Real estate investment has been and continues to be one of the most common alternatives in Spain to invest and make our savings profitable. In this article we will see the main advantages and disadvantages of real estate investment.
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- fair value of the property, as has happened to people who bought a flat in Spain in the middle of the real estate bubble.
Other advantages of investing in real estate are its financing conditions, which are usually at a fairly low cost. For example, in Spain today you can find fixed rate mortgages with interests of between 3% and 4%, or even lower, which means financing at a really low cost in historical terms.
Finally, we must bear in mind that when we buy real estate we are buying the property of tangible goods, that is, goods that we can see and touch. Although in my opinion it is an irrelevant advantage, many people are wary of investing in the stock market since they cannot see or touch their shares or the companies they represent. In the case of real estate, this supposed "problem" does not exist, although I insist that it is not for me.
Disadvantages of real estate investment
One of the main advantages of investing in real estate is its costs:
- Financial costs related to the acquisition of the property: Taxes (VAT or ITPAJD), notary, property registry ...
- Financial costs related to owning the property: Maintenance costs, community of neighbors, insurance, taxes such as IBI ...
- Time costs
To these costs should be added the costs for defaults and damage to the property. They are costs that seem extraordinary, although they are more common than we might think.
In addition, it must be taken into account that real estate investments are usually very illiquid. This means that it can take us a long time to sell an apartment or, in the event that we need the money as soon as possible, we may be forced to lower its price significantly.
As we have seen,diversify appropriatelyIt is one of the keys to reducing the risk on our assets. It is very difficult to diversify by investing in real estate directly, unless we are lucky enough to have a great wealth at our disposal. There are alternatives to invest indirectly in real estate in a diversified way if we do it through SOCIMIs. Of course, in this case we would lose direct control of our investment.
Is it worth investing in your own home?
It does not seem like a bad idea to invest in the purchase of a property for your own home, as long as you meet two conditions:
- That we buy it at a good price
- That its cost is not disproportionate in relation to your income and your assets
It is very common to see how many people buy apartments that they cannot afford. In the end, the house of your dreams turns into the house of your nightmares. Do not forget that the apartment or house that you buy to live in is not an asset, but a liability. Spending a lot of money buying your own property can be a huge opportunity cost and make our financial situation significantly worse in the long run.
So is it worth investing in real estate?
Personally, I am not against investing in real estate as long as the potential for revaluation of the investment outweighs its drawbacks. Of course, although there may be interesting real estate opportunities at times, in general it is not as good an alternative as the stock market to make our savings profitable, since it is less profitable, less liquid, more expensive and offers fewer opportunities for diversification.
Of course, this is just my opinion. I encourage you to share yours and suggest new advantages and disadvantages of real estate investment in the comments. 😉