What is a good real estate investment?

The real estate investment is considered one of the investments with the most future and the least risk due to its profitability. If we add to this the fact that the demand for rental housing is increasing and that the price of these properties is relatively high, we find guaranteed profits in this type of investment.

But an important aspect is knowing how to calculate the profitability of a property, so that in this way we can measure how advantageous the investment we are going to make will be.

So what is real estate return and how do we know when it's good?

Keep reading to find out!

What is return on investment?

Profitability is a percentage that expresses the profit obtained from an investment, and is measured based on the losses and gains experienced on the amount of money that has been invested.

For example: if the cost of a product is €1,000 and you end up selling it for €1,400 then you would have a profit margin of 400€, which would be the profit obtained by the investment.

To have the best real estate investment it is important to consider if it is a property for sale or one that you will have rented, in addition to maintenance costs and other service expenses.

How to calculate the return on an investment

To know how to calculate profitability, it is essential to understand some key concepts, such as the differences between gross and net returns.

• Gross Profitability
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  Gross return is one that only takes into account the profits obtained from the rent and the sale price of the rental property. It does not take into account the other costs it has entailed.
  
  For example: You bought an apartment that costs 250,000€ and you rented it for 800€ per month. To calculate gross return you will have to take into account both variables:
  Gross income for a year of 12-month rent x 800€ per month = 9600€ per year
  Gross income/house price x 100 = 9600€ per year/ 250,000€ that the flat cost x 100 = 3.84% of gross return

• Net return
  
  Unlike gross return, net return It does take into account the annual expenses associated with the property, in addition to its cost and annual incomes. The expenses taken into account are the following:

• Community expenses. If the property is part of a building. Normally this expense is usually included in the rental price, so this expense will have to be subtracted from the rental income.
• Property Tax. It is a tax that the landlord must pay annually and, of course, subtract it from the income generated by the rent.
• Management expenses. These expenses must be subtracted from rental income. To save a lot of headaches, a good option is to hire a company specialized in rental management to manage the rented property in the best possible way.
• Home insurance or non-payment rent insurance. These, among others, are expenses that the landlord must subtract from the rental income.
• Home repairs. The owner is obliged to carry out the conservation works of the property to keep it in habitable condition, so these expenses will also have to be subtracted. In addition, other expenses may also be incurred that the owner will have to bear, such as the repair of an appliance, for example.

Continuing with the previous case, we have the following expenses:

Community: 70€ per month.

IBIS: 200€ per year, 16.67€ per month.

Rental management: 41.25€ per month.

Home insurance and maintenance: 50€ per month.

Price of housing: 250 000€

Gross rental income per year: 800 x 12 = 9600€

Annual rent costs: 70 + 16.67 + 41.25 + 50 = 177.92 x 12 = 2135.04€

Net income: 9600 — 2135.04 = 7464.96€

Net return: 7464.96/250,000 x 100 = 2.98%

What profitability is currently considered good?

Like all financial investments, a real estate investment primarily serves to accumulate capital. Investing in real estate can always be profitable, although it is also true that there are investments that are more fruitful than others.

According to the Banco de España, currently A good investment is one that has between 4% and 7% of net return.

How to maximize the return on your real estate investment

Investing in real estate is one of the most attractive options for many investors in Spain. This is because the real estate market in the country remains very attractive with a residential real estate market size of USD 153.1 billion and it is expected to register a CAGR of more than 10% by 2023.

However, before making a real estate investment, it's important to consider some key aspects to maximize returns.

Next, we'll share some tips for when it comes to carrying out a good comparative market analysis to identify the appropriate price for your home Let's get started!

Price, the differential factor of a good investment

Price becomes a key factor in completing a real estate transaction while managing a good amount of time. In other words, if the price of a house is above the usual market value, the number of interested parties will be very limited.

Nor is it advisable to set a low price to promote housing and thus make it more attractive in the market, since you will be losing return on your investment

Optimize the return on your real estate investments with a good AMC market analysis

What is AMC in real estate?

The AMC is a tool that allows you to establish the market value of a property.

This element is essential to have an accurate orientation on the ideal price for a sale or for rent. But this estimate must be well founded, to guarantee it the AMC is based on an exhaustive analysis.

One of the main steps to be applied when performing a Comparative market analysis is to investigate the current supply of properties similar to the one you plan to sell.

Thanks to this, a more precise orientation is achieved on the price ranges managed in the market. In turn, this type of analysis applied in the real estate world is channeled with other factors in mind.

The key factors that influence the price of a property

The following are the most important factors that influence the price of a home:

• Total amount of square meters of the property.
• Age of the house.
• Location of the property.
• Accessibility and proximity to public and private services.
• Construction quality.
• Existence of common areas or green areas.
• Additional amenities, such as pool, roof terrace, garage

How to perform an effective comparative market analysis for your property

To carry out a comparative market analysis, it is important to delimit the characteristics of the property, identify similar properties and compare prices per square meter.

Reental gives you a step-by-step guide so you can carry out your own comparative market analysis

1. Delimit the characteristics of the propertyOne of the first steps to carry out a Comparative Market Analysis or AMC has to do with identify the characteristics of the property. Aspects such as location or size are decisive in establishing your market value.

In addition to describing characteristics such as the location or size of the home, it is important that you identify the land area and the construction area. Other important factors in this step are identifying the total number of bedrooms and taking into consideration if it is a single-storey house or if it has several floors built.

Finally, the age of the house can also affect its price located in the market. And the presence of a roof terrace, pool or garage is a plus.

2. Make a comparison with other properties

Once you have defined what a property has and what it doesn't have, it's time to make a comparison taking as an element of comparison other properties with similar characteristics.

This will let you know what the average cost is for selling a property similar to yours.. There are real estate portals from which it is quite practical to access this type of data such as Idealist

However, when doing a market analysis like this, it must be borne in mind that the offer price is not always proportional to the price that will be formally handled in the sales agreement.

3. Consider the geographical location

Location is one of the most important factors to consider when setting the price of a property. Properties located in central areas or in exclusive neighborhoods tend to have a higher value.

In addition, the proximity to places of interest such as parks, shopping centers, schools, hospitals, among others, also influences the value of the property.

It is important to conduct research on the area where the property is located to find out if it has a good reputation and if there are investment plans or improvements that may influence the value of the property in the long term.

4. Identify the average value per square meter

The next step to apply to do an AMC or Comparative Market Analysis, this will offer you a range of value per square meter, this step is essential to optimize the return on your real estate investment.

To identify the average value per square meter in your area, you can use several online tools. A clear example that you can rely on is the real estate portal “Fotocasa”, where you can find up-to-date information on the average price per square meter of similar properties in your area.

This will help you obtain a range of value per square meter and, consequently, establish a fair and market-appropriate price for your property.

5. Estimate the commercial value of the property

The last step in carrying out a comparative market analysis in the real estate sector has to do with multiplying the estimated value per square meter by the occupied area of the property you want to sell.

Let's say you want to sell a 50-square-meter apartment and you've done a comparative market analysis to determine that the average value per square meter in the area is 2000 euros.

To estimate the commercial value of the property, we simply multiply the occupied area of the apartment (50 square meters) by the average value per square meter (2000 euros):

50 m2 x 2000 €/m2 = 100,000€

Therefore, the estimated commercial value of your apartment would be 100,000 euros.

This calculation will give you an idea of the price range in which you should set the sale price of your property in the real estate market.

6. Keep your property in good condition

Keeping the property in good condition is essential to maintaining its value over time. Making repairs and improvements that increase the quality and functionality of the property can be a good long-term investment.

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