Within a wide range of assets to invest, property is one of the most popular investments in Brazil, and no wonder. During times of political and economic turmoil, emerging countries such as Brazil tend to experience strong volatility in interest curves, inflation, foreign exchange, capital markets and other types of financial investments. Property, on the other hand, has always proved to be a safe investment, allowing for the preservation of capital in times of crisis and an increase in equity in times of economic growth.
According to the recommendations of investment advisors, you must initially identify your investor profile and then build a balanced investment portfolio according to your needs and objectives. Likewise, you need to define your goals before determining which type of property investment is best for you.
If the goal is to live in the apartment of Blue World , the main criteria that must be taken into account are: comfort, convenience and location that meet your preferences. Choosing to live in the property acquired as an investment does not prevent you from earning with the future appreciation, but the criteria adopted for decision-making are different if the investment objective is aimed at increasing equity through income and appreciation.
In this second case, it is important to have the help of a real estate market specialist, who is able to help you understand the trends and expectations of future development of micro-regions, history of price and rent evolution and the costs involved in maintaining the investment .
What to know before investing in real estate?
Safe investment for moments of uncertainty
Investment in real estate offers security to invested capital like few other investments in the world. According to Credit Suisse’s 2019 Global Wealth Report, historically investing in real estate in Brazil has proven to be one of the best forms of wealth protection for periods of inflation and uncertainty that have been frequent in recent years.
Information asymmetry in favor
It is important to remember that the history of properties being a good business and bringing good profitability is not a guarantee to invest in any opportunity. The real estate market, like others, is a market in which information is not perfect and there are people who have a very deep knowledge of the market and find it easier to identify investment opportunities with the possibility of having a good appreciation or income. Because of this, it is important to have the help of experts in the sector, realtors or know how to analyze some aspects such as:
- Urbanization:Neighborhoods with available land tend to receive infrastructure and commerce improvements, which enhances the region as a whole.
- Proximity to public transport:Locations close to public transport tend to have a high demand for rentals and to be valued over time.
- Surrounding saturation:When the chosen neighborhood is surrounded by others that have already been developed, there may be an opportunity. It will most likely be the next to have the expansion of trade, which helps in the appreciation
- Price history in the region:Pay attention to prices, it is possible to find opportunities cheaper than the average traded in the region. In times of crisis and uncertainty, these opportunities tend to appear more often. If the price in the region is on the rise, it could be a good indicator of growth in the region.
- Reputation of those involved:To have investment security and avoid headaches, find out about the previous works of the developer and builder responsible if you are going to buy the property on the floor plan or about the owner if you are buying a finished property.
Payment terms are a separate investment
If you are buying a property on the floor plan, it is usually possible to customize the payment terms until the delivery of the keys to something that fits in your pocket and complies with the developer’s policies. As the developer uses the money from the units to build the project, he naturally grants a discount to people who anticipate the installments and pay in cash. This discount is usually granted on a discount rate per year that is usually above the Selic. In practical terms, it is as if, in addition to buying a property that can generate income and future appreciation, the payment terms to buy this property can work as if it were an investment of money at attractive rates, especially in times of low interest rates such as the current ones.
Low interest rates increase attractiveness
When interest rates are low, real estate becomes an attractive investment for three reasons:
- Increase in purchasing power :With lower interest rates, it is possible to finance a greater value of the property with the same income. That is, your buying potential goes up and you can buy a higher-value apartment.
- Financing attractiveness:With the fall of the Selic, interest rates on real estate financing also follow the downward movement. With the drop in financing rates, many people choose to finance because they are cheap and also to achieve the greatest purchase potential.
- Profitability attractiveness:Falling interest rates also lower the opportunity cost of investing in property. Investors start to see their fixed income investments yielding less than their money would yield if it were invested in property and they start to see the property as a more attractive investment to generate income and capital appreciation
The risks of investing in real estate
Like any type of investment, investing in property also has its risks:
In turbulent times and low demand, if you need money and you have to sell a property to gain access to it, you may have to give discounts and sell for a lower value than you could sell under normal market conditions. That’s why it’s important to always keep a good financial plan and buy well-located properties. These properties don’t usually suffer from liquidity problems, and financial planning ensures that you protect your assets in times of stress. There are alternatives to borrowing with collateral, known as home equity , to preserve the property’s value.
Opportunistic investors often see the stress scenario as an investment opportunity to buy properties at prices cheaper than under normal market conditions and can count on the property’s appreciation in the economic recovery.
Opportunity cost risks:
At times of high interest rates, the profitability of real estate may be lower than what you would have in other types of fixed income investments and/or other higher risk investments. This way, although you may have an income and appreciation of the property in the period, it may be lower than if you had invested your money in other types of investment.
On the other hand, at times of low interest rates, the return on investment in real estate tends to be above other types of investments. With the Selic at its historic low of 2%, the property becomes a safe option to deliver more profitability and equity appreciation to investors.
The real estate market and the current context offer good opportunities for investors.
If you are interested in investing in the real estate market and want to know the options available on our website, click here.