Investing in real estate projects is ranked as one of the safest investments, if done right. Compared to investing only in shares in companies or in the stock market (which is the same) where your investment is much more fragile, real estate investments are much better and here is why:
- Leverage
Because real estate projects provide a reliable income, an investor can use $50'000.00 with cash, or even less to buy properties for $300'000,000 using money from banks. Stock investors cannot and should not use leverage when buying stocks.
Leverage is the ultimate way to create wealth, which is the case of those who leverage banks to invest in rental real estate projects.
Unlike those who acquire debt to buy housing and live in it, those who buy in rental projects or buy real estate to rent ensure that their tenants pay their debt to the bank for them through rental income.
- Depreciation
It is no secret that the real estate sector offers the ultimate shelter for tax deductions. Each year taxpayers can deduct asset depreciation from income taxes to the extent that the requirements outlined in the tax statute are met. This is a tremendous advantage over stocks for high-income earners.
- Reliable cash flow
With banks paying people with savings accounts just above zero interest (0.18% effective annualized) and dividend yields on classic stocks like Isa, Nutresa or Davivienda paying almost nothing per share, rental real estate projects offer a steady cash flow of 10-14% annualized which is about 100 times what banks are paying on a savings account right now.
- Durability
Technology is killing companies. While the average company in Colombia used to have a life span of 60 years, today it is not uncommon to see a high-level company disappear in just a few years.
Hotel or apartment rental real estate projects can produce income for many years, if not decades, and are very difficult to replace due to regulations and their price of suitability.
While the media pays attention to unicorns (1 in a million) like RAPPI, the reality is that the stock market and companies have more losers than winners. Remember Blockbuster and Kodak? or have you ever known a company that looked good and then didn't do what was expected and many people lost their investment?
Meanwhile, apartments and rental projects in cities like Medellín continue to provide cash flow to investors and appreciate in both good times and bad.
Although it is clear that they are better investments, not all real estate investments are equally good...
Nowadays in our city it is very fashionable to buy an apartment to rent on Airbnb, it sounds easy and safe, but.... We do not recommend you to buy in the first apartment you see just because it looks nice or is at a good price, remember that you will have to get financing and manage it, you will need some liquidity, and also if you are going to do the task of renting it yourself you must have property management skills in digital sales channels and attend guests, vacancies, unforeseen events, accidents and others, which will give you more work making your investment that should give you peace of mind now became a second job.
On the other hand, there are hotel rental real estate projects, in which professionals manage the ideal property, structure the project based on real market metrics and needs, build and, best of all, operate the hotel/airbnb after construction is completed.
In this type of projects it is normal to sell trust rights or independent license plates, which give the investor access to the "rental pool" in which the income generated by the entire building is averaged and distributed to the investors according to the percentage of their investment, making them receive more stable returns since they do not depend on the continuous occupation of the apartment/suite in which they invested.
Conclusion
While you invest using all your money at once and without the help of banks in stocks where many times you have no idea how your money is managed within the company in which you invested, investing in a real estate project with long-term debt will help you grow your capital, having clear how your asset is operated, with the possibility of selling at a higher value than you bought since real estate is valued and knowing that bricks last many more years than paper, I think it is more than clear why investing well in a real estate project is a great option to increase your wealth.
We invite you to take a look at our projects:
