THREE MAIN REASONS TO INVEST IN REAL ESTATE

According to the opinion of Mariano Capellino, CEO at INMSA, a company engaged in real estate investments operations, when acquiring real estate, it is of fundamental importance to have a global vision of the cycles of the markets so that it is possible to achieve high returns in the future.
It means that it is necessary to choose a market based on its macroeconomic situation, and then follow its economy process to identify the most attractive markets that suffered a crisis, those which are near to or already undergoing a recovery process, the recovery of which may generate profits in the future.

“Those investing professionally can obtain appreciations of more than 10% annually, as they go after markets which have faced a strong crisis and where assets have suffered a strong correction, have hit rock bottom, and there is evidence that they are recovering their historic price. In general, when the market suffers declines of 50%, some 80-100% increase in the profit margin can be achieved within a period of four to seven years, depending on the type and class of asset involved”, he says.

Another recommendation is to acquire properties in neighborhoods or communities which are not necessarily high value areas or considered “safe” such as the luxury properties in Polanco zone, City of Mexico, as their ROI will not necessarily be high three years later.

“In a developed country, high returns are obtained from middle-class homes, but when the market collapses, there are no buyers, not even foreigners. So, it happens everywhere. In general, we want to feel safe, we go to the main markets because we believe that this part of the market represents the whole market, and this is not like that, as this is where a bubble is created to satisfy the appetite of foreigners to buy these types of assets”, says Capellino.

Another variable to take into account is to buy a property well under the market value. Real estate investment funds do not acquire properties at the value paid through a real estate agent or at the price fixed by the developer because the expenses involved in sale operations (commissions and deeds) are about 10%.

“The ideal thing is to buy a property 30% under its value, it can be bought through auctions or banks to gain some time advantage. We have been buying in auctions in Miami, Florida, since 2008 and in Detroit since 2014. We have to assume different levels of risk with high costs in title deeds” Capellino explained. For instance, in the case of Spain, where the unemployment crisis has lasted for almost six years, many properties have started to experience an appreciation process because the economy is reactivating.

Finally, the CEO recommends maximizing rental income, when you acquire a property well below the market price, for instance 50% under its historic value in a developed market where rentals remain constant, the rental income usually doubles.

“In countries such as the USA or Spain, for instance, rental values remain constant, therefore, during a crisis there is no strong devaluation like in Argentina where the properties´ values have decreased so much that rental income has become a great business deal.

Mexico, an unattractive market to invest in real estate

The United States of America and Europe, with 49.94% and 36.35% investment respectively, were the two most attractive markets in 2018 for the 100 most important real investment funds worldwide, as indicated by Mariano Capellino, CEO at INMSA, a real estate investments company.

Latin America, with Mexico, Chile and Brazil at the top of the list barely accounted for 0.84%, while the Middle East represented 0.20%, Australia 4.89%, Asia 6.15% and other countries 3.59%, said Capellino during a conference.

“There is an increasing appetite for investing in family offices – investment platforms dealing with the management of large portfolios – in terms of residential investments, the country which received more investments in 2018 was Spain, followed by China and Ireland. Only Blackstone invested 150 billion in Spain, and this is called “grasping opportunities”. We are convinced that this industry is dominated by the cycles of the markets and how we take advantage of them”, said Capellino.

Spain and the USA are so far some of the most attractive markets to invest in since they are markets which have been recovering from a crisis. For instance, Spain has prices stabilization in residential properties after the price had dropped 35% on average under their peak value in 2008, in addition, there are several possibilities available for the acquisition of assets in banks and mortgage loans at low rates.

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Source: Forbes México