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What to consider before diversifying your investment

Posted by Leanne Dudley on October 10, 2019
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Specialists claim that buying multiple units in a project has several benefits such as allowing you to negotiate better prices. On the other hand, it is possible to reduce risks by purchasing within several buildings.

 

Those who buy a small number of departments in projects, so-called ‘ant investors’, constitute an interesting market.

“Their importance depends on each particular real estate agency. If we cross-reference some of them, we can say that they constitute between 25% and 30% of sales,” Manuel Riquelme, commercial director of Dominus Capital, says. Although, this is less relevant in certain communes of the Eastern sector. 

He points out that they are investors who prefer to enter at the beginning of the project. The investors utilise the so-called ‘blanco’ or ‘verde’ sales – ‘blanco’ meaning ‘not constructed’ and ‘verde’ meaning ‘under construction’.
“They know this market and know that they have a double benefit. They can manage to buy a product at a lower price. This allows them to obtain a higher return once they lease the real estate. On the other hand, they can make a profit between 8% and 12%, if they decide to sell the asset once the building is finished.”

Different Options
The executive says that there are investors who can buy from one unit to the entire building.
But is it really convenient to invest all capital in a single project?

Manuel Riquelme states that “due to portfolio diversification, it is better to buy properties in different locations. If a community has excess supply, for example, the leases of that area should be affected downwards. This deficit can be compensated by investing in another commune that has a greater demand. Ant investors, in general, are very aware of these issues and know how to run the business by diversifying.”

Partner and Sales and Marketing manager of Assetplan, Gonzalo Ramírez, says that buying within a single project has the advantage of centralizing and obtaining more power in that building or project.

“There are more votes to direct the asset and give it value over time,” he says.
“Buying in more than one project has the advantage that the risks are more diversified. Such as in terms of capital gains, project development and problems the asset may have.”

Rodrigo Abufon, commercial manager of Real Estate Aconcagua, says that one of the main advantages of investing in the same project is that it becomes easier to manage the properties at the time they are delivered.

“Having it all in the same building makes it easier to control the investment. It reduces the time involved in this process.” he says.
“On the other hand, investing in several projects or communes allows diversification for risky investments. The returns vary by communes as well as areas within the same commune. Additionally, an important issue is the vacancy. This also varies by commune or zones, thus being a relevant variable when investing.” 

Ana María del Río, commercial manager of Siena Inmobiliaria, agrees with this idea.

One of the greatest advantages of buying more than one apartment in the same building is the comfort in leasing management.
“It is advisable to have a mix of programs. This is to diversify tenants and be able to transfer, in the future, to people who lease 1 bedroom units to other 2 bedroom units.”
“Buying in different projects, when in different communes, allows the investor to diversify the vacancy loop,” she adds.

Felipe López, commercial manager of the real estate company Pilares, believes that diversifying and buying in different projects. This makes it possible to expand the investment portfolio, have different levels of risk and manage various profitability alternatives.

However, he says that beyond deciding to concentrate or diversify, it is key to consider the location and financing factor.

“The investment depends on your financial position to take on more than one mortgage and the type of investment you are looking for. In the case of ant investors, the important thing is that your income can cover your debt and you are in a position to face the costs that incur when the property is vacant. It is also advisable to look for locations near the subway (no more than 5 blocks away), that offer high levels of connectivity, and provide other complementary services. For example, pharmacies, supermarkets, minimarkets, restaurants, among others. All of the above helps improve the attractiveness of the apartment when it comes to the rental market.”

He insists that it is always advisable to invest in good locations.

“You can choose to diversify your purchase in several projects, or concentrate them in a very good location. The important thing is your immediate environment, the growth potential of the area and its connectivity. In summary, the advantages are given by investing in good projects located in attractive neighbourhoods”.

María de la Luz Valdés, commercial manager of BRICSA, Brotec-Icafal company, points out that, “generally, those who buy more than one department in a project, have studied it very well.

So the advantage is knowing the market in depth for that project and knowing what to do in the development of the investment business. In addition, it is possible to get better discounts for the purchase of more than one unit per project.”

 

In conclusion, diversifying the investment also has advantages. It is “especially for those who are more impulsive in purchasing and decide to bet in different neighborhoods.”

Disclaimer:
Translated from ‘Lo que hay que considerar antes de concentrar o diversificar la inversión

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