Basic property investment strategies
All property investment strategies come down to two basic ways of making money:
1) reselling (when most of your income come from capital appreciation);
2) renting out (when you mostly count on stable rental income).
Of course, any investor wants to combine these two methods in a single asset, but in most cases, you have to focus on just one of them. Still, there are different ways to make money on property investment which we call investment strategies. Here are some of the most popular ones.
- Owning a property
This is probably the simplest strategy used by professional investors and regular owners alike. Sometimes you don’t even realize you’re actually making money.
The idea here is to simply purchase real estate for your own use. Depending on various factors such as the property’s location, its size and type, the surrounding infrastructure, etc., its price will gradually rise.
This property investment strategy is mostly used by regular people who ‘freeze’ their money in such assets thus protecting their savings from devaluation. With luck, you may even resell it in several years for a much higher price.
You may not be able to make a lot of money this way, but it’ll help with housing problems allowing you to buy a bigger property every time after you resell the previous one.
- Buying commercial property
Investing in commercial real estate is often considered as a standalone strategy due to the specifics of this market segment.
On the one hand, this type of property follows the overall economic dynamics, which means this segment is less stable than residential property.On the other hand, commercial real estate such as offices, retail space, hotel rooms, etc., brings higher returns and is usually rented out for much longer periods of time.
- Buy and hold
This property investment strategy is designed for long periods and is mostly aimed at capital appreciation. Although it resembles the first strategy in the list, it has distinctive differences:
- In this case, an investor deliberately chooses an object with a high price growth potential. The idea is to find a property that will become more expensive on its own due to infrastructure modernization, economic dynamics, immigration or other reasons.
- The owner of such real estate doesn’t use it but prefers to rent it out to get additional income for the period of capital appreciation.
- Lastly, when you buy a house or an apartment for yourself, you’re mostly interested in the design and location. But when you invest using this property investment strategy, you have to thoroughly analyze the market and forecast its dynamics.
- Renting out
Most investors all over the world make money on renting out residential properties. This method is relatively simple and won’t take much of your time. As a rule, owners want to sign agreements for a longer period of time from several months to several years by extending the current deal.
However, one can also make money on short-term lease. In this case, your property works as a hotel room or a holiday apartment. This way you can make much more money, but this strategy will require more of your time and effort.
- Investing in off-plan
People often buy apartments in buildings under constructions because they’re cheaper. And investors know it, which is why they also purchase such assets and resell them after the construction is over. Depending on your country and the moment of purchase, the income may equal to 15-35% for a deal.
This property investment strategy is very similar to buy-and-hold method but is aimed at short-term periods. However, it has certain drawbacks:
- An apartment under construction cannot be rented out so there’s no additional income.
- During the construction, it’s difficult to get your money outin case of emergency.
- Building may take longer than expected or even get stuck. Finding a good and reputable property developer here is of crucial importance.
- Renovation strategy
It’s another buy-to-sell strategy based on a simple idea. Instead of looking for a property with a high potential, you purchase one with a lot of problems to solve them. An investor finds a house that requires serious renovation, knocks it into shape and resells for a higher price. If your revenue exceeds the costs, it’s a success.
Despite deceptively simple, this strategy is quite risky as you cannot always tell for sure what challenges to expect and how much they will cost you. Sellers of such properties usually try to conceal as many issues as they can to sell for a higher price.
- Passive investment
Here one can single out several approaches, but they all come down to paying someone else who will take care of your investments.
You can put money in a trust fund that will invest in real estate on your behalf and pay you dividends. Or you can invest in a property controlled by a management company such as hotel rooms, serviced or residential apartments. Although this property investment strategy gives you no control over your assets and you have to share a part of income with the management company, it’s an easy way to get passive income which is really useful for investing in foreign real estate.