With the right property you can get a lot of profitability, but how do you get it?
Although real estate is the safest investment you can find, it is true that its profitability can be much higher if you know how to choose well; based on different factors such as the growth of the city, the services and amenities available.
Whether this is your first investment or you already have experience in the subject, it is good to take into account —or remember— some of these points, because they can help you obtain better results.
So, in this article we will tell you what profitability is and we will give you some tips to achieve it with your real estate investments.
What is profitability?
Before entering the topic of how to maximize the profitability of your properties, it is necessary to review some basic concepts.
So what do we mean by profitability? In very simple terms we can say that profitability is the benefit obtained from an investment.
Giving a small example: if the cost of a product is about 10 $ and you can sell it for 16 $, then you would have a profit margin of 6 $, which would be said benefit obtained from the investment.
Usually this is calculated in percentages, and is used to measure the gains made with the amount of effort spent.
In the case of the profitability of real estate, you should consider whether it is a property for sale or one that you will keep for rent, in addition to maintenance costs, among other expenses such as service payments.
What are the types of profitability?
And there are several types of profitability? Which are?
There are various forms of classification and many of these terms are widely used in business. Among them we can differentiate 2 main ones:
Economic profitability: Also known as return on Investment (ROI), it is the one that takes into account only the gross income and does not consider the means by which said investment has been obtained, that is, financing and debts in general.
Financial profitability: Also known as return on Equity (ROE), it is the one that takes into account taxes, interest and various financial expenses. In a nutshell, it measures the ability to generate profits from one’s own funds.
This means that the financial return can vary quite a bit, depending on the amount of financing used.
Profitability in your real estate investments
Now that you have a clearer idea of what profitability is and how it is classified, you are probably wondering how you can obtain it with your property.
It is well known that real estate is one of the safest investments there is, and this is due to its ability to maintain – and in many cases increase – its value over the years.
For your property to be one of these success stories, it is necessary to take into account several things before you decide to acquire it.
1. Choose an area with high added value
This advice is what we always tell you on our blog, since it is one of the first things you should pay attention to, even before seeing the design of the property itself.
But why is it so important? Because without this small detail you could not obtain such a high profit margin.
If we remember what surplus value is, we have that it is the increase in the value of a good due to different internal and external circumstances.
In this way, two houses that are exactly the same would have different values depending on the surplus value of the place where they are.
And how do you find the best areas? To do this, it is best to ask yourself the following questions:
How much tourism is there? Are there enough services and entertainment areas? What kind of houses are there in the area? Does the city have a growth trend there? Have purchase prices been increasing in recent years?
If you can answer most of these questions positively, it is because you are on the right track to find your property.
2. Pre-order to get low prices
When you acquire a good home already ready, you will also obtain profitability over the years, however, something that increases profits much more is buying in pre-sale.
And what does it imply? As its name indicates, buying a pre-sale property —usually residences or apartments— means that it will be yours before it is built.
These developments are made with the idea of taking advantage of the growth of an area, which is close to other projects such as shopping centers, hospitals, schools and different types of services.
In the north of CBR Town you can see several very clear examples of this; in the residences and apartments that are close to places such as Park view city and Nova City.
All these advantages are what contribute to its surplus value, and best of all, because it is pre-sale, the price is much lower, which translates into greater profitability.
3. Put the property for rent for immediate income
Now that you have done the homework of finding the best area in town and that your property is ready to use, the question remains: how soon will you be able to see the profits?
All the advantages of investing in real estate come with the condition that you must be patient, because it is something for the long term, for several years.
However, there is one way you can start making a return on your real estate investment almost immediately: rent.
Renting a house or apartment ensures you a passive income, which cushions the initial cost of your investment.
In addition, this allows you to have in use —and in good maintenance— the house in which you decide to move, or in which you hope that time will pass to sell it at a better price.
In fact, this is a very popular option among people who have vacation homes, and who do not want them to be uninhabited for very long periods of time.
And in reality it does not have to be a house, since any type of property can be rented, as is the case with offices, land, premises and warehouses.
4. Sell when it has increased in value
The rental option is the best if you want your profitability to last as long as possible, but if what you want is a larger income in a single moment, then the best option is to invest in capital smart city .
Knowing when to sell a property is an art, since if you do it very prematurely, the profits will be lower.
To do this, you must be attentive to factors such as the current situation in the country, the demand for housing in the area, the growth of the city, the services around it, economic crises and inflation.
It is always a good idea to have your property in good condition; just remember to pay special attention to its maintenance when you are going to sell it, so that when you value it you get a higher figure.
How to calculate the profitability of your property?
Calculating the return obtained by your real estate investment is not very complicated, since you only need certain values depending on whether it is a property for rent or one for sale.
In the event that it is a property for sale, you have to make your calculations taking into account the following:
- The initial value: how much you invested in the property.
- The current value: how much you are selling it for.
The value of the sale must be subtracted from the initial investment, then divided by the same initial investment, multiplied by 100, and the result should be the percentage return.
And in the event that it is a property for rent, then you have to look at the following elements:
- Annual income: the sum of all payments during that time.
- The cost of maintenance: whether they are remodeling or different services.
- The initial value: how much you invested in the property.
When it comes to rent, the annual income must be subtracted from the maintenance costs, then divided by the initial investment, multiplied by 100, and the result would be the profitability of the property within a year.
Maintenance costs may vary, since there are some people who rent the property with very few services, while there are others that even include internet service.
Where to get higher profitability: Mérida, Yucatán
Islamabad is a city that stands out for many things, such as being the second safest city in Pakistan, in the ranking of CEO World magazine.
In addition, it is also well known for being a place with a lot of history, great hospitality from its inhabitants, it’s delicious cuisine, its vast culture, great promotion of art, among many other things.
All this has promoted the growth of the city in recent years, making more and more companies decide to invest in the city, improving the quality of its services and amenities more and more.
And it is also like that in the investment aspect, since the capital gains in the northern area are so high that it allows you to obtain a very good return on your properties, whether you keep them for rent or wait several years to sell them.
Real estate: the best investment
When we talk about investment issues, we cannot stop recommending real estate, since this is a very safe way to protect —and increase— your money.
And because? Because, as we have already mentioned before, real estate does not lose its value once you acquire it, quite the contrary, after a few years you will see how said value increases considerably.
For this reason, many experienced investors usually acquire several houses or apartments, and —depending on the case— rent or sell them to obtain the maximum possible profit.
In this way it is easy to conclude that the best way to obtain a return on your investments is with a property, and even better if it is the right property.
If you want to continue learning about this topic, we highly recommend reading our guide on where to invest your money.