The ABC of real estate investments

When it comes to real estate investments, it is necessary to differentiate between the acquisition of a property to live in, with the symbolic social and cultural capital it represents such as safety, comfort and savings; and an investment in real estate as a financial instrument to obtain higher returns by taking advantage of the opportunities of the market.

With an active management process, proper planning and administration, it will be possible to obtain solid results in the long term in a real estate investment. For this reason, it is important to understand that investing in real estate requires the analysis of different factors which help to make better decisions:

Understand the cycle of the markets which dominate this business.

Evaluate the best market to invest in (country, city, neighborhood) as well as the type of asset (homes, offices, urban lands) and class of asset (A, B and C).

Willingness to move from one market to another, focused on the location vs. timing premise.

The market cycle means that the rate of return will tend to go down after a phase of recovery and expansion of the cycle, as it has been proved that recently achieved success in one market and with a type of asset is unlikely to be repeated in the near future. It is necessary to access at the right moment when the value of the property is very low, usually after an economic or real estate crisis, and exit when the property is reaching high prices, so that you do not lose profitability during some years of maintenance without any type of revaluation.

Understanding the real estate market requires an adequate evaluation in order to decide which is the best place to invest in, which is the most convenient type of asset and the appropriate class of asset in order to make the right decision. With this analysis and willingness to move investments from one market to another, it is essential to know the legal practices and regulations of the country where the investment is intended to be made.

Another fundamental aspect is to be aware of the fact that the location of the asset does not always mean high profits. Having an objective vision and observing all the segments of the assets is a key aspect to understand which phase of the cycle is taking place and, therefore, find the opportunity. It is also relevant to move from one asset to another in the same market.
The real estate business is not only location, as informed by those promoting and developing Premium assets in these locations. This business is timing, many times buying in the best location is not the essential factor, instead, the relevant thing is to identify markets and assets undergoing a recovery process in the real estate cycle to ensure a future appreciation during the following 3 to 5 years, as it has been proved that an opportunity window is usually opened throughout a period of 15 to 20 years in a market.

The key action here is to move from one type of asset to another within the same market or to go to different markets in order to continue building return. It is all about looking for and detecting the best opportunities to invest in real estate.

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