Opinion – From Grain to Grain: Is renting and investing in FIIs better than financing the purchase of a property? Check the simulation

This weekend, I watched a recent video by Thiago Reis from Suno Research in which he argues that he prefers, instead of buying a property, to invest the proceeds of the purchase in Real Estate Funds (FIIs) and pay rent with dividends. However, in the comments, several complained that not everyone has the full value of the property to immediately invest in FIIs and pay the rent with dividends. They argued that the account should consider who finances the property and does not have the money. Thus, in response to this request, I present the result of this simulation.

For this simulation I prepared a spreadsheet and made it available at the end of the text. I will explain the data I considered, but you could simulate it for different situations.

Consider that you want to buy a property worth R$ 400 thousand, but you only have enough in applications for the down payment of the property, which is 20%, that is R$ 80 thousand.

I consulted a large financial institution and found that the Total Effective Cost (CET) of a ten-year loan would be 9.8% per year plus the TR, which today is approximately 2.5% per year.

As a result, the installment for the property starts at R$5,800, but drops over time to R$2,700. This simulation is on the worksheet.

As we said, instead of buying, you could rent the same property for R$ 1,600 monthly, which represents 0.4% per month on the value of the property. This rental rate is presented on the FipeZap portal.

I considered that this property should appreciate in value following the inflation of 5.5% per year. Therefore, rent must also rise in the same proportion.

Thus, at the end of ten years, the property worth R$ 400 thousand would be worth R$ 683 thousand, that is, an appreciation of more than 70% in the period.

I remind you that condominium and IPTU should not be considered in the account, because being a tenant or owner, you always have to bear these costs. In fact, who owns it has even more costs, but let’s disregard them.

As an alternative to financing, you use part of the same amount of the financing installment to pay the rent, mentioned above, and the rest to invest in a portfolio of real estate funds.

Suppose that in ten years, real estate funds earn the same rate of real estate cost, which is 12.55% per year (CET+TR). This return from FIIs includes dividends and capital gain. I assumed that all dividends would be reinvested.

In the end, if you had financed it, you would have spent a total of BRL 772,000 to buy the property that would have been worth BRL 683,000.

However, if he had rented and invested in FIIs in a disciplined manner, at the end of ten years he would have had a total value in FIIs of R$ 846 thousand. That is, he could buy the property and still have money left over to live on income.

An account that can also be done is to find out what rate of return the FIIs would need to yield so that, in the end, you would have the same value of the property and thus be calm about paying the rent with dividends or buying the property.

This return would be 9.8% per year (77% of the cost of financing), considering the sum of dividend and capital gain. I remind you that currently, the average dividend return is above this rate. With this profitability, at the end of ten years you would have the desired property value in FIIs.

This means that at the end of the term, you could sell the FIIs and buy the property if you wished.

So, considering only the mathematical aspect, renting is still the best alternative and that’s what Thiago Reis and I do.

In this link you can download the spreadsheet prepared by me to do other simulations.

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

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