How to Invest in the Real Estate Market: Step by Step for Beginners

How to invest in the real estate market is a common question among those who wish to diversify their investments and build solid wealth.

While the real estate market is traditionally viewed as one of the safest ways to invest, the process can be intimidating for beginners.

In this article, we will present a complete step by step on how to invest in the real estate market, from understanding the different types of investments to the best practices for maximizing financial returns.

What is the Real Estate Market?

The real estate market is comprised of buying, selling, renting, and financing real estate. It includes both the residential and commercial sectors and encompasses a variety of investment options, such as properties for rent, buying and selling properties, and even real estate funds (FIIs).

The real estate market is considered one of the most solid investments, but it requires careful analysis, especially when starting out.

Step 1: Understand the Real Estate Market

Before making any investment, it is essential to understand how the real estate market works. The market may vary depending on the location, the supply and demand of real estate, and business cycles. Additionally, it's important to understand the different types of real estate investment available:

Rental properties: Buy rental properties, whether residential or commercial, to generate a stable passive income.
Buying and selling real estate (flipping): Buying properties below market value, renovating them and selling them at a profit.
Real Estate Funds (FIIs): Invest in shares of funds that hold a real estate portfolio, with returns from rents or property valuation.

Types of Real Estate Investments

Physical real estate: Buy properties for rent or resale.
Real estate funds: Invest in shares of funds that have real estate in their portfolio.
Real estate crowdfunding: Participate in collective investments in real estate projects with a smaller initial investment.

Step 2: Define Your Investment Objective

An essential step for those who are learning how to invest in the real estate market is to clearly define their objectives. Ask yourself: what do you expect from your real estate investment?

Are you looking for passive rental income or do you want to value your assets with the sale of the property? Depending on your objective, investment strategies may vary.

Passive income generation: If your goal is to generate a stable source of income, investing in rental properties may be the best option. Focusing on well-located residential or commercial properties guarantees a constant income, with greater security.
Capital valuation: If your goal is to increase your assets through the valuation of the property, buying properties that require renovation (flipping) or properties in growth areas may be more appropriate.

Step 3: Study the Location

In the real estate market, location is one of the most important factors. Even if a property is of excellent quality, if it is in an area with low demand or in a saturated market, the return on investment may be low.

Factors to Consider When Choosing a Location

Accessibility and infrastructure: Check the proximity of public transportation, schools, hospitals, shopping centers, and other amenities that attract residents or businesses.
Area growth: Areas under development or expansion tend to appreciate more quickly. Observe the urbanization initiatives and infrastructure projects planned for the region.
Local market: Analyze the demand and prices of the local real estate market. Regions with high demand for real estate, whether for purchase or rent, are more likely to generate good returns.

Step 4: Do Detailed Market Research

Before making the final decision on how to invest in the real estate market, it is essential to carry out detailed research on the region and the type of property you intend to purchase. This includes:

Price research: Compare the prices of similar properties in the same area. If you are buying for rent, research the rental prices in the region to understand the financial return.
Vacancy rate: The vacancy rate is an important indicator, especially for rental properties. Low vacancy means high demand, which is positive for those seeking rental profitability.
Resale value: Assess the valuation history of properties in the region and whether the property has the potential to appreciate over time.

Step 5: Assess Acquisition and Maintenance Costs

In addition to the purchase price of the property, other costs need to be considered, such as taxes, deeds, maintenance costs, and insurance. To ensure that the investment in the real estate market is profitable, calculate all the costs involved.

Taxes and fees: Check property taxes and other fees related to the purchase of the property. In Brazil, the ITBI (Real Estate Transfer Tax) is an example of a tax that must be considered.
Property maintenance: Calculate property maintenance costs, such as repairs, condominium fees, and management. Older properties may require more maintenance, which affects return on investment.

Step 6: Consider Financing

Not all investors have the necessary capital to buy a spot property, which makes financing a viable option. However, it's important to understand how funding can affect the return on your investment.

Interest rate: Interest rates directly impact the total amount paid during the loan. If the rates are too high, the cost of financing may hinder the return on investment.
Payment deadlines: Check the amount of the installments and the impact of those installments on your profitability. Make sure that the financing costs will be covered by the rental income or the valuation of the property.

Step 7: Choose the Ideal Property Type for Your Profile

The type of property to be purchased depends on your investor profile and your objectives. Here are some popular options:

Residential properties: They are a safe choice for those looking for a constant source of passive income. Apartments and houses in good locations can guarantee stable rent and long-term valuation.
Commercial properties: They are riskier but offer greater returns, especially in areas with high demand for companies or offices. Stores, commercial rooms and warehouses are good investment options for those seeking higher returns.
Real estate for renovation (flipping): If you have experience in renovations and want to maximize the valuation of the property, this may be an excellent option. Buying properties below market value, renovating them and selling them at a profit is a popular strategy among investors.

Step 8: Perform a Profitability Potential Analysis

Finally, when choosing a property to invest in, analyze the potential for profitability. Calculate the expected return, taking into account rental income, property valuation, and maintenance costs.

Rental profitability: Calculate the annual return on rent in relation to the amount invested. This can be done with the simple formula: (monthly rent * 12)/property value.
Valuation: Estimate how much the property can appreciate over time, considering the location and the growth of the area.