What is the profitability of investing in real estate?

Profitability from investing in real estate is one of the most used ways to make money for those who like to invest in the real estate market.

Therefore, buying a property to rent in Brazil is something that provides a greater return than investing, for example, the same amount in a basic fixed income investment, such as the CDI (Interbank Deposit Certificate).

So, are you interested in how it works? Check out below what it is and how to calculate your real estate investments.

What is real estate investment profitability?

It is a performance parameter that reflects the effective benefit acquired with an investment in a property. Taking into account the value provided in the property, the asset, and what the lessor produces based on it.

Therefore, this return on investment can be positive (when there is a profit) or negative (when there is a loss).

This application is one of the most conservative, as it has less volatility over time, and this is something very necessary to consider for profiles of people who want to expose their assets to a lower risk.

Therefore, this amount, in most cases, is expressed as a percentage and allows the investor to compare several other investment alternatives available on the market.

When it comes to residential properties, the return can come in two ways, see:

• Valuation of the asset, known as capital gain or real estate profit;
• Income from the use of the house or apartment, with rent being the most common option.

How to calculate the profitability of property rental?

When it comes to the profitability of renting a property, the calculation is very simple. You just need to divide the monthly rent you are charging for the property by the price you paid for the purchase. That is, the “initial capital” of the investment.

Then, multiply it by 100 and you will get the percentage of monthly income from renting out your property.

See an example below:

Property value

R$ 400,000

Rental value

R$ 2,500

Calculation

(2,500 / 400,000) x 100 = 0.63

Monthly rental profitability

0.63%

Rental profitability per year

7.6% (0.63% x 12 months)

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Looking at this example, we arrive at a rental profitability of around 0.63% per month. Which means that, according to real estate market experts, any number equal to or greater than this is already considered a very positive profit.

Each investor has their own profile

In addition to noting issues such as location and value, the investor needs to recognize the type of his profile.

Those who are more conservative tend to invest in real estate with the aim of preserving their assets due to the security and stability of this type of investment.

The more daring investors, on the other hand, tend to invest based on their knowledge of the region.

However, it is worth noting that it is necessary to take into account the investor's liquidity accuracy to adjust the form and amount suitable for immediate investment.

Therefore, if the investor is not interested in liquidity and wants to enjoy the low opportunity cost with money invested in fixed income, he can take advantage of several discounts by purchasing a property off-plan, or choose to buy a ready-made property without financing.

Otherwise, if the investor wants to maintain or not have a liquid reserve, it is more acceptable to finance the purchase of a finished property or pay for one that is still under construction and needs to hire an architect later.

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