Each investor will have to answer the question: what is the main goal he pursues, going to invest in real estate? On this depends the strategy of investment, the choice of the object, the time on which finances are invested, as well as risks, profitability, and dividends from the project
Studies show that no more than 20% of potential investors set specific goals. This explains why investments often fall short of expectations. Make sure:
- You know what resources you’re going to need.
- You have enough financial resources to implement the plan.
- You have plenty of time to reach your goal.
- You understand what obstacles can arise, and you know how to deal with them.
Choosing real estate as an asset, you can:
- Save money from inflation;
- Save on rent payments. Instead of renting a room, you can apply for a mortgage and become an owner. This idea will suit those who do not know how to start investing in real estate from scratch without having start-up capital;
- Provide passive income from renting out real estate;
- Make a profit by reselling the property.
You can invest in foreign real estate in order to get economic citizenship in return. This opportunity is offered by Cyprus, Malta, the Caribbean. In this case, we are talking about investments, measured in hundreds of thousands of dollars. Such investments require competent legal support: the investor has to cooperate with specialized companies.
Where to start?
The novice investor will have to figure out:
1. What types of investments are there?
2. What profit and in what time frame can you expect?
3. What are the objects and how to choose them?
4. What are the legitimate financing schemes?
Types of real estate investments
Before you start investing in real estate, compare the available investment options:
1. Investing in residential or commercial facilities – Residential real estate usually requires less cost, so it is chosen by most novice investors. A more complex and often more expensive option is an investment in non-residential facilities such as offices, retail, warehouse, hotel complexes, and other locations.
2. Types of real estate investments vary depending on the stage of readiness at which the object is at the time of the transaction. It can be buying a fully finished space or investing in construction. Having made such a choice, you can expect high incomes, but the risks in financing unfinished projects are higher.
The easiest option is to buy ready-made residential real estate. When dealing with an object that is being built (especially in the initial stages of construction, for example at the digging stage of the pit), you need to be prepared for such risks:
- Freezing construction;
- Problems with the commissioning of the facility;
- Problems with connecting the building to municipal communications systems.
- Buying commercial property involves large amounts of investment and additional costs associated with the maintenance of objects. Having invested money in retail space, you will most likely have to constantly deal with the property to control the tenants and the condition of the premises.
Real estate investment strategies
There are a large number of investment options for different types of real estate. For example, those who are interested in objects on the secondary market can:
1) Buy a house in good condition and immediately rent it out;
2) Buy an apartment that needs to be renovated. After putting the housing in order it is possible: a) to rent square meters at a higher price, b) to resell the object and immediately get income. Profit in the second case can reach 10-50%, but the investor should be able to give a competent assessment of real estate and have certain skills in the field of repair and construction. Situations are not excluded when the cost of repairs, in general, will not pay off;
3) Buy a large apartment and make it two studio apartments for later renting. On the contrary, you can buy two apartments and make them one big, more comfortable – for renting or reselling.
The second and third options allow you to get more income, but repair work will take some time. These are the costs of the repair and the costs associated with the redevelopment. The proposed strategies are relevant for commercial facilities and new buildings. One way to increase the value of commercial properties is to convert them to a housing stock and furnishing loft-style facilities.
Those who choose real estate on the primary market can make a contribution at any stage of construction. The earlier the money is invested (the less built at the time of investment), the greater the profit can be counted on.
As with secondary real estate, the investor who bought square meters in the facility under construction can use the property for rent and resale in the future. And you can resell the apartment at any stage of construction. One of the options is to buy an apartment at the initial stage of construction for credit and its further resale after the building is put into operation. Such a deal under favorable conditions in the market can bring a good yield – from 35% and above.
Pros and cons of real estate investment
All types of investment have their advantages, disadvantages, and features. Real estate is good because it can provide for a long time (at least decades) a stable income in the form of rent. At the same time, the value of the asset itself increases in the medium and long term. The owner can improve the condition of the object and increase its liquidity.
Compared to real estate, securities are a riskier investment option: the risk of reducing the value to zero in the case of real estate is minimal.
One of the drawbacks is the long payback period. For comparison: financial investments in the business often bring profit already within the first 1-3 years, and when buying real estate you will have to wait 7-10 years.
Another drawback is the high entry threshold. Keep in mind that real estate is an asset with low liquidity: in the case of an urgent sale, the owner may lose a significant amount.
Finally, we should not forget that real estate requires attention and constant maintenance costs. To make investments meet expectations, clearly set the goal, and competently approach the choice of the object, taking into account their capabilities and tasks.