Do you want to invest in housing? 5 tips for a successful investment

However,  investing in housing and obtaining profitability on your purchase is a process that must be done safely and is well-informed. There is a list of aspects to take into account before launching into a real estate project, such as taxes, before and after procedures, rental prices, profitability, type of home, mortgages, etc. 

Have you been thinking about real estate investing, but don’t know where to start? Don’t worry, in this article, SPV Mortgages give you 5 tips when investing in an apartment or a house. Keep reading!

Tip 1: evaluate the investment

The first point is perhaps the most relevant of all, because without prior study, there is no purchase.  It is necessary to analyze aspects such as the demand in the area, the size of the apartment, the initial investment, whether it is a new or second-hand home, whether renovations need to be made, the type of financing, etc. We’ll tell you then!

Conduct a small market study

To know if the purchased apartment is well-priced,  we must know the average price in the area. There are areas that are currently very exploited and, therefore, it will be very difficult to find a home with a high profitability.

However, by moving the search perimeter by a few kilometres you can find more affordable areas. In addition, the market study will also help you calculate the rental price of your apartment based on the area and its characteristics. 

In addition to the geographical area, it is vital to forecast short- and long-term income, in order to define the amount of money you are willing to invest. We remind you that unforeseen events can always arise and we must be well supported so as not to spend more. In fact, experts advise that the mortgage not exceed 30-35% of the salary. 

Choose the type of mortgage

The mortgage is another of the key points to invest in housing. We must carefully study which one is best for us. Currently, there are 3 standard types: 

  • Variable fee mortgages:  The fee varies depending on the interest rate that is applied when the review occurs. Mortgage payments are reduced when the interest rate falls and rises if it becomes more expensive. 

✅ Advantages: they have longer amortization periods, reaching 40 years, and lower commissions than other types of mortgages. 

❌ Disadvantages: it is variable, therefore, there may be an unpredictable increase in the fee. 

  • Fixed instalment mortgages. For years they have been the most common in our country, in fact, 73% of signed loans correspond to this type of mortgage. However, so far in recent years banks have made this type of mortgage more expensive. 

✅ Advantages: the instalments do not vary throughout the duration of the mortgage. They are stable and are not affected by the rises and falls of the Euribor. 

❌ Disadvantages: the interest rate at the time of contracting the mortgage is higher and the maximum repayment period is shorter than in variable interest mortgages. In some cases, the commissions for partial and full amortization are high, so cancelling the mortgage becomes more expensive.

  • Mixed instalment mortgages. It combines the payment of a monthly instalment at a fixed interest rate during the first years of the loan, and a variable interest rate will be applied for the rest of the years until maturity. For practical purposes, this type of mortgage works like a variable mortgage with some special conditions.

✅ Advantages: the interest rate of the fixed instalment in a mixed mortgage is lower than that of the pure fixed instalment mortgage. Therefore, it is ideal for those people who are clear that they want to amortize a large part of the mortgage in the first years (that is, you know that you are going to return the money before the set time). 

❌ Disadvantages: there are not many of them and there are very few banking entities that value them, but they increasingly arouse the interest of users. In addition, it takes on the partial drawbacks of fixed mortgages (not benefiting from low interest in the initial part) and variable mortgages (unforeseeable increases). 

Tip 2: Review taxation

This is another point that we must know carefully before investing in housing to rent or sell. The purchase of a property is subject to different taxes payable when purchasing a home. Some of them are on the rise, as is the case of Asset Transfers and Documented Legal Acts in different Autonomous Communities. 

Tip 3: Invest in a new home or to renovate

Once you have evaluated your investment and reflected on all the expenses derived from taxation, it is time to choose the type of home. 

What type of housing is best for me?

In the event that we are going to make an investment, we must prioritize the area to have good profitability. If the home needs renovations, a good option is to carry out a prior study of the condition of the property, since this type of home can be interesting due to its long-term profitability.

Renovations directly influence the profitability of the apartment, because an apartment with a newer appearance has much more potential in the market. In addition,  the renovation allows you to revalue the rental price and thus recover the initial investment.

Of course, before starting the renovation, key points must be analyzed such as the insulation of walls and windows, ducts or the state of the electrical installation and lighting. All these aspects require special attention and although they involve an initial investment,  once made, the apartment will have much more value. 

Tip 4: Location and services

Beyond the evolution of the real estate market, there are other factors to look at when investing in housing. There are elements that influence its value when selling it, renting it and for its future revaluation in the market.

That is why it is advisable to thoroughly study the environment and the services it offers,  such as educational or health centres, shops, communications, green areas and sports facilities…). 

Tip 5: Seek advice

The last tip for investing in housing is to use common sense. Given the number of factors that must be taken into account, an investment must be made without haste. So if you are clear that you want to invest in housing, it is best to have an investment expert accompany you throughout your project. 

Beyond all the advice they can offer you, the ideal is for the advisor to be at your side in the search for the home, in the type of financing, the purchase transaction, taxation and even in the rental of the apartment.

Finally, we recommend that you study several possibilities, with different characteristics, this will help you specify your priorities and know what you are willing to give up. An exhaustive search will allow you to know the market and will give you greater security when making a decision.

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