INVESTMENT – MARBELLA – The key to a good investment is !to buy well!
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The key to a good investment is !to buy well!
Savers of all profiles and conditions see in the real estate sector a safe haven value for their money. The value of real estate assets is not as volatile as that of equities; and the return – risk is more than acceptable, considering how the markets are at the moment.
In this article I am going to tell you the importance of buying well to make a good investment.
Value and Investment
We talk about value and investment. The value of real estate assets rises and falls depending on various factors, although it is markedly more cyclical than the equity market. A good purchase decision augurs a good investment result since every investment consists of precisely that: buying well and going to the market later to sell at the best price.
What do I mean by buying well? I mean knowing what maximum price I can pay for an asset to get the most out of it taking into account my investment objectives. In other words, according to this last sentence, there are three aspects to take into account:
- Value
- Cost effectiveness
- Performance and objective
Of the three aspects mentioned above, the one that is most important from my professional point of view is value.
Valuing a real estate asset is an art, and like all artistic work it requires skills, abilities, knowledge and an ability to interpret or imagine beyond what is in front of the eyes.
Obviously, these requirements have more to do with architectural financial knowledge and the different valuation methods, but art appears when one is able to identify the value of the intangible, to associate a figure with the subjective and to get it right.
Furthermore, knowing how to distinguish between value and price, knowing to what extent the price of an asset is above or below its value, gives us an unmatched negotiating capacity, an ability to identify opportunities that not everyone has, and an advantage. within this eclectic real estate world.
Nowadays, all real estate portals and bank pages automatically value according to which real estate assets, especially flats.
However, despite the fact that they tend to stay close to their market value, they are not able to identify the value of intangible aspects (perceived quality, design, surroundings, views, tranquility, state of conservation, etc …) that can make a difference in the price to pay for an asset.
Hence, this human action of believing or not a market value of an asset is transcendental when making an investment in the real estate sector.
Profitability
Related to the above, and continuing with the 3 fundamental aspects that make us buy well when investing, is the definition of the profitability that we are going to demand from the investment. And it is that profitability is required. It is not obtained.
This seems obvious, however, many novice investors buy without demanding a return on the property in operation (among other things because they do not know what returns they should demand) and to buy well you have to take into account that the price you are going to pay for the property is influenced by the profitability required.
The real estate market is like another market, if, for example, a company’s dividend can be required between 3% and 6%, in real estate it is also possible to demand a return that can be according to the market or established by us based on our investment objectives.
Fundamental questions for investing
Precisely, buying well is also related to aligning the vital objectives of each with those of investment.
When investing you have to ask yourself:
- What do I want to invest for?
- Do you want your investment to give you a long-term but safe income?
- Do you want a very profitable but risky short-term trade?
- Do you want money for retirement, to buy a house in 5 years, to buy a car?
- Maybe something for your family in the long run.
Sometimes, landing vital objectives, having a clear definition of what we want to achieve, gives another perspective on how we are going to use our savings. Thus, the «I want to increase my assets», becomes: «I want to invest to obtain a 20-year income of at least € 750 per month at a profitability of 4%, in order to have a pension supplement.»
In my opinion, the approach changes absolutely, what makes buying well is choosing well an asset that satisfies what is stated in the second sentence.
In short, buying well is the key to the success of an investment. It is obvious that buying bad is never good for an investment; Although, unlike the stock market, where a share can be sold with a few clicks from home, real estate investment involves bank credit operations, purchase and sale contracts, property management, tenant contracts and much more, which do very sometimes difficult to dispose of or sell the asset if things don’t turn out as planned. Hence the importance of buying well to ensure a successful investment.
But, buying well is not that simple if you carry out the operation alone, since as we have explained in this article there are many variables that you have to know. In the real estate sector, it is essential to be accompanied by a real estate expert to carry out investment operations.
If you want to invest in a sector as exciting as the real estate sector, do not hesitate and
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