Never make a real estate investment without first making a strategic plan that helps to increase its profitability. This is something that happens to many people who decide to buy a property without first evaluating the factors that will determine whether their investment is successful and generates high returns. This is why it is important to have an expert Realtor on your side, who can provide good advice throughout the purchase process.
In this article, I will teach you what the 3 most important factors are that must be considered in order to make the most of your investment and increase the profitability of the property you decide to acquire.
What is “PROFITABILITY” in a real estate investment?
Buying a property in the United States real estate market is probably one of the safest and most reliable investments in terms of returns due to the profitability offered by these properties.
When talking about ROI (Return on Investment), this is defined as the benefit one obtains from such investment. In the case of the real estate sector, the profitability obtained from the property will always depend on the type of investment chosen. Whether it is for rental, for sale, or to gain the property’s appreciation and valuation.
A Now, the formula for real estate profitability is determined by three key factors:
- The real estate investment
- The annual income obtained
- The fixed expenses
What is the formula to calculate the profitability of investments?
To calculate the monthly profitability of a real estate investment, the first thing to do is:
- Determine the monthly income
- Subtract the fixed expenses
- Divide it by the initial investment
- And multiply it by 100
And the result would be the percentage of profitability that will be earned with the property.
Strategies to maximize the profitability of the real estate business
In South Florida, mainly the cities of Orlando and Miami, are known for being the preferred places of Latin Americans and tourists from all over the world, not only for vacationing but also for investing in real estate properties and safeguarding their capital against the devaluation of their currency. Thanks to this trend, many investors decide to keep part of their assets in a safe place, increase their capital, diversify their income portfolio, and generate passive income through property rentals.
In this line of thought, there are three important factors to consider to increase the profitability of a real estate investment according to your investor profile, that is, the main objective you have for making this purchase.
The first factor: Determine the type of property
This factor refers to determining the type of property you want to target since there are different property options to access according to your objectives.
For example, first, there are condominiums that provide great benefits to owners in terms of amenities that residents can enjoy, usually located in premium areas, which guarantees above-average appreciation.
Similarly, there are also single-family homes and Town Houses that provide excellent returns and regularly positive monthly cash flows due to their low monthly maintenance costs.
Just like this type of properties, there are other modalities among which you can choose the one that best suits your investment objectives.
The second factor: Determine the time to buy
It is extremely important at the time of making your purchase to know what the rental market is that you want to target with this real estate investment.
Here comes into play the ease of renting your property, which depends a lot on the location, the characteristics of the property, whether it is new or used, the amenities, etc.
Furthermore, you should be clear before making the investment if you want to use the property for traditional rentals, which are usually between 6 months to 1 year. Or, on the contrary, you would like to buy a property that serves for short-term or vacation rentals, which are only for seasons, and can be rented for 1,2,3,4 days, 1 week or up to a month.
For this, it is necessary for you to take into account that these properties for short-term rentals are usually located in premium areas, that is, areas where the value per square meter is more expensive, for being located in tourist areas or in the city center. However, these properties tend to have a higher return on investment than traditional long-term rental properties.
Therefore, it is very important to review well with your real estate advisor the possibilities you can access based on your investment budget.
The third factor: Location of the property
And the last one that you should take into account to increase the profitability of your real estate investment is to choose, with the help of your trusted Realtor, an area of great development and appreciation that can generate a future capital gain that is worth it.
The location of your property is an aspect of utmost importance to generate excellent profitability from your property.
Miami has more than a hundred neighborhoods and all have aspects that differentiate them from each other, some being more popular and attractive than others. Tourist areas are very different from residential ones and not to mention commercial ones. There are no better areas than others, but it does change in terms of the purpose of the investment:
What can be the profitability if you invest in properties in South Florida?
The first thing we must take into account is that there are different profiles of real estate investments, there are those properties that are acquired as primary property, which means that the buyer will live in it as their main house.
On the other hand, there are investments to generate residual income with rent, these are those properties that are only used with the sole purpose of renting them and earning a good valuation.
And finally, there are those that focus on vacation properties only, which can also have a dual purpose and can be called hybrid properties, as they serve to rent for seasons and be used by the owner to vacation whenever they want.
Conclusions
Whatever the purpose of your purchase, investing in South Florida, especially in cities like Miami and Orlando, will always be a safe investment. Not only because of the possibility of renting in dollars or the excellent appreciation of the properties or also because of the low tax costs, but because of all the options that these cities offer that are adaptable to all budgets. Miami and Orlando are attractive cities for any international investor.
