Deciding the term of your real estate investments is equal or more important than choosing the type of it, because the assets have a very particular relationship with time. In this way, it is not the same to invest in some assets as in others and it is not the same to invest in the same type of assets, but with different investment horizons.
Key questions to evaluate in real estate investments
This decision is up to you, but it is essential to evaluate other matters. The key questions are:
- How is your plan as an investor and when do you want to receive the returns?
- What capacity do you have to listen to the market and to react to its changes?
- What is your tolerance for risk or how willing are you to bear the loss?
- What capacity does real estate have to give you a return in the time you plan? For example, pre-sales give you a higher percentage of appreciation
Thus, no matter how much return an asset offers you, if you have not asked yourself these questions, it is likely that you are not making the best decision for you.
To better illustrate the above, let’s compare it to cycling races. Although these occur in a day or in a few weeks and the investment time is different, the other characteristics can be similar to understand them better.
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Short-term investing is like a spring Classic
These races are characterized by their toughness, you have to deliver everything in an average of six hours that they last. Let’s think about how cyclists use energy in this race, how they prepare, how they plan. They are six decisive hours, what happened in them is everything. You will also feel that the adrenaline works differently: the feeling of achievement, the possibility of losing or winning feels different.
Thus, short-term investments are defined in short times, the variables that affect the value of assets in those same terms matter. For example, real estate investments in real estate are not affected so much by inflation, but are affected by other issues more specific to the market, supply and demand in a month or in a quarter, or direct competition.
A short-term investment needs to be converted into currency quickly, it has an objective that is also evaluated in the same period, such as capitalizing another investment or promoting a purchase of an asset. In the real estate sector this materializes through the resale of pre-sale properties, for example.
Long-term investing is like running the turn of Italy
This real estate investment horizon looks more like a twist or a longer career in cycling. It has several stages, several terrains, and each day demands different from the runners. The teams also plan in different ways, choosing the stages in which certain efforts will be made according to the abilities of the cyclists and also according to the process to reach the podium in the first places. Winning a single race does not guarantee that place.
A long-term investment, which is considered for several years or even decades, is similar to these types of careers. It has several stages, the cash flow or cash flow works slower and the risk tolerance is also lower.
The value of real estate also has a life cycle that you must know since there are certain variations that, for this horizon of real estate investments, will not be important, but others will. The value of a home in the first years grows very quickly, then it stabilizes and after a long time it begins to decline, if something is not done to value it. The latter can be a city planning action or a city improvement that affects its market value. Now, in the long term, real estate investments are resistant to variables such as inflation, to which other types of investments at the same term are not.
You know that making a long-term investment helps you build or take care of your wealth over time. In the Gyro d’Italia, a rider saves part of his energy for the race in which he can give everything, such as when you are thinking about what you will inherit to your children or for the moment when you are going to retire from work.
They are not contradictory investments, one does not have greater risk than the other, but since we know that you want to invest well and have good rates of return, you must know their possibilities.