These are terms that we can appreciate significantly in Real Estate and in commercial businesses, everything depends on their correct administration. However, real estate has the peculiarity of “working” for you if you decide to invest in real estate., due to their unique characteristics: they allow us legal security of belonging, they are a smart investment if we observe some general rules that I comment on later, they give certainty as collateral in the granting of credits (mortgages) and allow the natural growth that a commercial business demands By obtaining immediate liquidity for new capital investments, they maintain added value over time while preserving future purchasing power, they produce additional income ranging from 0.4% to 2.0% per month, depending on their characteristics of use and exploitation, it allows create patrimonial assets that can be inherited to many future generations among other characteristics.
We only have to remember that capital investments, such as in real estate, must be considered in the long term, generally five years onwards so that they are thought about in the range of very profitable and depending on other factors that I comment; There is a bad concept that “investing in real estate is a bad decision and a bad business” because there is speculation with the values of the properties in the short term and the time periods to make them for sale are not taken into account, which They range from 3 to 6 months at least even if they are “opportunities”, this causes the investor to despair because the rapid recovery in their cash flow is not manifested, thinking that they will gain added value in the very short term (less than 6 months). And even worse,when the property was acquired at a higher than market value known as a “premium”, because in that case, it may not be sold for a year.
Of course, there are other investment options that are equally attractive depending on how they are seen, with the difference that the "risk" factor must be taken into account, since in investment jargon there is a law that says: " A higher profitability, higher risk of loss ”, so we can talk about stock market investments (which compete in the stock market), which are carried out in the long term and can exceed any other option that exists in the investment market, But still, we risk losing all our capital with a bad decision that we make if we do not fully understand the projections and trends in securitization.
It is generally recommended to consult a specialist (expert stockbroker) to achieve the best results we expect. Given the uncertainty that exists in the stock markets, the volatility in the world economy and with interest rates that are at historical minimum levels, participation in real estate assets is presented as the best option at this time.
Finally, the idea is that our money works for us and that in the race of inflation and the internal rates of return of these investments, a balance is maintained that favors us in the course of the time in which they compete. Why is it so important to take inflation into account? Because as it manifests itself upward, our purchasing power deteriorates if we are not careful to put that capital to work to give it an added value greater than that of inflation in a given period.
PE: if you have 1000 monetary units (MU) at the beginning of the year and are kept under the cushion and the inflation of that reference year is 8%, it means that what at the beginning of the year cost 1000 MU, at the end of the year will cost 1080 MU, so our 1000 MU, which we keep in the mattress will no longer be enough for us to buy the same goods and services as at the beginning of the year; which means that that money was impoverished, that it was "eaten away" by 8%, because now, at the end of the year, it is worth only (1000 - 80 = 920) 920 MU
In the case of commercial businesses (which is the main activity of the majority of our countrymen in Oaxaca), said added value should be reflected in "profits" at the end of the year in the balance sheet of the company in question, provided that this trade It has been managed correctly and efficiently, but if it was not, losses may be declared and as a consequence the capital invested at the beginning will be reduced in proportion, that is, now it is worth less than at the beginning for the loss. If it started with 10,000 MUs at the beginning of the year and ended with 8,000 MUs, according to the balance sheet of that merchant establishment, it means that 2,000 MUs were lost in its operational management. Working to lose, who will find it attractive as an investment, if in the end they also lose work,time and money?
Smart investments must provide us with: Security, Strength, Durability, Profitability and Tangibility, as they are the elements most sought after by successful investors. Let's say that the differences between investing in real estate, fixed income (government bonds), variable income (stocks), or investments in assets of the business itself, must be determined by: the investment terms (from 3 to more than 5 years), risk, cash availability and performance.
So how can we make a correct decision if we want to invest in real estate?? A land, a house, a commercial premises, a warehouse or a building are a good investment like all instruments when they are part of a diversified portfolio and when the investor's profile is in accordance with what it means to invest in real estate. We must understand that not everyone can make investments of this nature for the amounts that are considerable, so young people who start their productive activities, generally rely on mortgage financing to acquire their first home whose average value can exceed 500,000 MUs, and more forward as time passes and they have the possibility of generating surpluses, it is when these savings become feasible to think about investments like the ones I mentioned.
A good real estate investment is one that is intended for properties in consolidated areas that already have all the services around them and have access to the main roads of the city, another option is to review the areas of the periphery, which according to the plan municipal urban development benefit from the added value of these dynamic areas and whose price is fair market.
If we invest in bonds that are part of fixed income, it allows us to obtain immediate liquidity, they have a low risk and a return that is determined by the interest rate at a certain term; they do not have high returns compared to other investments.
If we decide to invest in the Mexican stock market (variable income), it implies more risk, since its value depends on the economic situation of the company in which it is invested when acquiring its shares, as well as its endogenous and exogenous environment.
Investments in real estate assets are generally long-term (5 years or more), since these are revalued in an average period of 5 years and their disadvantage is the lack of immediate liquidity availability, therefore, mortgages (loans with guaranteed 15-year mortgage) are a good tool to finance these real estate investments, as they allow financing the project without decapitalizing.
Now, investments in real estate with respect to other investment options, we can analyze them from various points of view, as well as their behavior: Amount 2'000,000 MU; term 5 years, all in the same period from January 1, 2005 to December 31, 2010. (The purchasing power of that period should be taken into account, which is 2'513,000 MUs, in round numbers).
Fixed income fund operated by an authorized financial intermediary with monthly availability would have at the end of the period 2'848,000 MU Observe constant growth, with very little volatility, even during the worst times of 2008. If we discount inflation (2'848,000 - 2´513,000 = 335,000), we will obtain a real profit of 335,000 MU
Equity fund operated by a financial intermediary authorized by the Mexican stock exchange with availability of 72 hours, at the end of the period 2'400,000 MU The Mexican stock market will be an excellent long-term option for people whose profile can withstand short-term volatilities and do not need the money invested, to achieve short-term goals. If we discount inflation (2'400,000 - 2'513,000 = -113,000) In this case we observe a real loss of 313,000 MU).
A Product Building located in an urban center could be sold for 2'708,000 MUs. capitalization of 0.6% per month on its value), an additional 430,000 MUs would have been received. If we discount inflation (2'708,000 - 2'513,000 = 195,000) we will obtain a real profit of 195,000 CU
Let's look at other practical examples that I present:
A).- Purchase of a house to remodel.- A house of 75 M2., With parking in an urban area with a value of 560,000 MU
Remodeling cost 170,000 MU, in 12 months it would be sold already remodeled at 900,000 MU, (average price in the area for a similar recently remodeled house), less purchase and sale expenses and remodeling costs, the profit will still be higher than 23% in one year. (900,000 / 730,000 = 1.23%), that is, (560,000 + 170,000) = 730,000 x 0.23 = 167,900 MU
If you buy with those 730,000 MUs, a 360-day bank note, with a guaranteed yield comparable to CETES (average of 4.65% annualized, less commissions and taxes), the net profit would be 4% in the period (730,000 x 0.04 = 29,200), which is equivalent to just 29,200 MU
As in the purchase of any used property, you should pay attention to the following points:
Identification of the property (exact address, measurements and boundaries, specifications of available spaces and size, special characteristics, square meters, age of the constructions, state of conservation, functionality of the project, original use, etc.)
That it does not have tax debts, debts for fees or services, that guarantees legal sanitation, that it does not have encumbrances that affect legitimate property or public interest affectations.
That the selling owner complies with all the requirements requested by the notary public to deed.
If the cadastral value is well below the real purchase-sale price, it must be updated so as not to be exposed to tax opinions that cause payment of differential taxes that the tax authority can make effective up to 5 years ago, likewise, the seller must pay the corresponding ISR and the buyer the transfer of ownership (property acquisition tax), the fees of the notary public may be negotiated to pay them between both participants.
Comply with all the requirements for remodeling (permits, licenses, rights and fees of the work contractor).
Take into account that having an income from the sale of the property, the selling owner must pay the corresponding income tax for the benefit obtained in the property's capital gain.
B).- Purchase of an apartment for rent.- An apartment in a 75 M2 building, with parking in an urban area with a value of 600,000 MU
It would be rented at 4,000 MUs, (3,600 for rent and 400 for maintenance and surveillance fee) per month and income would be obtained in 6 months as indicated (4,000 x 12 = 48,000) that is, 48,000 MUs, in rents less taxes and equivalent maintenance at 3 months of gross rent (48,000 x 25%) = 12,000), the net profit would be (48,000 - 12,000 = 36,000) that is, 36,000 MUs, in addition to the capital gain of 6% in the year, (600,000 x 0.06 = 36,000, which means (36,000 + 36,000 = 72,000) that is 72,000 MU
If those 600,000 MUs are invested in a 360-day bank note, with a guaranteed yield comparable to CETES (average of 4.65% annualized, less commissions and taxes), the profit would be 4% in the period (600,000 x 0.04 = 24,000), which is barely equivalent to 24,000 MU
The most popular building apartments are those of the mid-level segment, their main characteristics are:
Those departments that offer at least 1 parking space for the car, can quote another 500 MUs, more and get in faster.
Regarding the available spaces, it must have at least 2 bedrooms, living room, kitchen with integrated furniture, 1 full bathroom, 1 parking space, laundry and laying patio, in 75 M2, of profitable area. Average time to lease is 1-3 months.
C).- Commercial Premises, Offices or Industrial Warehouse.- Commercial rents are even better in terms of added value and profitability, than the rental of housing. However, higher investments are required (more than 5,000,000 MUs), if you want to buy a building with premises for offices and commercial premises; the same happens when it is intended to acquire a premises in a commercial plaza or an industrial warehouse.
Buying buildings or premises in shopping malls are more expensive because permanent resources are required for administration, security and maintenance expenses of around 30% of the gross income generated. Let's see some examples in the purchase of commercial properties as mentioned:
C1) The cost of an average interest building with 3 levels in 350 M2., Of land and 1,200 M2, Built; With 12 profitable units of 80 M2., each, whose value is 12'000,000 MUs, each premises can be rented at 8,400 MUs, for 12 they would give a gross income of 100,800 MUs, less the surveillance, maintenance and conservation expenses that correspond to 30% of your gross income, they would be (100,800 x 30% = 30,240) so from the gross income we subtract the deductibles as follows: (100,800 - 30,240 = 70,560) which means a net income of 70,560 MUs, monthly times 12 months, it would give us an annual net income of 846,720 CU, which is equivalent to a 7% capitalization rate on the investment.
C2) 134 M2. Premises, in a mid-level commercial plaza, whose value is 1'600,000 MUs, and produces 32,000 MUs in gross rents, plus 4,800 MUs, of administration expenses that represent an additional 15%, therefore that we would only take the 32,000 MUs, as net income, since the expenses are considered separately. We multiply (32,000 x 12 = 384,000) which means a net income of 384,000 MUs, which is equal to 24% capitalization rate on the investment.
C3).- Industrial Warehouse of 200 M2., On the edge of a secondary road on the banks of an urban neighborhood with all urban services, high ceilings of 5 meters and paved floors, with 2 half bathrooms and 40 M2., For administrative office, large gate that allows the entry and maneuvers of trayler's; Its value is $ 1'200,000 MU, and produces monthly gross income of 20,000 MU, its deductible expenses are 10% (20,000 - 2,000 = 18,000) and multiplied by 12 would give us a result of 216,000 MU, which means an annual income net of 216,000 MUs, and which are equivalent to 18.0% of capitalization on the investment.
Buying recommendations:
If you are thinking about the business of commercial premises for rent, the recommended option is to buy premises at street level or in small shopping complexes near residential areas, in urban areas with accelerated growth. Ideally, approach shopping malls where there is enough parking for many cars, that there is at least one anchor convenience store, cinemas, department stores and a lot of potential customer traffic, ensuring their successful viability.
With regard to office space, location is also the most important, not only to ensure easy access and parking facilities (preferably covered), but also because of the status of the people and their commercial image. In general, almost all service companies want to make a good impression on their clients, which is why they require functional common spaces that are comfortable, well-maintained and that your company creates a good face-to-face image.
A very interesting fact is that at least 80% of the available offices are for rent and only 20% have the option to buy, because for the owners of the properties it is more appropriate and profitable, to rent the spaces and maintain the control and productivity of your buildings.
It is also very important to preserve its value, its image and quality of services to make them more attractive, so it is essential that the people who use the property (owners and tenants) understand that it is necessary to implement management and coexistence policies and be governed by a Rigid regulations that maintain harmony and investment does not decline.
D).- Purchase of urban land in private subdivision.- Regarding the purchase of lots in private subdivision with booth and 24-hour security guard, fully fenced, video security cameras and coexistence regulations, (sidewalks and sidewalks, 8 meters wide paved street, wooded areas, internal public lighting, drainage and sewerage, drinking water service with household connections, solid waste collection service among others), the cost per M2., Ranges between 4,500 to 5,500 MU, ready to build; lots of 200 to 300 M2., per lotified unit.
Its profitability in the short term and its ability to generate cash flow are usually lower than those of a home or commercial premises. However, its high added value can be 10 to 15% per year and the most appreciated subdivisions are those that are located near shopping centers, public offices, schools, cinemas, churches, public transport, and near main roads, among others. The time to sell ranges from 3 to 6 months.
For housing developers, it is valid to comment that it is more convenient to acquire this type of already urbanized lots within a subdivision, because the period to build the infrastructure plus the construction time, makes the investment recovery period longer. (The times of the construction of the infrastructure plus the times of procedures to obtain the licenses, permits and authorizations take about 3 months).
E).- Sub-Urban Land.- The value of the land is established according to the development or growth that the cities have, in accordance with the policies and urban development plans of each government, which allow the feasibility of land use for housing development, the feasibility of municipal services such as: drinking water, drainage and sewerage service, electricity, telephone service and its urbanization.
Lots of land of this type gain added value under the same rules as an urban property: by location, infrastructure and economic development of the area, with the passage of time in 5 years the investment returns and reaches its best level, doubling its value. It is clear that it is not convenient to leave it abandoned without making some changes to improve it, because it causes taxes and you must be up to date with your payments and the services you have as in any house and because it should not appear that it is abandoned, due to the risk invasion.
Purchase recommendations.
1.- Identity of the lot (location, location, exact address, measurements and boundaries, particular specifications, characteristics, among others). It is recommended to request the municipal authorities of the place, that a record of "removal and demarcation" be drawn up (they cite the neighbors and a record is drawn up specifying who appeared -authorities and neighbors- and it is said that the neighbors are of according to the boundaries of the land).
2.- The deed must be authorized by a notary public and registered in the public property registry of the judicial district to which the property belongs, said registry must appear definitively. Preferably, that the ejido commissariat issues a certificate stating that said property does not belong to the ejidal estate. If the property is larger, it is recommended that its authenticity be verified in the national agrarian registry in order to verify that the location of your property is not included within the radius of the ejidal farm and that it is recognized as legitimate private property (for this they issue a certificate of inactivity together with the secretary of agrarian reform.
3.- Verify in the public registry of the property that it has no liens and that it is up to date in the payment of the property tax, public services (electricity, water, drainage, electrification, tequios among others).
4.- Negotiate before the municipal authorities that allow the feasibility of land use for housing development, the feasibility of municipal services, the feasibility of the potable water, drainage and sewerage service, electric power, telephone service and its urbanization.
5.- If the property is larger and adjoins a storm stream, the highway, a railroad track, or a high-voltage power line passes on the property, or there is any easement, pay close attention, because they are public road rights that "subtract" meters from your property and which you cannot freely dispose of.
6.- If you have a water well, you must deliver the well concession title, issued by the National Water Commission.
7.- Preferably, and if the property is irregular, I suggest that you send a survey with contour lines and that they make your plan with your construction chart with measurements, boundaries and if possible, that they place you on the property, "Mojoneras" that demarcate the property.
As you can see, the purchase of sub-urban land is complicated, especially in Oaxaca, because unfortunately the municipal authorities, often due to their ignorance, abuse their authority and ask for money for anything (fees, tequios, cooperations for the parties, Etc.) but if you are legally up to date, the inconvenience they cause you will be less.
Observations regarding the administration of leases, you must take care of the following aspects:
Take time to personally investigate the moral and economic solvency of future tenants and guarantors.
Do not use badly drafted “male contracts”
Verify the documentation that justifies the financial solvency of the guarantors
Provide firm bases for future rent reviews
Provide for conventional penalties for violations or breach of contract
Make the physical inventory of contents and facilities
Update the guarantee deposits according to the new rents (from 1 to 2 months of rent)
Provide proper maintenance to buildings
Formalize the return of the property with the corresponding settlement
Make legal provisions, to avoid ending in long and costly litigation
The income should not be arbitrarily fixed, without having bases in the just appreciation of the same
Now that if it makes you more comfortable to hire our professional services, we have been dedicated to this real estate activity for 30 years and we can take care of your real estate assets, reminding you that we are here to serve you if you give us the opportunity.
Which of the real estate options are you interested in investing in?
Source Documents:
Real Estate Intelligence Magazine.- Special Edition 2010.- Grupo Expansión.- Metros Cúbicos Editores SA de CV
The National Real Estate Professional Magazine.- June / 2009 Edition.- Informative Body of the Association of Real Estate Professionals AC- Grupo Empresarial Sanba SA de CV
Link AMPI Real Estate.- Information and Communication Body of AMPI Mexico City.- May / 2009
Edition.- www.mexico.inmobiliarias.com; Support Platform for Real Estate Companies. The Professional Real Estate Portal.
www.eleconomista.com.mx El Economista Newspaper specialized in finance, economics and politics ”
www.conavi.org.mx Conavi“ National Housing Commission ”.
