Often we are that the best investments are in real estate. I am of the opinion that all statements have two sides, two approaches.
In real estate, not everything that shines is gold. There are good investments, which are the ones we regularly see or remember or presume, but there are bad ones, of which little is known because sometimes we tend to hide them, justify them or minimize them.
Then, it is not too bad to ask the following questions: Was the investment I made in this property good? Will it be that when I sell it, I will get good performance? Or, will it be good to buy a house or land today?
These questions are reasonable and obey that our investment in real estate is just that, an investment. Of course, there is another type of shopping, which responds to luxury or whim, as a work of art or a jewel, that we probably will never sell.
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This type of purchase should be taken as an expense and not as an investment since we will hardly find another person who has similar tastes and who is willing to pay the same or a little more.
So to evaluate if the investment we want to make is good, we should compare it with another alternative.
We can analyze what options we have in the market. Look for similarities regarding risks, times, conditions, etc., then evaluate them in their different magnitudes. One of them and the one that will attract us most will be the performance that this investment has.
But how is it measured? The best way will be through a rate of return, expressed in percentage (as much percent), as we see it in the system banks and that we know as “interest.” This rate of return is divided into active and passive.
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Active is the interest rate we pay the bank for any loan we make, and currently, ranges from 8% to 18%.
The passive interest rate is what we will pay this bank when we make savings, either at sight or fixed terms, 3, 5, 10 or more years. In savings on demand, the rate is 2% or more.
However, in longer terms, we can access rates of 6%, 8% or better, depending on the contractual conditions. One thing is certain: the greater the passive rate of return, the greater the conditions that will hold the investment and the greater the risk.
We must take into account something important: inflation.
This will be the loss of purchasing power of our currency that will affect the investments; it means that we will be losing year to year the purchasing capacity. And at the end of a period, we want to have more money, not less.
In the analysis for the best decision of an investment should be taken into account: 1º The conditions and amounts, 2º the risk, 3º the yield, 4º the inflation, and 5º the term or time in which we want the return that investment.