A huge advantage of the modern world order is that a person can radically change the type of activity, grow professionally in his niche, and achieve great success in any field. Talent, great ability to work and a certain amount of luck (how could it be without it) – and here you have accumulated sufficient capital. Now what to do with it? Astute people make sure that money works for them. For this purpose different tools are used – bank deposits, investments on stock exchanges, investments in own business. Each of them has its own advantages and risks. Today we will focus on real estate investments and consider whether it is a good investment property management.
Gain passive income. To do this, they use their own vacant property, buy new property for cash or take out a mortgage. Then find tenants and make a monthly profit.
Preserve savings. To keep money from depreciating due to inflation, they often invest in real estate. They buy commercial, residential, budget, and luxury properties. Those that will not go down in value. Commercial properties are better to buy in areas with high traffic, and residential – in areas with developing infrastructure.
Get income from resale or exchange at a markup.
Pros and cons of real estate investments
There is always a demand for real estate, but not every object is profitable to invest money. Let’s understand the advantages and disadvantages of real estate investments.
Stability. If you choose correctly residential and commercial premises are in demand.
Passive income. To make a profit from the purchased apartment, you do not need much effort.
Minimal risks. Even in the crisis the real estate is realistic to sell or rent.
The growth of prices. Real estate is not affected by inflation, like gold. The cost only increases.
Variety of investments. There are different options how to make a profit: to rent by the day or for a long time, resell, divide into small segments, and others.
High cost. You need an impressive amount to buy the property.
Long payback period. Real estate will begin to generate income in excess of its value in 5-10 years.
Additional expenses. This includes utilities, major repairs, and a 13% tax on the transaction amount.
Is it profitable to invest in real estate in 2023?
Real estate investing in Russia is a simple and reliable way to save money. But treat this investment responsibly to avoid unnecessary costs and losses. For example, the spontaneous purchase of an apartment without renting it out turns from a potentially profitable investment into a liability that requires money for maintenance.
What kind of real estate to invest in
The larger the city, the higher the demand for residential and commercial space. Consider the investment options.
Residential real estate. The most common type of real estate. Basically with it work beginner investors, since the risks – are minimal. This method of investment is often used to save money. Revenues are obtained through resale or lease. When buying a residential space, consider all the features: location, year of construction, floor plan, infrastructure.
Land assets. Buying land is profitable because they are cheaper than other types of real estate. They are quick and easy to incorporate. No extra costs in the form of utilities and repairs. When buying, consider the intended use. The most liquid are plots for construction. Agricultural land is also suitable for long-term investment.
Suburban real estate. Suburban homes as an investment is especially popular among residents of megacities. Stable demand will be for well-appointed houses with beautiful views and nature around.
New buildings are at the stage of shelling out. Developers set minimal prices in order to “sway” demand and attract the attention of buyers to the object at the initial stage of construction. Buyers of apartments at this stage will have to wait longer than others, and the developer compensates for this inconvenience with the price factor.
Investing in parking spaces. A situational type of investment in major cities. The return depends on the location of the site. Parking is placed in a busy location, where there are not enough spaces available for cars.
Investing always involves risks, and real estate is no exception. Let’s analyze the sources of risk.
Unsuccessful location. The investor expects that the area he chose will be built up, and prices will rise. If this does not happen, there is no demand for the object, and the owner does not receive a profit.
Force Majeure. If the environmental conditions near the property deteriorate dramatically, it will cause a drop in demand and value.
Unscrupulous tenants. Sometimes tenants are late with their monthly payments or damage the furniture. It takes a hefty sum to repair after such tenants.
Depreciation. Over time, the value of properties drops in value. For example, if a new building grows next to a once-promising house, the apartments in it will be higher in price and more attractive to tenants.
Construction freezes. To avoid the risk of investing in housing under construction and getting it much later than promised, choose accredited developers.
Long-term rental apartments. It is an easy way to get income, because there are always people who want to rent an apartment. It’s enough to find bona fide tenants for a long term, sign a contract and get a monthly profit. Minus – the search for good tenants can be time-consuming. In addition, this method has a low profit margin. If you bought an apartment as an investment, it will take you a long time to recoup your investment. Take out a mortgage for a long-term lease is also unprofitable: the income will not cover the credit payments.
Renting an apartment by the day. The advantage is the opportunity to make a quick buck. If the yield from long-term rent is within 5%, when renting by the day – up to 30%. The disadvantage is the labor costs. You would have to check in and check out the tenants every day, as well as clean the place. There is also the risk of damage to furniture and unplanned expenses for repairs.
Renting a cottage or country house. Plus there is a high income and demand. Especially on New Year’s, May and summer vacations. Another option is to divide the house in half if it is large. On one half you can live on your own, and the second to rent. Minus – unscrupulous tenants who can spoil not only the furniture, but also the cottage itself.
Building an apartment building and renting out apartments. The plus – if the apartment building will have a favorable location, then you will quickly rent out all the apartments. Payback period of two years, then – a net profit. Less – you need start-up capital and a competent business project, a plot of land for construction.
Renting a garage or parking space. Plus – investment does not require large investments. Minus – low profitability. To make a profit, you need to buy a few garages or parking spaces.
Buying a home under construction. Plus – if you buy a property at the stage of the foundation stone, you will save up to 30% of the average market value of housing. Minus – you need to wait for the completion of construction. Also, some developers in the CDU may indicate that the sale requires the developer’s permission to assign. In rare cases, the developer may even refuse to consent to the assignment.
Resale of a land plot. The advantage is that you only need to purchase the land and wait for the market price to increase. Land does not require additional investment and maintenance. Minus – sometimes you have to wait years.
Study the market situation – what kind of real estate is in demand, what buyers are looking for, what is the average price of objects, where there are interesting locations or areas with developing infrastructure.
Make sure of the reliability of sellers, developers, tenants, and intermediaries. Check the documentation, reviews, rating, and reputation. Look for litigation, downtime.
Choose a liquid object for purchase.