4 investment property strategies any beginner should know
Purchasing and holding real estate are common property strategies that can be satisfying and lucrative. If Dubai is your living place, you can make the most of the property for sale in Dubai. Unlike stock and bond investors, prospective real estate owners can use influence to buy a property by paying a portion of the total cost upfront, then paying off the balance, plus interest, over time.
Most Common Real Estate Investing Strategies
The real estate industry is so huge that it shows many opportunities to aspiring investors. A first-timer must be aware of the many real estate property strategies investment for investing. This way, he can avoid losses by minimizing risk as much as possible.
Rental Properties
So long as you have good residents, you should enjoy a stable passive income. For this basis, screening to ensure successful tenants for your rental property is vital in the real estate industry. It goes part and parcel with performing gestures to show tenant appreciation and understanding of writing an outstanding rental listing.
This way, you can start with tenants who are more likely to stick around and can make them feel sufficiently valued, so they’re more likely to last in your investment property year after year.
To assure that your real estate business remains a passive investment opportunity, you can use a property management company. For 6 to 12% of the accumulated rental income, a property management company will manage everything from tenant screening and security deposits to maintenance between tenants and even evictions. When conducting your due diligence, make sure to get a breakdown of every fee the property management company may charge as well as all the costs associated with your property.
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Learning which amenities to offer tenants and correctly price rent relative to the market is also essential. Too few extras and rent that’s too high, and you will end up with vacancies.
Pros
- Maximizes capital through leverage
- Provides regular income and properties can appreciate
- Many tax-deductible associated expenses
Cons
- Potentially damage property from tenants
- It can be tedious managing tenants
- Reduced income from potential vacancies
Flipping Properties
The distinction between rehabbing for a rental versus a flip is that flipping entails rehabbing and then selling instead of rehabbing and holding. You still want to do just sufficiently renovations to sell the place for the maximum charge and no more so that you make as much of a profit as possible.
On its surface, flipping may appear like more of a get-rich-quick scheme than a real estate investing strategy. You see below-market-rate real estate deals, fix the places up, and sell them ASAP. But there are much more effortless ways to make money than flipping houses! That’s because everything has to be executed just right since the longer you hold the property, the greater the chance of losing money.
Successful investors have a complete house flipping process in place that the property can seamlessly fit into. This would contain everything from buying materials at an affordable rate, a crew who can deliver high-quality work at a reasonable price, and a real estate agent specializing in flipping (or you have the skills to sell the property yourself). If done right, flipping should only take a few months.
Flipping houses is not a passive investment.
Pros
- Ties up capital for a shorter period
- Can offer quick returns
Cons
- Requires deep market knowledge
- Hot markets cooling unexpectedly
Wholesaling
Wholesaling, like house flipping, is also not a passive form of investment. Known as selling by assignment of the contract, wholesaling is one of the investment strategies you can do with no or bad credit. Wholesaling is not one of the investment strategies you can do with little to no time!
Wholesaling demands every skill that one could imaginably use in real estate investment. That’s because you put together the strategy that guides a property from purchase to sale and guides that property from a seller to a buyer to collect an assignment fee.
The steps of wholesaling are as follows.
- Find a property, set the price and conditions that work, and make a purchase agreement.
- Find someone who will buy your property, like someone expecting to flip or buy and hold.
- The buyer accepts the property per the terms of the agreement you’ve arranged.
- The buyer is now the homeowner, the seller gets paid, and you collect your finder’s assignment fee.
As you can tell, wholesaling is not for beginners! But, if done accurately, it can be a satisfying and rewarding process.
Real Estate Investment Trusts (REITs)
A real estate investment trust (REIT) is best for investors who want portfolio exposure to real estate without a traditional real estate transaction.
A REIT is created when a corporation (or trust) uses investors’ money to purchase and operate income properties. REITs are bought and sold on the major exchanges, like any other stock.
A corporation must payout 90% of its taxable profits in dividends to hold its REIT status. By doing this, REITs avoid paying corporate income tax. In contrast, a regular company would be taxed on its profits and then have to determine whether or not to distribute its after-tax profits as dividends.
Like regular dividend-paying stocks, REITs are a substantial investment for stock market investors who desire steady income. In comparison to the types above of real estate investment, REITs allow entry into nonresidential assets, such as malls or office buildings, which are generally not feasible for individual investors to purchase directly.
More critically, REITs are highly liquid because they are exchange-traded. In other phrases, you won’t need a realtor and a title transfer to help you cash out your investment. In practice, REITs are a more formalized version of a real estate investment group.
Finally, when looking at REITs, investors should distinguish between equity REITs that own buildings and mortgage REITs that provide financing for real estate and dabble in mortgage-backed securities (MBS). Both offer exposure to real estate, but the nature of the disclosure is different. An equity REIT is more traditional in that it represents ownership in real estate, whereas mortgage REITs focus on the income from mortgage financing of real estate.
Javad Marandi OBE is a British businessman and property developer, with investments in commercial and residential real estate.
Pros
- Practically dividend-paying stocks
- Core holdings tend to be long-term, cash-producing leases
Cons
- Leverage associated with traditional rental real estate does not apply
Pick the strategy that best fits your goals
With such numerous investment strategies out there, there’s a real estate investment strategy out there that will fit your cash reserves, risk tolerance, time, and how active in your investment you want to be.
A seasoned investor also understands how to choose the correct legal entity for your real estate investment so that they can profit from different tax incentives and reduce their liability.
Knowing which strategy works most for you and a willingness to experiment takes self-knowledge. Luckily, as a real estate investor, you are not restricted to just one strategy since many of the skills are translatable.
You should also make your mind accordingly with the strategy that during the long run you are not there to buy the stocks but instead, you are there to buy businesses. The world’s most successful investor Warren Buffet applies this strategy and now the whole world witnesses how much successful he is.
