The recipe for successful real estate investing is the same whether you’re buying your first house or you’re fourth: prioritise location, spend within your means to acquire the most significant property possible, improve it and either hold on to it or trade up. You can use a property investment strategy from several angles depending on your end goal(s).
Choose Your Strategy
Investing in real estate is a high-risk endeavour because of the illiquid nature of the asset class, the high entry expenses, and the even higher exit costs. When it comes to real estate investments, some of the most typical methods are:
1. Buy and hold:
For simplicity’s sake, “buy and hold” is the investment strategy most commonly recommended by experts in the field. The term “long-term capital growth investing” describes the practice of purchasing assets with the expectation of future appreciation. Typically, you use the money you borrow to buy a piece of real estate that will increase in value over time. You can use the income from tenants who also reside in the house to help you pay it off faster.
2.Buy, renovate, and hold or sell:
Investing in a home’s renovation can increase its value. If you want to increase your rental income or “flip” the property, this is how you do it. To make money on renovations on top of what you could make with other investment ideas is difficult after you take in your hard costs, plus the cost of any time and labour. However, some investors have the expertise to transform refurbishment into a profitable business strategy.
If you invest money in a property developer, they will use that money to build a structure that will eventually be worth more than what you put into it. The investors in passive properties only supply the capital, outsourcing the actual work to contractors.
This approach can be much quicker and more profitable than traditional methods like “buy and keep,” but it also comes with a higher degree of risk, such as the possibility that the development won’t go as planned. After construction, the land can either be sold or kept for rental income.
4.Common property investment mistakes
Investing in real estate may be risky, as many people have learned the hard way. It has been found that most property owners never buy more than two properties and that 20% of investors sell within the first year, with another 50% selling within the first five years.
5.Poor property selection:
To maximise returns, it’s crucial to make a smart property purchase. You may be dead bent on purchasing a home, but you should seriously consider the neighbourhood rather than the style of the house itself. Focusing on the type of property rather than the location could result in substantially lower long-term returns.
6.Poor cash flow management:
Having your finances in order and a cash reserve is another must before having a property investment strategy. The direction of the real estate market is unpredictable and beyond your control. Set up your systems correctly, and if necessary, consult experts for guidance to avoid failure.
Investing in a property that has not yet been constructed is known as “buying off-the-plan.” Several issues make this property investment strategy an expensive gamble. Although some buyers do well when purchasing off-plan, many investors lose money when the value of their finished property drops below the purchase price.
8.Bad property management:
Poor property management is another way investment properties can drain money instead of adding to it. If you go for low-cost property management or decide to handle your rental business independently, this is a risk you take.
9.Being hit by life’s ups and downs:
The most significant rewards accrue to owners willing to hold onto their homes over the long term. Keep in mind that while you can’t control external factors like interest rate increases or the economy, you can influence some personal aspects like the amount of money you spend on private school or the amount of time you spend on maternity leave.
One of the most important things to do is to study the financial elements of the investment thoroughly. Consider your tax obligations, whether or not you’ll need a buy-to-let mortgage to get started, and any other financial considerations as you develop your approach.