The consequences of the bursting of the housing bubble have been devastating for many businesses, especially those related to the construction industry and property development. However, crises are also times of opportunities. The current market situation may be of interest to some investors, enough to pose as a business idea to create a business of investing in real estate.
Prices have fallen significantly
A simple query on your property portal favorite shows it. Prices today have little to do with those who drove ten years ago, at the height of the bubble. The price decline was not very sharp, for various reasons, but finally the value of transactions has been largely regularized, and today resembles much more consistent prices with the purchasing power of people.
According to the National Statistics Institute (NIE), the price of housing has fallen by 32% since 2007. Other industry experts even speak largest decreases, around 50% or more. There are also large differences by region. These differences are accentuated in terms of cities, neighborhoods, and of course the number of empty homes that may be in one area or another.
Option one: The sale of homes
In an environment of still plenty of supply of flats for sale, it is possible to find buying opportunities at an attractive price, especially for those floors that need renovation. For a real estate company, one possibility is to then identify those floors, buy, reform them, and put them back on sale at a higher price, with an interesting added value. Associated costs, especially taxes must be taken into account, so the floors to buy must have a very low price. To find them, it is interesting to weave good relations with real estate and banks.
It is an option that can give good returns in a relatively short time, but has the disadvantage immobilize investment for an indefinite period (until the works are finished and seller are in), besides the risk of power being wrong (most expensive works than expected, lower than expected renewed price) and much less win or lose.
Option Two: To buy for rent
In that option, it matters a little less the purchase price of good, but of course, as in buying a home are looking at a great price to maximize profitability. The idea is to compare the rental value of the house, and assess whether the monthly rent would bring respect to offset the initial investment (purchase, taxes, reform).
An example: assuming the total cost of housing (reform and taxes) reaches $ 80,000. If the house can be rented for 600 $ per month, it means an annual gross return (before expenses) of 9%, which is very interesting. But if the same property is rented for 300 $ per month, then it probably is not worth, since the 4.5% gross annual return can be very profitable enough for the company.
The advantage of renting are the regular income, but the downside is that it takes time to pay the initial investment.
Combination of strategies
The nice thing about a company dedicated to buying homes is that you can go changing strategy according to market realities. In case you have a good chance of selling an apartment, you can put in rent for a time, to get some return on investment meantime. Conversely, if a good opportunity to sell, a floor that had been thought for the rental market can be sold with a good margin appears.