Is property to live an investment? – 05/21/2023 – From Grain to Grain

Maybe you’ve already seen the question: did you buy this property with the aim of living or investing? For example, it is part of the buyers’ profile questionnaire and is presented in FipeZap’s X-Ray report. Despite being a frequently asked question, rationally, does it make sense? What does it mean?

Released on May 11, the FipeZap report points out that in the first quarter of 2023, 39% of buyers had the objective of investing and not of living. The other 61% buy the property for the purpose of living.

Different from the current numbers, in the same period last year, 47% of buyers had an investment objective and only 53% for housing.

What is behind this segregation between living and investing?

One could argue that buyers looking to invest and make money look more carefully at the price they are paying and the return they expect to get.

This would mean that homebuyers are not rational in their purchasing decision and would not consider price and return.

Speaking this way, it seems to make no sense, right?

The decision to purchase a property is always an investment decision.

When you redeem resources from liquid investments or take out a loan and allocate this resource to a property, you are investing.

I’ve heard challenges to this explaining that if you’re going to live in, you wouldn’t be aiming for rent return.

I disagree with this, if you are going to live, you are the tenant and landlord at the same time. Maybe the best renter you can have, because you’ll never stop paying rent for yourself. However, even so, it may not be the best tenant, as there are many who maintain and improve even more than many landlords.

Therefore, it does not matter if you are going to live there or not, when you decide to acquire a property, you should reflect on the acquisition as an investment decision.

So, like any investment decision, you must evaluate the return you expect to obtain on the acquisition.

The expected return on a property is a consequence of the gain due to appreciation and rent remuneration.

Even if you intend to be the resident, it is important to find out the rental value of this same property and estimate the potential for appreciation.

The evaluation process is the same as if you were buying the property not to live in, but to profit from rising prices and rent.

After all, the result of this evaluation may show that it is better to rent than to buy.

Although it does not make sense to segregate between purchase and investment purposes, I am afraid that buyers with the purpose of housing do not properly consider price and expected return. I have no doubt that many acquire real estate in the heat of emotion or the fulfillment of a dream or desire.

Returning to the results of the FipeZap survey, the number of “investors” dropped significantly in the 12-month period. This could mean that property prices and expected returns are less attractive than they were a year ago and that those who do the math are making a rational decision to wait for better times.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

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