Real estate, a complement to stock investment

The stock market investment and the real estate investment They are two of the most popular ways to put money to work for the long term. Both offer benefits with their own characteristics and risks.

Although they are often seen as something different, investing in the stock market and investing in real estate can serve the same purpose. They can complement each other to maximize returns, said Rubén Ballesteros, an investment expert in the real estate sector.

Investing in the stock market offers the portfolio a liquidity advantage, which is the ability to get rid of the asset quickly if necessary. This is not possible in real estate investments whose sale requires a longer time.

Real estate investing, on the other hand, can provide a hedge against inflation and stock market volatility, plus it generates passive income in the form of rentals.

“All real estate investments, from the smallest to the most sophisticated, offer coverage to maintain value. Although economically we are going through a difficult stage, real estate investment has been maintained”, said Ballesteros.

“By combining both forms of investment, risk diversification is achieved and, when done successfully, it increases profitability,” he said. We will delve into this below, showing positive and negative points.

The resilience of the real estate market

Proof of the resilience of the real estate market is the behavior it had during the pandemic, the most important recent crisis. The Mexican market showed mixed figures, although in general they were growth despite the scenario.

After the impact of Covid-19, the residential sector showed a recovery in the second half of 2020, with an immediate 17% increase in new home sales, according to data from the Association of Real Estate Developers (ADI).

Regarding property prices, the housing price index of the Federal Mortgage Society had a year-on-year increase of 1.9% in the third quarter of 2020. Perhaps nothing spectacular, but positive in the midst of the crisis.

Ways to invest in real estate

When touching the subject of real estate investment, it is necessary to mention that there are many ways to enter the market today. Choosing the best one depends on two factors: investor profile and strategy you want to implement.

“Before, investing in the real estate market was an activity reserved for people with medium to high capital. Fortunately, ways of investing in the sector with budgets that are not so high have been generated”, said Ballesteros.

The stock way to invest in the real estate market is fibras (the acronym for real estate investment trust). “The fibers fund projects and the fact of participating gives you access to rights over those properties,” he said.

Fibers are one of the first levels, followed by the crowdfundingwhich unites a group of people to invest fractionally in the development of projects and, finally, properties.

Is it expensive to invest in real estate? How long it takes?

Real estate investments can be classified based on the amount needed to participate. Of course, income-producing properties require higher amounts, with higher potential rewards and risks.

Investment in real estate is also classified based on time. The profits when investing in the construction of a development, for example, are not usually seen until the process is finished. Each format addresses a profile.

“Today we find more accessible investments than others that can be a little more sophisticated, dollarized even like properties for rent to foreigners. It depends a lot on the horizon and capital”, said Ballesteros.

Real Estate Market Risks

We have already mentioned the benefits, the main characteristics and ways of investing in the real estate market. But no description of an investment is complete without stating the main risks of participating in it.

A query by El Economista to two asset advisers resulted in a list of Top 10 Real Estate Investing Risks. Mainly, they are risks derived from the purchase of income-generating real estate.

1. The investment required is usually higher. A bad investment costs more.
2. Buying a property generates additional costs such as taxes and insurance.
3. It is usually more difficult to transform investment into liquidity when necessary.
4. Property prices fluctuate due to factors that are unforeseeable.
5. The buying and selling of properties entails high costs for the transaction.
6. Managing properties is a difficult task that will require time and money.
7. Tenants sometimes stop paying rent, resulting in loss. They can also refuse to leave the property and that generates expenses.
8. If a property is not rented for an extended period, there is a loss.
9. Tenants can cause property damage and someone must pay for it.
10. They imply long-term commitments that must be carefully considered.

social effects

One of the criticisms received by real estate investment is directed at the negative impact on access to housing for the population. By chasing higher priced sales or rents, they often have a snowball effect.

This is especially true in cities where the demand for housing is high, but the supply is limited. Various areas of Mexico City have begun to throw low-income people to the periphery.

Although gentrification is a reality, for Ballesteros, it is necessary to understand that the price that landlords or builders put on a property is not established “just because”, but rather depends on their investment.

On the other hand, he recalled, that real estate investment generates development, sources of employment, while promoting other social indicators such as security.

jose.rivera@eleconomista.mx