

“We understand that there are more rational ways to use real estate funding and that it does not necessarily depend on traditional institutions, as they do not have the ideal adequacy for financing developers, generating a relatively high cost in the operation. And on the other hand, for investors, there is no access to high-yield investments. By eliminating the intermediary of the financial institution and bringing these two parties together, we were able to transfer the gain that used to be with the financial institutions to the investor.”

This is a form of investment with low risk, as it has a predetermined term and profitability, that is, you invest already knowing how much and when you will receive it. In the transaction that was structured for Vitacon, you can calculate how much your investment will yield in this calculator.

A big difference is that investments start from R$1,000, making it easier for many to invest in the real estate market.

Real estate crowdfunding

Through Urbe. Me you can acquire a percentage of a real estate project that is being built and then make a profit, together with the construction company, when the time comes to sell.

It is important to point out that a fundraising is carried out to buy a percentage of the enterprise as a whole, not specific units.

If the minimum funding amount is not reached, those who have already invested will receive the amount back, directly in their accounts.

“We work with maturities of 24 to 48 months and target returns around 200% of the CDI.”  Lucas Obino, founder of Urbe.me.

In this model, the initial investment is also R$1,000.

Why consider investing in real estate?

After knowing the main ways to invest in real estate and profit in the real estate market, how about identifying the advantages of making an investment of this type?

There are numerous benefits to becoming an industry investor. Meet some!

Safety 

Many people seek to make money in investments in the financial market – such as the stock exchange, for example. However, many of them end up suffering high losses due to the risks of this market and because they do not know how it works.

Those who invest in this way can, for example, see their money disappear in times of crisis. On the opposite side, a property is a physical asset and depreciates less in troubled times. Therefore, the security regarding it, in any situation, is much greater than the other options.

In addition, the real estate market does not present such deep risks and does not demand so much specific knowledge. Any investor can get great returns on real estate without having to spend a lot of time looking for information about them.

With basic data and a good search in an online shopping mall for new properties, for example, it is already possible to analyze a property, its location and the chances of profiting from the investment – based, for example, on income projections with the rent.

High profit margins

Investing in real estate provides a very significant profit for investors. As we have shown, some options have greater short-term gains, such as building or selling off-plan properties.

But, even with the rent, it is possible to have good profit margins. Just think that it generates passive income for as long as you keep the property in your possession. So, multiplying rents by the number of years, what would be the profit? Possibly quite a significant amount, isn’t it?

A well-located property, for example, makes your rental income almost certain. The probability of having a vacancy greatly decreases because a tenant’s departure quickly makes room for others who have an interest in the location.

Adjustment according to inflation

Another great advantage of real estate investments is the readjustment of the rent according to inflation. This measure is provided for in Brazilian regulations and benefits the investor, who does not run the risk of losing money to inflation.

This is not the case with other investments, such as the profitability of savings, for example, which is constantly lower than inflation rates. Thus, those who leave their money stuck in the account are accumulating disadvantages.

What is the right way to invest in real estate?

Real estate investments, how to do it?

There are different approaches when thinking about investing in a property, some buy to resell, others to rent.

But there are points in both that must be analyzed.

The location is what most influences the value

This is undoubtedly the main factor that you should evaluate when investing in a property.

For those of you who are thinking of buying to resell, look for a location that is under development, so the value of your property will grow as the region flourishes.

Keep an eye, especially, on future subway or train stations that are planned to be built in the vicinity, after all this is the main engine of valorization of a region.

Also pay attention to the construction of shopping malls, schools and hospitals in the region, factors that also increase the value of your property.

But if you’re thinking about buying a rental property, you might want to look at regions that are already desirable today. In regions that are already developed you will find it much easier to rent your apartment.

This is a relevant point to be considered so that your property is not idle, without a tenant, and is generating expenses instead of income.

Size is most responsible for liquidity

This is another very important factor, choosing the size of a property to live in is different from choosing one to invest. In this world, small apartments are the most desired by investors, usually studios, and for a very simple reason.

Liquidity. It is an essential factor in the investment world. It is much easier to resell a smaller apartment, precisely because it has a lower value and reaches a wider range of possible consumers.

After all, you don’t want to have your equity committed to a hard-to-sell property. Even if the property doesn’t lose value, with a quick sale you can reallocate your earnings into new investments and earn even more!

For those thinking of buying to rent there are some differences.

A large apartment is usually aimed at already structured families looking for stability. Even if it takes longer to rent, your tenant is likely to stay for a long time.

Small apartments are easier to rent, but they usually cater to single people, who are more susceptible to a change of life, which implies a change of residence as well.

But there is a big advantage to investing in small apartments for rent, which we will see in the next item.

The price will dictate your earnings.

You can never get away from that when analyzing an investment. It is very important to assess the price per square meter of the property you want to buy, to see if it is compatible with the market.

Often, a construction company lowers the price of apartments when it is not making many sales. If this happens in a location that you know will develop in the future, maybe you’ve found a great opportunity.

Other times, when demand is very high, builders increase the price of the property.

At first glance this may sound bad, but it’s also an indicator of what people want. Interesting for you who are thinking of renting, after all, a lot of demand means high chances of getting a tenant, in addition to the possibility of being able to charge a higher rent.

Historically, it is common to buy an apartment on the floor plan and sell it for a higher price when ready. However, this practice has shown lower returns today and has become less attractive.

As we saw in the previous item, the cheapest properties are the darlings of investors who want to resell, due to their greater liquidity. These lower value properties have a big advantage, too, for those who want to rent.

When you buy a high-priced apartment, it’s normal for you to rent it for a monthly fee that represents 0.4% of the total price.

But if you buy a property cheaper, in a good location, you may be able to charge a rent equal to 0.6% of the apartment’s value.

Let’s take an example.

Let’s say you have R$1 million to invest and you have two options. Buy an apartment for R$1 million for rent, or 3 studios for R$333,000. What is the most profitable option?

Option 1: BRL 1 million x 0.4% = BRL 4,000/month of rent

Option 2: (R$333,000 x 0.6%) x 3 studios = R$5,994/month of rent

We can see that the second option is much more advantageous, offering a return almost 50% higher.

Tip

If you are thinking of buying to resell, look for low-value properties that are being built in regions with prospects for future development.

If you are looking for an investment that gives you a monthly income, buy small properties, in desired regions, for rent.

But a new way of renting your apartment has arrived, vacation rental. Is she worth more? Check it out here and find out!

What precautions are necessary when investing in real estate?

To take advantage of all the advantages mentioned in this post, it is important that you have some precautions. The first one is knowing that choosing investments is quite different from deciding on the purchase of a property to live in.

Your criteria must adapt to the condition of an investor to make the best choices. Don’t just analyze if you like the neighborhood or the property. Try to have an entrepreneur’s vision and identify the best profit possibilities.

Furthermore, it is necessary to see your decisions as a business. In other words, organize your perceptions, assess the return on investment, seek data to base your choices, etc.

Try to understand the real estate market and know the available real estate options to get the best results on this journey.

Another point that cannot be overlooked is the relevance of location. It pays to be very careful when deciding where to invest. It is the main aspect involved in the good conditions of sale or rental of your property.

What is the current scenario in the real estate market? 

If you are considering making real estate investments, be aware that the real estate sector in Brazil is always very strong. After all, there is a housing deficit and there will always be a demand for rent or sale in the country.

Recently, the market has gone through three distinct phases. Between 2008 and 2013 was a great moment for the national market, which became known as the Golden Age of real estate. Then, the country faced an economic crisis and the sector did not show as much growth until 2018.

Fortunately, since 2018 there has been a recovery in the real estate sector and the outlook is optimistic. The reduction in the basic interest rate (Selic) stimulates real estate financing and increases the demand of Brazilians for the purchase of their own home.

Therefore, the real estate market has good conditions to grow and offer investors even greater profits in the coming years.

Common questions

Now that you understand how they work and why to consider real estate investments, check out some frequently asked questions about this topic.

What is the return on investment in real estate?

Income from real estate is very varied and depends on the business you do. There are differences between renting or selling land, selling a house you have built, renting commercial stores, and so on.

Profitability also varies by location and property type, as well as location. So, the best strategy is to assess the market in the region and industry you choose to know what the expected yield is.

Is it better to buy new or used properties?

In general, opting for new properties is the best choice. People prefer to buy or rent new developments with modern architecture. Thus, the chances of appreciation and profit are lower in used projects.

How to choose the best properties to invest?

As you already know, choosing the best properties to invest requires from the investor an entrepreneurial view of the acquisition. Check all the points related to the property’s sale or rental strategy and make the decision that meets your needs and goals.

To find the best investment opportunities, a good tip is to look for apartments with the ideal characteristics for those who want to invest in the sector. Discover apartments that attract investors in your city.