Why to invest in real estate?
Since ancient times, the possession of land and real estate has been considered a wealth. As in the past, also today, many people say that the rich one owns several houses or apartments. Real estate is not only a place of living but an important investment that differs from financial assets and other types of property in which everyone can invest their savings. Significant benefits that a property can bring to its owner need to be kept in mind when making a decision on an investment.
Stability and continuous rise in real estate prices
When we invest in something, we expect to regain our investment, but also potentially make a profit from our investment. Each investment brings a certain risk that every investor must be aware of before undertaking this venture. Unlike investment in financial instruments such as stocks, bonds or investment funds, investment in land and real estate is considered a safer form of investment.
Large financial losses caused by the volatility of the financial but also the foreign exchange market have caused a fall in public confidence in such a type of investment. Also, for investing in financial assets, it is necessary to have knowledge of how the financial and the securities market operate and use the services of authorized brokers. The lack of knowledge of financial markets is one of the reasons why many individuals are reluctant to make investment ventures so that they do not experience significant financial losses. People are generally unaware of the risk that is present in the market of foreign exchange and securities, and those who are less prone to such risk levels prefer another type of investment, most often investment in real estate located in attractive locations, often known tourist destinations.
Real estate prices at such locations are constantly growing and are stable which is one of the biggest benefits for their owners. Because of Croatia's growing recognition as tourism destination, the prices of land and real estate on attractive locations in the Adriatic coast or near major tourist destinations are constantly growing and guarantee investors not only the return on investment but also the possibility of additional earnings if they decide to sell it.
Stability and profitability of the investment
The stability and the continuous growth in prices guarantee the growth of the value of real estate and the investment in such type of property is considered more stable than other types of investments. The value of financial assets may fall overnight due to various economic and political events. Real estate prices are maintained, while the value of money and stocks may increase significantly but also drop drastically. For instance, by purchasing a stock package, its owner is never sure whether this package will provide additional earnings next morning or its price will fall drastically and will result in significant financial losses.
On the other hand, the value of a purchased real estate cannot fall to zero but only grow if its owner invests it in its renovation and equipping, but also because of market circumstances that are not under the control of the investor due to the increased demand or attractiveness of the location. Therefore, we can say that real estate investment allows a greater control over the investment than investing in financial assets. If the value of a real estate market falls and you want to sell your property, you can always decide to wait or invest additionally in it in order to increase its value again. When you are trading securities, you cannot do anything more than hope that the company you are investing in will come out of the crisis or sell your shares to save the little that can still be saved. When investing in real estate, you make your destiny, while your destiny on the financial market makes someone else.
Purchase of a real estate as a way of saving
Interest rates on term savings are becoming lower and savings are becoming less attractive form of earnings. For this reason, many individuals seek an alternative way of earning, or the way they will enrich their capital. As already explained, investing in stocks and bonds is too risky for someone who wants to preserve the value of their assets and such a person prefers to invest in savings. However, following low interest rates, many individuals instead of saving in banks prefer buying real estate.
The property can be used for various purposes and bring income far higher than the interest rate on term savings by using rental opportunities. As interest rates on term savings are lower, the rental rates for houses and flats are increasing and will continue to grow in the future. Zagreb and the Adriatic Sea are at the forefront of destinations with the highest rental rates. Such market circumstances suggest that it is always worthwhile to have real estate because it is not only a place of residence but also a place that can be transformed into a place of income.
If you choose to pay off your savings, the amount you will receive with interest rates is considerably lower than the income you would get by renting your home or apartment. Interest rates in banks on term savings in euros are now below one percent, and for savings of 100.000 euros with an interest rate of 0.60% per annum, you can get EUR 600,00 per annum. After deduction of taxes and surtaxes, this amount would be reduced to EUR 520,80. On the other hand, renting an apartment of the same value at the price of 3000 Kuna per month after the deduction of taxes and prizes whose cost would be 297.36 Kuna per month, you can earn 32 431.68 Kuna per annum.
Monthly rental rates prevail in continental Croatia, especially in Zagreb, where many students are looking for a rented apartment. An additional apartment is searched because of a rapid growth in the number of foreign students. On the Adriatic coast, there is a prevailing rent on a daily or weekly basis due to the large fluctuations of tourists, and therefore, during the tourist season, rental income is shorter and higher than the monthly rate. Also, various online rental platforms allow renters to quickly and at a low cost to book their capacities up to 100% throughout the season. In just a few months, it is possible to earn a profit you might never be able to realize if you have chosen to put your savings in the bank.
Due to the possibility of renting real estate and earning bigger income, the real value of real estate is growing in the tourist season. Properties of such characteristics and in a good location are desirable in the market and due to the high demand, the real estate market prices continue to grow. Apart from apartments, more and more popular are the holiday homes for which are interested both domestic and foreign tourists. This increase in real estate value allows its owner to sell it at a significantly higher price than the purchase one and make additional earnings.
Income from renting real estate can meet significant costs such as repair costs, renovation, maintenance of property, as well as the cost of repayment of the loan with which the property was purchased. All that remains after paying the costs, is the amount of earnings for the lessor. In this respect, the tenants are the ones who repay the investment, and you as the owner of the apartment can use the remaining amount for new investments or as retirement savings. There is an increasing trend towards people who choose to sell their homes or flats larger than 100 square meters and buy smaller flats. The difference between buying and selling the sellers use for living expenses once they become retirees.
Use of real estate for your own purposes
In addition to the financial benefits that a property can make to its owner in the form of rental income, it gives the owner other benefits if he decides to use it for personal purposes. The property provides comfort, it is ours and we do not feel like guests or strangers in a house that is owned by others. It is the place we live in and as its owners we are obliged to pay for the costs, maintenance costs and invest in it to maintain its value. Own property implies that there are no rental payments as well as the cost of a hotel accommodation. As a real estate owner, you can only win and never lose either in the form of unpaid rental prices or in renting your home or apartment.
Undertaking an investment venture
Numerous benefits for investing in real estate need to be used in the right way. Prior to any investment venture it is necessary to inform yourself well and investigate the situation on the market. It should also be taken in mind the choice of the appropriate location, the size of the object and the premises as well as their layout. The more attractive the location is, the higher the real estate prices at that location are. However, it is likely that these prices will grow in the future and you need to choose the right moment to buy a real estate. The attractiveness of the location will make it easier and easier to find the tenants if you choose to make revenues in that way.
Apart from the location, it is also necessary to find a property whose size is appropriate to you. Often because of the characteristics of the land and the surrounding area it is not possible to build real estate whose size would suit most the investors. In cities, you can usually find smaller flats, while on the periphery of the city’s most often large-scale houses are built. It can be said that the location and size of the space often do not move in the same direction. In addition to the size of the space itself, the layout of the rooms is also important, and the purpose of the property is to be considered. For apartments, it is important to consider the characteristics of the building, i.e. the floor on which the apartment is located, as well as the building's age itself.
All of the above elements need to be considered when purchasing real estate to make a profitable investment. The higher the value of the real estate, the more investing time is needed, but the return period of the investment is longer, and it is necessary to consider whether you want a bit faster and lower earnings or you are willing to invest more and wait longer to achieve a higher return on your investment venture.