Property investment strategies
Numerous investment options are available to investors to diversify their hard-earned money, ranging from equities to bonds, mutual funds to deposits, gold, and real estate. Among all, investing in property generates enormous profits as it is the only option that provides Financial Freedom. It allows you to create a solid financial portfolio that increases your cash flow and savings.
If you play your cards well, there are numerous advantages to investing in real estate, which is why it is one of the most popular investments. Real estate is driving people in the USA, UK, Australia, Sydney, and many other countries to become property developers.
Learning about the diverse types of real estate investments can be a little intimidating if you're just getting started. Here's what you need to know before investing your money.
Types of Real Estate Investment Strategies
When you think of real estate investment, the first thing that comes to your mind is buying a property and renting it out. It may seem a most viable option to you, but it is just a drop in the ocean in terms of real estate investment types.
Real estate investment majorly falls into two categories that are active and passive.
Active property investments require you to contribute your money, your time and possibly your physical work. Active investments include things like flipping houses and managing residential rental properties. These types of investments are often more profitable than passive investments, but they are also more expensive and risky. As a real estate agent or a property developer, you will need to do an ample amount of work. The good news is you can become a real estate developer without any experience.
Talking about passive investments, these are the type of property investments that do not need you to own or manage a property personally. REITs and Crowdfunding are known as passive property investments. These strategies allow you to invest in real estate without having to put down a large sum of money or manage any properties.
Let's quickly dive in and understand the best real estate investment types.
6 Types Of Real Estate / Property Investment Strategies
Type 1 - Residential Real Estate Investment
Residential real estate is the most popular investment type in the property development system. It comes in the active investment category, meaning there is money and labour contribution from you.
Purchasing a property to lease it to someone to live in is a residential real estate investment. This category encompasses a wide range of properties available on the market. You could buy a family home and rent it to a family, or you could rent it out as rooms to a range of people who want to share a living space.
Alternatively, you may buy a block of apartments and rent each one to a renter, which could result in a significant return on investment. Another alternative is buying a property and dividing it into two apartments; both can be rented independently. Your choice might depend on the amount of money you have, the properties available in your area, and the demand for real estate in your area.
There are different types of residential real estate investments that you should know.
1.1. Long-term rental property
A long-term rental property is a piece of real estate purchased to rent out to tenants for an extended period. This property might be anything from a four-unit multifamily residence to a small single-family home. As an investor, you profit from these properties by receiving rent from tenants or profiting from increased property value if you choose to sell them later. When it comes to maintaining a rental property, some investors prefer to live on-site, which is an owner-occupied multifamily property, though this is by no means needed.
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1.2. Vacation rental
A vacation rental property is similar to a long-term rental property. You acquire a home, usually in a touristy area, and then rent it out (typically short-term) to tourists who will only be staying for a few days. Because you or someone who works for you will constantly have to supervise the home's upkeep between guests, this can be one of the more labour-intensive residential real estate investments.
One of the most active investments you can make is flipping a house. When you flip a home, you buy a fixer-upper that needs a lot of work, then fix it up and sell it. This is risky because you'll have to put a lot of your own money into the house, and there's a possibility you'll run into further issues and lose money instead of making money. However, if everything goes according to plan, you could make thousands of dollars from the sale.
Micro-flipping is a less extreme variant of flipping a house where you buy homes for less than their potential market value and resell them rapidly, usually without extensive modifications. As compared to traditional flipping, micro-flipping is less beneficial but also comes with less risk.
1.5. ADU (Accessory Dwelling Units aka Granny Flats)
ADUs, or accessory dwelling units, are additional living spaces on your property that you rent to a tenant, usually a family member. The typical example of ADUs is granny flats, basements, and sheds transformed into tiny dwellings. Operating an ADU is often less expensive than maintaining another property, so it's an excellent alternative for individuals looking to generate some passive income from their current residence.
Type 2 - Commercial Real Estate Investment
2.1 Office Real Estate Investment
As it is clear from the name, office real estate investment is the acquisition of office space that is then rented to a company for an extended period. Business leases are often long-term, which means that once you've found a dependable tenant, you won't have to worry about your investment for a long time. The advancement of technology and everyone's reliance on it gives rise to several organisations in need of office space.
Property developers who have several offices in their portfolios can be benefitted from this type of property investment.
As an experienced property developer, I recommend you pay the most caution while investing in this commercial real estate project because it is one of the first victims of a downturn in the economy. Even though most leases are for an extended period, a corporation might go out of business overnight, leaving you without a way to pay your rent. The situation becomes worse if you discover that the firm owner has not been held personally accountable.
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2.2 Retail Real Estate Investment
The second most common commercial investment is - retail real estate investment. You will hardly find any big city without a shopping mall or a series of shops on the main street. Even small towns have developments in the form of shops, cafes, and restaurants.
Not every business owner can afford to buy their property, especially when they are just starting. It simply indicates that there is a strong demand for firms looking to lease space. A lease will be created for a certain period and at a set rate, with predetermined times when the rent will be reviewed. Once the property has been leased to a business, this gives the investor some peace of mind. It would help if you hunted for either a single property or a group of properties; property developers with a substantial sum of money would prefer to buy the entire mall.
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Type 3 - Industrial Real Estate Investment
All lands, buildings, and other structures that accommodate industrial-sized activity are referred to as an industrial real estate. The majority of industrial properties are less expensive to buy than residential, office, or retail assets. It is because the average industrial unit is wholly unfurnished and has access to power and water only.
Production, assembly, warehousing, manufacturing, research, distribution of commodities and products are examples of industrial-sized activities. Businesses choose these units because they may modify the space to meet their specific needs; this is usually less expensive than adapting an existing setup.
Industrial real estate investment could be the best option for first-time investors as it requires low operating costs and little management.
When looking to buy an investment industrial unit, location is quite essential. It should be conveniently accessible near a good road network, rail, or even maritime routes. Moreover, during its activities, the industrial development must not affect residential or neighbouring areas. It's also crucial to ensure that a potential building has enough height clearance for forklifts or other machinery that a company might want to use.
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Type 4 - Raw Land Real Estate Investment
The type of property that has nothing on it is known as raw land. This type of land is commonly referred to as undeveloped or agricultural land by developers. Many property investors believe raw land to be a desirable investment option because it has finite resources and is less expensive to purchase than developed land. I recommend opting for a land loan if you're buying land for planning and development.
Investing in raw land also saves you the effort of renovating and worrying about stolen or damaged property. There is no need for property insurance in this type of investment. This investment type has the disadvantage that it does not generate revenue on its own.
Type 5 - REITs ( Real Estate Investment Trusts)
REITs, or real estate investment trusts, act as trusts and manage various real estate investments. REITs, unlike many of the other possibilities, are considered passive investments. Instead of owning assets, you can invest in a REIT and get income from the properties that the company manages.
REITs are real estate investments that outperform the market, resulting in higher returns on your investment. You can choose from various REITs to better leverage your portfolio, including retail, office, healthcare, residential, and mortgage REITs.
Type 6 - Crowdfunding
Crowdfunding platforms give investors access to various high-yielding assets that were previously only available to the wealthy. While investors benefit from the convenience of acquiring assets, this sort of real estate investment comes with a high level of risk. Accredited investors or those with a high net worth are often excluded from crowdfunding platforms. Non-accredited investors can also invest on some platforms.
Non-traded REITs, or REITs that are not traded on a stock market, are the most common real estate investments made through crowdfunding platforms. When it comes to non-traded REITs, your money could be locked up for years with no means to get it out when you need it.
Start your development journey by following my secret Property Development Process.
before selecting Your real estate investment Strategy
Budget is, without a doubt, the essential aspect of any investment decision! You must first determine which properties you can afford and then decide which of these are most likely to yield a profit. If you have the option of buying a house in a terrible part of town or an industrial unit in a lovely part of town, the industrial unit should be the apparent winner.
Any property will need to be managed, whether it's for yearly upkeep and insurance or for looking after renters and finding new ones regularly. If you plan to operate the property yourself, be sure you understand the time and financial obligations it will impose on you. Various types of property will have different requirements, which could influence your decision.
The cliché "location, location, location" is still accurate and remains the most crucial aspect in property development.
For example, Residential property assessments are heavily influenced by proximity to amenities, green space, attractive views, and the neighbourhood's standing. On the other hand, Commercial property valuations are heavily influenced by proximity to marketplaces, warehouses, transportation hubs, freeways, and tax-free zones.
Shortlisting a potential site becomes easy by following a complete site acquisition process.
Finance and profit opportunities
Before you can choose a property type, you should have researched the many types of financing available, selected the one that best meets your needs, and made preliminary preparations. This means you'll be aware of your budget and any additional stipulations that may apply; this is crucial in ensuring you select a property that you can afford!
"Working hard and working smart are two different things."
Opt. for the later one, and you will achieve success sooner. To ensure proper calculation of each of your property development projects, you should take a smart move.
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It's crucial to examine whether the region you're buying in has a lot of renters or a lot of owners. Owner-occupied properties, whether commercial or residential, are less forgiving of landlords. They're also likely to be in an area of town where the majority of renters can't afford to live, which will severely limit your potential tenants and, as a result, your revenue.
Keep your eye on Property Market Cycle and hit profits in your projects.
Current Market Analysis
As soon as you decide to invest in real estate, you should begin learning everything you can about the industry. This is also an excellent time to start networking and developing a list of connections who can help you in the future, whether it's with money or advice.
Which real estate investment Strategy is Best for Me?
The optimal real estate investment type depends on your circumstances, objectives, market location, and preferred investing style. While many investors prefer a more apparent answer, deciding on the best investment property is subjective. Choosing the perfect property type refers to assessing the benefits and drawbacks of each option. Still, investors should keep a few crucial considerations in mind as they search for the optimal choice. This is where the need for expert consultation comes. Don't worry; you can contact me any time and ask your queries.
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When deciding on the ideal type of investment property for you, keep in mind that many investors have success with various property types. It's relatively uncommon for investors to start with residential real estate before going to commercial real estate. There's no reason why investors can't succeed in a variety of property types.
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What is the most effective investment strategy?
Buy and hold is one of the best investing strategies. Investors who buy and hold feel that "time in the market" is preferable to "timing the market." Applying this technique will acquire properties and retain them for longer timeframes if you apply them. Long-term gains, the theory goes, may outperform short-term volatility.
What is the 1% rule for an investment property?
In property investing, the 1% rule compares the price of an investment property to the gross revenue it will earn. The 1 per cent rule states that a potential investment's monthly rent has to be equal to or even less than 1% of the sales price.