Real Estate Investment
One of the best and most reliable forms of investment is real estate. This is because land and places to live are mostly in demand, meaning that its value will most likely grow over time. But there are downsides to real estate investment as well. Understanding the types of investment that can be made, their advantages and disadvantages, and what basic tactics work best can help you decide what course of action to take.
It should be noted that real estate is considered one of the best investment platforms available. With land being mostly in-demand, its value will tend to rise over time even with minimal improvements. This makes such investments more stable and reliable compared to the stock market for example.
The first step towards proper real estate investment begins with the two basic types, ownership and non-ownership. While there are different types, most investments either focus on purchasing the property or using techniques like crowdfunding or REITs to take advantage of property that is not owned.
Purchasing Real Estate Investment
This is the most well-known form of real estate investment. You buy the residence, business, or raw land and then turn it into profit. But as with any investment, it’s not as simple as that.
Investing in Raw Land
This is the simplest and most straightforward of techniques. You purchase the land and either sell it to a developer or develop it yourself. But buying raw land may be quite complicated, especially if you are the one who is going to do the developing.
You will need plenty of capital and will have to do plenty of research to make the best-informed decision about what land to purchase. This means understanding zoning regulations, building codes, and possible issues with the land itself such as being on a flood plain. If the land is to be used for residential or commercial uses, you will need to understand the local markets in that regard, too. This is a high-risk strategy, but if you are correct then it can offer considerable rewards.
Investing in Commercial Properties
With raw land being such a high-risk investment strategy, purchasing an existing commercial property offers more security. This is purchasing a building that is rented by business owners. They can be a strip mall that offers space for businesses, restaurants, or retail shops. Or, a building that houses a single business such as a gas station for example.
The advantages of purchasing a commercial property are considerable. You collect the rent from the leases which tend to be longer and more lucrative compared to renting property to tenants. And, if the area is in high demand, you can easily survive a business owner leaving as another quickly takes their place.
However, you will need a higher down payment and pay more for property management, unless you intend to manage the property yourself which entails a greater commitment of time. But the most important downside is that if the area falls out of favor, you may find yourself with empty spaces for long periods which cuts down on your profit-making potential.
Residential Property Investment
This is the most common and most popular form of real estate investment. It involves purchasing single family homes, condominiums, apartments, or vacation homes. There are two basic ways to make money. You can rent the property and collect the rent, or you can fix up the property and flip it for a quick profit. Some investors choose to invest in luxury international realty, while others choose to spread their investments across multiple smaller properties.
Flipping homes is simpler but relies on capitalizing on opportunities that may pass quickly if you do not act. Renting provides long-term profit-making potential but is also most cost-heavy in terms of managing the property.
Real Estate Investment without Ownership
You do not have to purchase the property to reap benefits from real estate investment. Here are a couple of ways you can build up your portfolio without having to own the property.
Easily one of the biggest trends in investment is crowdfunding platforms. Such platforms may earn considerable rewards, but the risk is also quite high.
The biggest advantage is that you are getting into an investment opportunity right from the start. If successful, you can real profits that may be considerably higher than other, similar techniques that get you in much later.
One disadvantage is that many crowdfunding efforts into real estate investment require you to be accredited. This means that you must have a net worth of at least $1 million or earn at least $200,000 per year. So, you need to be doing well to qualify for many such platforms. Plus, they are not publicly traded, so you cannot sell your investment if you need the cash right away.
If you have money you do not mind putting at risk and are willing to wait years for a good return, then this may be the right platform for you.
Real Estate Investment Trusts (REITs)
Here, you invest in commercial real estate properties such as malls, hotels, offices, and the like. You purchase shares of a company that owns properties that are rented to businesses. Because REITs are required to return at least 90% of their taxable income annually to their shareholders, you can reap considerable rewards based on your investment.
The advantages are considerable starting with the fewer risks that are involved with REITs. Most notably that you are not overseeing the properties, you are just reaping the profits that they generate. Plus, for REITs that are publicly traded, you can sell they for hard cash if you desire.
The downsides are relatively few, but not all properties are profit-making. Plus, you may be competing with many others on successful REITs that drive the price of shares upwards, making them difficult to invest without considerable cash at the start.
But overall, REITs are one of the simplest and easiest ways to invest in real estate. By diversifying your portfolio, you can invest in several properties and garner profits annually.
Which Investment Method is Right for You?
Now that you understand the two categories and five basic methods, the next step is finding out which one works best for your needs.
The answer begins with your own situation as to what you can achieve with your investing potential. This may be somewhat limited at the start, but as you earn higher profits, you can expand into more real estate opportunities.
Low Money, Low Risk Real Estate Investment
You do not have much money and you are wary of putting what you have at risk. This makes you a typical person who is just starting out in real estate investing. While buying raw land may be cheap depending on the circumstances, the risk is often high.
So, you are probably much better off with REITs as you can purchase a few shares at the beginning and grow it over time as you bring in the profits. Keep in mind that there are no guarantees with REITs, but they are considerably less risky than most other forms of investment in real estate.
High Risk, High Reward Real Estate Investing
Such gambling instincts are the stuff that make successful movies. Whether you are a successful investor will depend a lot on your own abilities and luck. In this regard, raw land is the riskiest since you will not know its true potential until after you move on the opportunity.
However, if you guess right then the rewards can be considerable. This means building or developing the property to meet a long-term need. This requires a lot of research and even the best efforts may run into trouble. But the reward is also quite high if you are right.
Long-Terms Success from Property Investing
If your investments are designed to pay off over the long haul, then purchasing rental properties is the best move. The monthly income they provide can build over time which provides not only success over the long-haul, it also offers security with money coming in from different sources depending on how many investments you make.
There is a considerable downside as you must manage the properties either personally which takes time or through a management company which takes more money. But these are acceptable risks if you do the research and get the right properties.
If you are looking to make short work of your real estate investing efforts, then flipping the property is the fastest way to make money. This usually involves paying for a property that is distressed in some fashion, correcting such issues, and then putting it on the market for a price higher than what you paid, but still low enough to be considered a bargain.
Such properties can be sold quickly which brings in a tidy amount. However, there will be some that take time. You do have the advantage of renting out such properties if they do not flip right away. But that does take longer to reap the profits you desire.
Choosing the right real estate investment method or methods for you will depend on your current circumstances and what you want to achieve with the money you put in. This means understanding the risks along with the rewards that will dictate what strategy you choose.
Alexander Bentley leads Remedy Investments™ a private equity fund specializing in operational real estate. Remedy Investments™ has significant expertise in developing Luxury ApartHotels across Europe and the wider APAC region.
Alexander Bentley is the creator & pioneer behind Remedy Wellbeing Hotels & Retreats. Under his leadership as CEO, Remedy Wellbeing Hotels™ received the accolade of Overall Winner: International Wellness Hotel of the Year 2022 by International Rehabs.
Because of his incredible work, the individual luxury hotel retreats are the world’s first $1 million-plus exclusive wellness centers providing an escape for individuals and families requiring absolute discretion such as Celebrities, Sportspeople, Executives, Royalty, Entrepreneurs and those subject to intense media scrutiny.