So you want to invest in Real Estate. What to do now?

More than ever, people are beginning to realize the importance of having someone by their side that is specialized in the issues they are trying to resolve. The global pandemic we are living in is teaching us 24/7 that to be surrounded by experts in several matters leads to a more proper and strategic response to disruptive environments, which seem to be more and more recurrent in our lives.

The reality of the ‘handy man’ that knows how to do everything is perceived with different eyes today, for one particular reason: It is impossible to be the pinnacle of every single detail of our lives. Take the example of our health, per example. For minor issues, we have the tendency to self-medicate (which we do wrong most of the time), but as soon as it gets scary, we know we have to seek professional health and have a consult with a doctor. If we do that with our bodies, why wouldn’t we do that with everything else in our lives? Acknowledging this, understanding what to do and being able to find professional help is the first step one must take in order to have their lives truly in their control.

We contact with this reality every day, we just aren’t aware of the depth of it: the driver of the subway we catch to work, the accountant that takes care of the €€ in our company, the teacher that helps our children learn how to read, the cardiologist who assures everything is alright with our heart. Everyone is particularly good at and dedicated to something.

And that is no different in real estate. There are many branches of specialties in our sector but, today, I am here to talk about a particular one: professional Property Management.

According to several market studies about the real estate sector in Portugal, construction of residential buildings for lease promises is becoming an emerging asset class in Portugal. At MVGM International, we consider this decade to be a key moment to revive and professionalize the residential market in Portugal. Up until now, investors perceived this business as a Build to Sell (BTS) environment, rather than Build to Rent (BTR also known as Multifamily). We believe that the market is on a turning point where, in about two years, new enterprises will be thought and built specifically for the leasing market raising, inherently, the role of the property manager responsible for the properties, belonging them to big investment groups or to singular owners.

When we talk about market tendencies, they naturally depend on the government, the profile of the investor, the market and tax issues. Decisions are not that obvious. Even so, it is becoming increasingly important – and profitable - to invest in real estate. And, rather than immediately selling, owners are rethinking their investment on the long run, instead of their immediate profit.

Even though we are going to enter an economic crisis, people will always need somewhere to live. It is not something futile that is among the Top 10 Things I Am Going To Discard When Short on Money. Keeping this in mind, those with the privilege to have the funds to invest, should – really - consider doing it.

But, why develop or invest to rent and not sell? And, more specifically, why lease and not turn my property in – per example - a local accommodation?

As I stated above, an investor can Build to Sell and then pursue another project or can Build to Rent and convert that project in a renting asset for the long run. At MVGM we deal mainly with investors that buy a property to monetize. When they decide to do so, they also have to pick in they want to put it in the short, medium or long term market. But how to decide?

Well, it is all about weighting risks potential risks and victories and to be able to see beyond the one year time frame. In ten years, which decision would I regret?

Per example:

·       Due to the Covid-19 health, social and economic crisis, local accommodation is facing billing breaks up to superior to 75% in the second trimester of 2020. This serves to confirm the difference between apparent profitability and effective profitability. At the outset, someone who runs a business can conclude that if everything goes well, local accommodation is more profitable in the short term than a medium to long length lease. Even so, this profitability is only apparent. Local accommodation has a lot more variables that can influence my income: occupation, touristic flow, weather, popularity of the destination in which is detain the property.

·       Also due to the pandemic, some investors turned from short to medium term rentals (2 weeks to a month). The main problem with these medium term businesses is that utilities are included. After you cut water, electricity, cleaning, internet and other costs, your outcome will not be as profitable as you anticipated. Basically, you’ll have the costs of the short term but the conditions of the long run, which will be harmful for your investment.

How can I avoid making decisions such as the abovementioned? By having someone who considers all the variables for me.

When professionally property managing, we are seeking to give our clients the best consulting possible, giving them all the economic, social and health context they need to make weighted decisions. We create a long-term relationship of trust with someone: we know they treat our house well, we know they will pay rent in time and we know what to expect from that professional relationship. On the end of the day, as I aforementioned, people don’t really need to go on vacation, but they do need somewhere to live.

This is where it gets tricky. So, I have an estate and I have made the administrative decision not to sell it, and to lease it rather than turning it into a local accommodation. But now, how do I decide everything else? This is where professional assistance becomes fracturing. Professionally leasing an estate assures that I have active and satisfied tenants, who feel that their needs are fulfilled every time they need, right on the spot.

In what concerns the owner of the property, having this professional assistance is having someone who guides and advices them every step of the way. The list of examples of advice given would be endless, but I leave some examples below:

·       Not to overprice or underprice

·       What to offer for free, and what to charge as extra

·       When and how to charge the monthly rents and fees

·       How to act in case of crisis

·       What are the market tendencies (and what we should change in consequence)

·       Identify possible threats to the profitability of the lease, by being particularly attentive to all the variable that influence it, including government decisions

The most normal reality is that people who are owners of property also have their own daytime jobs, not being available for their tenants 24/7.

More than anything, to have this professional assistance is to know that my property is being taken care of, no matter of where I am and what I am doing. It is having a safety nest, who keeps me up to date to everything I need to know in order to have the most successful outcome from the situation.

Of course the quick-fix solution always exists. But this is not how markets work, and it surely is not as we operate at @MVGM. As H. L. Mencken said, “for every complex problem there is an answer that is clear, simple, and wrong”. It is our duty as specialists to be available to help you. As managers of commercial estate, we bring you experience, technology and know-how of managing businesses that are a lot more complex. Shopping centres and the pandemic, per example, is being one of the roller coaster of our careers! So imagine what we can do to help owners with far less complex managing businesses – your houses.