Many investment opportunities occur on an investor’s desk (especially if he is a professional investor).
The situation may therefore arise in which it must be decided whether the proposed opportunity is valid, or a choice must be made from the various opportunities available.
So we asked ourselves: what are the factors that a professional investor evaluates to make these decisions?
Far be it from me to want to put myself as a guru, I am still young and I still have to acquire knowledge and experience, I would just like to give some food for thought and understand if there are other aspects that operators like me take into consideration (I invite you to leave comments!) .
I personally asked what factors they considered important to different investors that I know directly and also on the various social networks, in order to find an answer. This is what came out of my “research”.
1) The goal and expectations
The first things to make clear are our goals.
What do we expect from the use of our capital? Which surrender? Each of us has a minimum parameter below which we do not consider it advantageous to commit our resources.
How long are we willing to deprive ourselves of this financial availability? Obviously, a more lasting commitment over time should correspond to a higher return on capital.
How inclined are we to risk? Every investment involves a risk, the higher this risk, the higher the expected yield should be.
How much are we willing to invest? Only a quantity of capital that is not indispensable to us should be invested. Based on this there will be investments that we can make or that require too high capital for our portfolio. It should be borne in mind that with the possibility of participating in real estate transactions at altitude, this aspect is reduced in importance.
2) How much does it pay?
The first obvious question to ask is: How much does the operation they are proposing make me?
First of all it must respect the minimum parameter that we expect from our capital and secondly it must be in line with the sector’s yields and according to the type of operation. There is no maximum value, but when the performance seems too good to be true, study the opportunity well and who is proposing it (scams are around the corner!).
In order to have average parameters (I repeat that the values are purely indicative), an income-generating operation can yield up to 10% per year, development operations even up to 20-25%.
We are talking about ROI, that is: profit / invested capital expressed as a percentage.
There may, of course, be made higher or lower, but we must make sure that they are in line with our goals, with the market and with the type of operation.
The yield factor, however, is closely connected with the time factor.
3) How long does it take?
The return (ROI) must always be compared to the time necessary to complete the operation. The longer the time frame, the higher the ROI must be, as we deprive ourselves of our money for longer.
Example: operation A, ROI = 20%, duration 8 months operation B, ROI = 20%, duration 12 months
It is intuitive that 20% in 8 months is far more desirable than the same 20% achieved over a year.
We then introduce another parameter, in my opinion even more important than the ROI itself, annualized ROI.
Annualized ROI = ROI / duration in months of the operation * 12
Returning to the example above:
Operation A
Annualized ROI = 20/8 * 12 = 30%
Operation B
Annualized ROI = 20/12 * 12 = 20%
At this point it is obvious that operation A is more desirable, having an annual yield of 30% compared to 20% of operation B, even if initially (without considering the time factor) they could seem similar.
4) Market liquidity
The term liquidity is intended to mean how much the market is able to “absorb” the real estate units that are placed there.
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The parameters to be evaluated are the number of trades in the area considered and the intensity index (i.e. how many units are sold each year compared to the total on the market). It is also important to analyze whether these data are growing or falling compared to past years.
5) Sales strategy
How will the property be marketed? Through which channels? Is marketing appropriate for the project?
In my opinion, it is always advisable to rely on an agency in the area, selecting it well, giving the opportunity to market our units exclusively. In this way the agency will be able to make important investments in advertising and marketing.
6) Experience of the proposer
Whether the transaction is proposed to us by a company or a natural person, it is important to evaluate the history of the transactions carried out and the credibility of the proposer on the market. This does not mean that a young man with a short history is not reliable, but experience and credibility have their weight.
7) How is the investment made?
To date I know these ways in which an investor can make a real estate Invest in Curaçao proposed by a third party:
- Acquisition of company shares of the vehicle that will develop the operation
- Direct registration of the property (as a company or natural person)
- Participation association agreement
- Subscription to fund units or investment companies
- Credit title to the entrepreneur (example lending crowdfunding)
When different or difficult to understand methods are proposed, they must be properly investigated with their consultants and professionals (accountants, lawyers …).
As I wrote initially, I await your comments and advice in the comments!
The Real Estate Curacao 