When buying a property as an investment, it is still attractive if the objective is to put it up for rent, thinking of receiving an income. However, for this purpose, it is necessary to analyze the area in which the property will be purchased, and even evaluate the characteristics of the real estate project, so that the return on investment occurs as soon as possible.
Mauricio Grieve, Fund Manager of Core Capital SAFI, highlights that this type of investment in the real estate sector is low risk, since the guarantee falls on the same asset. And, he adds, that it is no longer profitable if you expect to make an investment hoping that the value of the property will increase over time, thinking about the sale, since prices no longer rise as they did years ago.
However, if the objective is rent, the expert recommends analyzing the offer in the area very well. “The first thing is to see which segment the property is to be purchased, and if the area in which it will be located is in demand,” he points out.
A second aspect that Grieve points out is that the size of the property must be according to what is sought in the area. For example, in Barranco and Miraflores, young people who start their working life and seek independence demand small areas (between 40 m2 and 60 m2), in buildings that offer additional services that complement the size of the apartment (grill area, pool, rooms coworking, etc.), as well as proximity to public transport services, banks or shopping centers.
“Large apartment sizes are becoming increasingly difficult to rent because of the amount involved. In the case of small size formats, they are rented more per square meter and this makes them more attractive as an investment, ”he says.
RETURN OF INVESTMENT
To see the recovery of the investment value of a property you have to take into account the annual income that will be received. Grieve explains the concept of Price-to-Earnings Ratio (PER) applied to real estate, consisting of dividing the acquisition value of the real estate by the annual rent. The result indicates the number of years in which the investment can be recovered. For example: if a property cost US $ 230,000 and you will receive US $ 12,000 a year for rent (230,000 / 12,000), you will have to wait 19 years of rent to recover the investment made.
In the case of real estate to live in, the number of years of recovery ranges from approximately 15 to more. In the case of real estate to rent as offices or commercial premises, it is in the 11 years. If when doing our calculation the values come out equal to the mentioned average or less, then the investment alternative is good. But, yes, it is more, we will have to think twice. Of course, the rental value may vary according to the characteristics of the properties: area, good location, access to means of transport or additional services offered, such as gyms, movies, grills, coworking, etc.
To ensure the investment, the expert also recommends looking at the market trajectory of the company that the department offers (years and projects completed) and verifying that the project is financed by a bank that supervises the completion of the work. Another not less important point is that the real estate company is affiliated with an association of real estate companies.