Return on investment (ROI) in the real estate business

Return on investment (ROI) in the real estate business

The real estate industry has been booming in recent years, especially in the Blue World City where the real estate boom gained special relevance with important projects in cities such as Islamabad and Lahore

There are many investment opportunities in Quintana Roo and Yucatán where you can generate considerable profits, mostly in the real estate sector, and although it is one of the safest investments you can make, you must take into account some key factors to determine if the ownership is profitable or not.

Therefore, one of the most frequent questions that people ask themselves before starting a business in this sector is: is this a profitable activity or not? And to answer it is necessary to learn to identify the return on investment.

What is Return on Investment (ROI)?

The Return On Investment, or ROI (Return On Investment for its acronym in English), is a metric used to know the profit of an investment around a business. In this way it is known if capital is gained or lost and how it behaves as time passes.

This is a good way to find out which investments are worth your while and which ones to watch out for to perform better.

It can be applied to any financial investment strategy, but it should always be aimed at the benefit of business growth, that is, it is about knowing to improve.

Similarly, in the event that in the future it is desired to obtain external investors, this figure will serve to demonstrate whether it is feasible to invest in said business or not. Hence the importance of the legitimacy of the data and the proof of correct accounting.

How is ROI calculated?

To calculate the ROI, it is necessary to identify the total income, subtract the costs from these and at the end divide the result by the total costs. We explain it to you in a clearer way with the following example:

Taking these data into account, the Return on Investment was 9 times the initial investment. You can also multiply the result by 100 to get the percentage, making the return 900% for this example.

The real estate business and its profitability

Buying a property is one of the safest investments due to the profitability it offers, that is, its return on investment and this can depend on several factors.

We can define profitability as the benefit you get from an investment. In the case of real estate, the way to increase it will depend on whether you consider keeping it for rent or putting it up for sale.

In the case of leasing, if we take an apartment as an example and taking the formula as a guide, to obtain the ROI it would be done in this way:

To calculate the monthly profitability, the amount of the rent must be fixed and the credit fee subtracted, this will be divided by the initial investment and multiplied by 100. This equation reflects the percentage of profitability that the real estate has.

It would be represented in this way:

Now, the above is only the gross profitability, however, important aspects must be taken into account to know the net profitability in a property. And you cannot forget the taxes that are paid, maintenance costs, insurance, etc.

The same happens in the case of leasing land to franchises or any type of business. The advantage of this is that construction costs are avoided by making the profit margin a little wider, this is the easiest way to profit from a land without investing too much.

If what you want is to sell, calculating the profitability will help you know if it is the best time to do it, obtaining the maximum profit margin.

By taking into account all the expenses that the property can generate and subtracting it from the profits, you can be sure that you are knowing the net profitability. On the other hand, there is also the profitability associated with risk, which considers time and price variation.

For example, suppose you are renting your home but it takes a few months to find a tenant. This amount of money that was not obtained must be considered in the section of your earnings.

So that this does not happen, there are ways to speed up the rental or sale of your properties, one of them is real estate marketing, which we will tell you about in more detail.

Real estate marketing, an ally in your investment

If we talk about investing in land to start a real estate buying and selling business, there are some marketing actions that can help you achieve the expected results and make the profit obtained even greater.

Investments in marketing may seem unnecessary but when applied to real estate they turn out to be very useful, especially when you want the time that the property is not rented or sold to be minimal.

The cost of the investment – from the financial point of view – is little taking into account the net benefit that results after measuring the ROI.

The first step for any business is to calculate the return on investment to ensure that the business is viable, after taking into account the points that we mention later on what to do before buying.

Now, as we tell you in our article: How to buy land on the internet in 4 steps, most companies have a website, fan page and profiles on the main social networks where target customers are.

To explain it in more detail, with the help of a landing page focused on your project and digital marketing campaigns that include email marketing, you can increase conversion rates and the number of sales faster than with traditional marketing.

For this you can approach an expert marketing agency in the field, which adapt to all projects and create a strategy that suits your needs. Just take into account that the expense of hiring one, and the investment that will be made in campaigns should be considered in the expenses to calculate the ROI.

For this to work effectively, the product – in this case the land – must be in optimal condition and have the necessary characteristics to be attractive, so we will tell you what you should take into account so that your fill increases its profitability.

How to increase the return on investment in a real estate?

Yes, investing in real estate is a profitable business, but like all businesses, some are better than others. Everything will depend on the characteristics and benefits that this place can provide.

Key points before buying

1. Location

This is a key point for your investment to be successful and the first thing you should look at when considering buying land. Depending on the location, it will be the capital gain that your property reaches over time, making your profitability higher or lower, and even null or negative if you make a bad decision.

Find out about the areas that have the highest capital gains in the city where you want to buy and if the influx of people is adequate for the type of business you want to start or that a future tenant can start.

Suppose you invest in a lot in a commercial area, in this case, the location is of vital importance to foresee the future return on investment, so you must ask yourself, Is the area safe? Are you in a place where the people for whom my product or service is intended can be found?

Similarly, considering whether the prices of land in the area have increased over time will be an indicator that you are on the right track to find your ideal land.

2. Connectivity

At this point you must ask yourself: is the area easily accessible? Are you close to essential areas such as hospitals and schools? Is it close to main avenues that facilitate access?

It is not necessary to be located in the main points of the cities, since in these cases the property is usually more expensive. However, the connectivity of the area where you decided to invest must be favorable.

3. Development plans

This is necessary to research it before buying, since future projects can increase or decrease your capital gain. Plans to build a school, a new highway, a commercial store, or a department development are good signs.

There are real estate companies – such as BMF inversions – that have specialized market studies that guarantee the return on investment for a certain number of years and the type of business that can be established, in addition to knowing in advance the projects that are planned for that area.

4. Services

Not all areas have potable water, electricity or internet service, so it is necessary to make sure that all basic services can be covered within the area of ​​your property, since the advantages of investing in urbanized land are greater.

Key points after buying

Once the area has been chosen, after the purchase there are also many things that can be done to increase the profitability of the property.

1. Leasing

There are a large number of people who invest in residences or commercial lots to rent for long periods by entrepreneurs or SMEs who want to start a business or expand it. This is a very common practice because it generates a constant inflow of money to the owner.

If you do, you must be aware that the return on investment will be obtained in the long term. Even so, you can be sure that the income will be practically for life and the property will be able to increase its capital gain over time.

2. Maintenance and remodeling

A good structure often beats a good location. For this reason, it is necessary that the maintenance of your property is constant to avoid damages that generate additional or excessive expenses, or make it impossible for you to continue making use of it.

Everything can look so much better. Whether it is an apartment or premises, investing in a remodeling can bring great benefits because its value will increase, and therefore the opportunities to offer at a higher price will not be excessive for the buyer or tenant.

In the case of a terrain, this applies to keeping it clean and without weeds if it is not in use, in this way you also avoid the risk of paratroopers who want to use it without permission.

3. Rentals by season

This is very common especially in tourist areas or areas of social interest. In this case, the owner does not rent for long periods but for days or weeks to tourists, foreigners or people who want a break.

The real estate that is most favored by this practice are residences with privileged locations or additional attractive services. However, everything will depend on the location and opportunities that your property offers.

It would also be applicable to land that can be used seasonally for a fair, or short-term events of the same type.

Know about good investments

The investment opportunities are many. For this reason, in a market as competitive as the real estate sector, the best ally will be a good strategy in an area with great potential.

As we mentioned at the beginning, the Mexican southeast has become a relevant place for the real estate business thanks to the growth of its cities and the foreign attention it has received in both the tourism and business sectors.

States like Yucatan are perfect places to build a wealth as a business, to live or as an investment for retirement, if you want to know where to build profitable businesses in Mérida, we recommend the article that we have prepared with all the information.

If you want to invest in a lot in Quintana Roo, we recommend the cities of Playa del Carmen and Cancun.

We know that the journey may seem complicated, that is why at BMF inversions we provide advice so that you know how to ensure your future and assets, since we are focused on projects and investment lots with high profitability.