Most real estate purchases are made through a bank loan and despite the rise in interest rates, demand is still there. In 2022, Spain expects more than five hundred thousand real estate transactions. With or without a mortgage, there are many ways to invest in real estate. In this article, we will see how to make money with real estate investment?
Some people buy their primary residence as a long-term investment. We are going to focus on the investment whose objective is purely financial.
There are different investment strategies, however the vast majority fall into one of two main categories: Generating rental yields, generating capital gains.
Rental investment
The idea of a rental investment is to buy a property in order to rent it out. To buy alone, it will generally be necessary to contract a bank loan. In this case, it will be necessary to have a profile that meets the criteria of the bank. Generally, this means having a permanent work contract and being in the same company for several years. For rental investment, there are several types of property and strategies:
Vacation rentals or short-term rentals: Since the arrival of Airbnb, vacation rentals have increased in popularity. The advantage of this strategy is the profitability. It is usually possible to achieve much higher returns. On the other hand, there is a big risk of rental vacancies, it is difficult to have two rentals that follow each other without vacancies. This strategy also requires an effort in maintenance, it is necessary to clean the property between each rental.
Medium and long term residential rental: This is the strategy most used by individual investors. Rental yields are generally around 3-4%. It is the strategy that carries the least risk and requires the least maintenance. However, you must be careful to select the right tenants to avoid late payments or even unpaid rent.
Roommates and student housing: The idea is to rent the apartment to several students, it is even possible to rent each room separately. The profitability of this type of rental is slightly higher than the previous case.
Coliving: Coliving is a larger and better equipped shared apartment. The idea of coliving is to share common spaces and to be in an apartment that promotes social interaction. It is a type of property that is very popular with students and young workers. There is a strong demand for this type of property, but it is generally a medium-term rental.
Commercial rental: Commercial rental generally consists of renting space for businesses. Commercial properties are generally less expensive per square meter. On the other hand, the risk of rental vacancies is higher, as it is more difficult to find a tenant than for a residential rental.
Generate a real estate capital gain:
The rental yield and the real estate capital gain are not diametrically opposed. There are 2 main ways to generate real estate appreciation:
Renovate and resell, this is the active strategy, also called "flip and sell". The principle is simple, find properties that need renovations and therefore have a more attractive purchase price. Then you have to make the renovations and resell the property on the market, taking a margin.
Maintain the property: Real estate is one of the assets that increases in value over time. There are several reasons for this, the main one being that the demand for housing is infinite, everyone needs a place to live. The supply on the other hand is limited, which drives up rental and purchase prices.
If you are not able to get a bank loan to invest in real estate, you have the option of starting with fractional ownership. This will allow you to start generating rental income and enjoy the appreciation later on. Equito App allows you to start with 100€ and in only 2 minutes, from your phone.
You now know how to make money in real estate through the different strategies explained. With or without a bank loan, all you have to do is start!