Is investing in real estate a good investment?

December 16, 2023

The first thing associated with real estate is security. The capital invested in them does not decrease in value, but what indirectly affects it in delayed rates are the economic and geopolitical factors, which can even increase the value of the investment.

Real estate is characterized by its long-term value – land obviously does not depreciate, and the lifespan of buildings can sometimes exceed 100 years. This allows the invested funds to be repaid from the income or saved from paying expenses when renting other properties, if they are not owned. Thus, even if purchased on credit, after a certain period of time, the ownership remains a secure and profitable investment.

Side view hands of agent and client shaking hands after signed contract buy new apartment.

Every owner feels secure because of the possibility to receive rent or lease from their property. The “profitability” of the investment is not possessed by any other secure capital investments, such as gold or art collecting.

Investing in real estate is a profitable investment. The value of properties increases as a result of inflation, which accompanies every economy and does not depreciate due to its consumption, but grows over time.

Real estate properties can increase their value in most cases due to the possibility of improvements. An example of this is buying agricultural land and converting it into regulated land, where the price increases multiple times. Improvements can also be made through renovation and repair of the building, as well as obtaining permission to conduct commercial activities in the facility.

The increase in the value of real estate, whether due to inflationary processes or due to improvements made, can also be used as a basis for increasing the capital of a commercial company in which the property is contributed.

Once acquired, the property can serve as collateral when obtaining financing through loans.

There are also some tax benefits:

when receiving rental income from an individual;
depreciation allowances for property owned by a trader or other legal entity.

Advantages of investing in real estate:

security;
long-term user value-profitability;
profitable investment;
potential for increasing their value;
as a guarantee;
tax benefits.

WRONG

The misconception that real estate is an investment type that requires a large initial resource.

One of the most beautiful things about this investment is that the bank would provide you with borrowed capital amounting to 80-90% of the property value, while your own funds would make up 10-20% of that price, something that cannot be obtained with any other asset or is very unlikely to happen.

To repeat again, if there is a property that you want to purchase for a price of 100,000 BGN for example, you can acquire full ownership of that property for only 10,000 BGN, while the remaining 90,000 BGN would actually be borrowed money from the bank. This is the power of the so-called leverage effect. Or the bank would lend you 9 BGN for every 1 BGN of your own. At the same time, however, you would obtain 100% ownership of the property.

The cost of attracting bank resources is between 3 and 4% per year. On the other hand, the income that this property will bring you from rent is about 5%. Comparing these values, it is quite logical to conclude that the investment in real estate will pay off the cost of attracting capital, leaving you with the net return on your invested funds. Moreover, protected from depreciation.

Author: Stanimir Stankov / VIP Client Manager, New Home 1 / tel .: 0894 555 690