Owning a Flat? the Bold, The Brave, and The Slightly Insane…(Part 2)

…remember the original question “Should i own an apartment?”

Part 2 : (Warning: The Beast Left the Cage…)

In the previous post, we discussed several aspects related to the pros and cons of “rent vs buy” an apartment.

(Appropò, you read Part 1, didn’t you?? If not, please go back an do it now!)

Now, in this second portion, we will have a look at other forms of owning real estate

My goal for today is to build an overall view of the different possibilities offered by this market.

The Benefits of Investing in an Apartment for Passive Income

Maybe investing your money in stocks or mutual funds has never made a lot of sense for you. Do you want to spice up your portfolio with something a little more… tangible instead? Then investing in an apartment for passive income could be a really smart move.

Now, I can sense you thinking “maxx, apartments are for living in, not for investing in. That’s just BS for the rich.”… Wrong!

When planned accordingly, Investing in an apartment can really be a smart financial decision.

It can actually provide you with a steady stream of passive income for years to come. This strategy can truly be the starting stone of stable wealth.

Some tragicomic details…

First of all, let’s consider the costs again.

Sure, buying an apartment may require a significant upfront payment, but in this case the potential financial benefits are well worth it

Having a reliable tenant who pays your mortgage every month, while you can even pocket the difference It’s what I call a hell of a reliable investment!

(Just compare it for yourself with the returns of a standard low-risk mutual fund…)😬

Additionally, consider the potential tax benefits of owning an apartment, such as the deductions on mortgage interest payments we already discussed as well as the ability to exclude a portion of any gain from your taxable income.

Sorry, be patient with my clowny Alter ego :)…

But seriously, investing in an apartment can be a smart financial decision for those who are looking for a modern alternative to traditional investment options. Just be sure to do your due diligence: prepare your plan carefully in relation to your financial situation before making the decision. 

…..oh crap! it’s HIM again!!

Comparing the Returns of Apartment Investing to Other Real Estate Options

How does apartment investing compare to other real estate options in terms of returns?

One advantage of investing in an apartment is the potential for steady, passive income.

Like said, if you rent out your apartment, you may be able to collect rent payments from tenants on a regular basis. This can provide a consistent stream of income that can help to offset the costs of ownership.

In addition, if you’re able to secure a mortgage at a low interest rate, your monthly mortgage payments may be lower than what you would gain from renting, potentially increasing your overall returns.

Another potential advantage of investing in an apartment is the potential for appreciation.

If the value of your apartment increases over time, you will be able to sell it for a profit.

If you want to this can be a significant source of returns. And even more if you’ve owned the apartment for a number of years.

Check out this chart : 

it represents the number of months required to sell a newly completed home (normally the most expensive option on the market).

Surprisingly, through the never-ending flow of bad news regarding the economy worldwide and the even nastier forecasts for 2023, we are now at the historical low of the chart : 1.5 months on average to sell a brand new piece of property (Point III), as opposed to the 14 months in December 2009 (expected, as the pinnacle of the crisis – Point I). But notice that  even in the good-old 90s the average was over 5 months…astonishing, I would say…

(I will repeat it again and again and again until You all hate me : NEVER TRUST THE NEWS! Educate yourself instead and build your own opinion, always!)

No Risk?

Until this point, it all seems to be a merry-go-round. However, it’s important to be aware of the potential risks and drawbacks of apartment investing : 

One risk is the potential for vacancies, which can occur if you’re unable to find tenants to rent your apartment. While this is surely possible, it is in reality not much probable thanks to the growing demand for rental apartments all around the world.

You can see from the chart below, how the demand massively outranked the supply in the first quarter of 2022 (source : RealPage)

Or, in volatile market conditions like we are experiencing nowadays, the value of your apartment can change with every fluctuation. And if you’re also unable to secure tenants, you may struggle to generate the expected levels of revenue. 

And additionally, there can also be ongoing expenses associated with being a landlord, such as the cost of repairs and maintenance.

So, how does investing in an apartment compare to…

Other Real Estate Options? 

One popular alternative is investing in a single-family home. While the upfront costs of purchasing a single-family home may be higher, the potential for appreciation may be greater. The reason being that the demand for single-family homes is normally more stable, and the prices tend to go higher, as they are often preferred by families with children.

Another interesting option to consider is investing in a commercial property. Commercial properties may offer the potential for higher rental rates, as they are often in higher demand due to their location and size. However, the upfront costs of purchasing a commercial property may be significantly higher (and here the risk of vacancy may be greater).

Finally, another interesting and extremely flexible option to allocate money to a real estate product is to invest in “real estate mutual funds”.

I find them a really interesting option since : 

1. The capital required is significantly less than buying a property
2. The flexibility offered is remarkable, you can choose your sector of preference between tons of options.
3. It is an extremely “liquid” investment (you can turn your assets back into cash in a matter of hours at max!).
4. You can build a diversified portfolio, and thus spread the risk to an acceptable level (you would need millions to achieve that by buying properties directly)
5. You do not have the classic obligations and risks of a landlord (maintenance costs, vacations, taxation etc.) 

…and if you are interested to more options about saving and investing, I wrote an interesting article some time ago, enjoy!

The Slightly Insane Guide to Owning a Flat: So, Are You Crazy Enough?

Are you crazy enough to buy a flat in 2023? It’s a question that many potential homeowners are likely asking themselves as they consider their real estate options. While there are certainly potential benefits to owning a flat as we discussed, it’s important to be aware of the potential risks and challenges that come with it.

Do not forget, when deciding whether to buy a flat during 2023, to check the state of the real estate market in that moment. The demand for flats can fluctuate with changes in the economy, and it’s possible that the market may be more or less favorable in 2023 than it is today (and by the way, the opinions of the “experts” are all over the place, like always…)

I would suggest nevertheless a consult with a real estate professional to get a sense of the current market conditions…

Ultimately, whether or not you’re “crazy enough” to buy a flat nowadays will depend on your financial situation, your long-term goals, and your willingness to accept the risks and challenges that come with owning a flat. So take your time to carefully consider all of these factors before making a decision.

More about that in the next Chapter!! 🙂

The (Un)official Quiz: Are You Ready to Take the Plunge and Own a Flat?

Here is a brief survey I produced to help you make some sense of the dark clouds you surely have in your head right now…

This is not by any means an exhaustive tool to mathematically evaluate your whole personal “Universe”.

It is rather a collection of questions designed as food for thought.

I expect you come along with even more of yours, surely more aligned with your particular situation, needs, and goals.

All you need is a piece of paper, a pencil, and an hour of time in a relaxed space.

The Quiz

Enough said, let’s go…

1. Can you explain to yourself in less than 30 seconds and in simple English why you are planning to buy a property? Go do it.

Purchase of A Peronal Residence

1. Can you be reasonably sure that the piece of property you are considering will fit your needs for the coming 10-15 years at a minimum? No kids on the horizon? No dogs to brighten your day? No need for a little home office to let your creative flair explode?? 
2. Can you explain to yourself why buying the property is hands down a far better option than renting it (or a similar one)? Write down at least 5 important reasons.
3. How do you plan to go with the activities and costs of maintenance? Are you good enough yourself? List your skills.(Buying a personal residence) Imagine in your head yourself while taking care of the repairs (perhaps to save money?). Look at yourself while replacing the old air-conditioner on the terrace under the August sun (I had to do it…), or repairing a broken water pipe right in the middle of the night… 
4. Have you carefully inspected the situation in the neighborhood and, way more important, got to know the families that live upstairs (you have absolutely to inform yourself on this one!), on the sides, and downstairs from your property?

Purchase of an investment property

1. What kind of return do you imagine getting annually from this property? Write the number down.
2. Can you explain to yourself why buying the property is in this precise moment the best option to let your capital work for you? Write down at least 5 important reasons.
3. Are you aware of the impact of taxation on the gains you should theoretically receive from your tenants? Write down an approximative percentage.
4. What is your honest opinion about the potential for appreciation of your property in 2 years, 5 years, or 10 years from now? write them down.
5. Do you have a plan to finance this business? Are you already aware of the details to leverage the bank’s money?

Examine the Data

Great. Take a step back and have your coffee for a couple of minutes. Then look back to the data you just collected.

Ask yourself: Do you still feel excited and ready to rock?

Or perhaps is now clear that you need more knowledge before committing any further?

Like I said before, I am sure you will come up with a multitude of additional questions. Just proceed and make sure to have the best overview possible coming from yourself, your needs, your goals and your knowledge, before going ahead and interviewing a professional to prove your assumptions.

Now let me adwertise my work a little bit : did you already had a tour of the whole website?

if not, let me warmly encourage you to do so. There’s a good amount of content, with real data, my personal stories and a ton of readily actionable tips just waiting for your attention.

For instance, do you ask yourself sometimes “why am I so slow at everything?” Then check this article following the link😊

Conclusion

Whoops!… Mr. Hyde eluded my surveillance again, I am terribly sorry!!

My Personal Experience

But seriously, me and my wife had the experience of owning a house in Italy, the one where all 3 of my children were born.

And I have to say that in the end it wasn’t a positive experience.

There are surely better options nowadays. You can make your money work for you while ensuring a good shelter to your family.

In addition, you can avoid immobilizing your capital and other soul-destroying obligations…

So, if you can’t help but buy a property, do it at least as an investment, then rent that space and collect gains. 

But ALWAYS, get knowledgeable before you commit to anything, take paid tuition if you have to. Refusing to invest in yourself could be your worst mistake ever.

Imagine shooting in the dark while investing money…

Now, what about you? What are your planning for 2023?

Have you already had experience with the real estate sector? Tell me your story, or write any questions you have in the comments!