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Real Estate Investment Strategies
March 23rd, 2017 11:37 AM

Introduction

Real estate is a huge industry and there are a lot of opportunities to invest in real estate. But where should you start? What types of real estate investing is best for you? Learning the basics of how to invest in real estate is the first step in choosing a strategy. Exploring different real estate investment strategies and picking one based on your time, budget, and long-term goals. That been said, real estate investors did more than survive in the last 10 years after the recession : they thrived thanks to a few important real estate investment strategies. Wholesaling and rehabbing became known as two of the best real estate investing strategies of the time. The environment created by the recession made these exit strategies incredibly lucrative for those who knew how to execute them. Lets discuss few strategies adopted in the market.

 

Analysis

The indicators used in the report are over 10-year evolution of the average of the sale price, also index such as Market type, construction type, property type data from Infosparks, is taken into consideration

 

Graph 1: Trend of new construction and resale property in last 10 years

 

Investment strategies

Buy and Holds

These are good long-term investments because of the steady additional income and the opportunity to gain appreciation. If looking for an active, long-term investment, buy-and-holds are the way to go. Buying an investment property as a buy-and-hold requires research about the market, neighborhood, and property expenses. Positive cash flow is very important with this investment because money is otherwise lost every month. Depending on location and cash flow, an investor might choose to rent out an entire single-family home to a family or rent out individual rooms to individual tenants. Multi-family homes are popular if the investor wants to have a personal residence at the same location as their investments. As observed in the Graph 1 above the resale of new construction and resale property has decreased from the third quarter of year 2011 and is constant for last 3 years. This trend indicates that the buy and hold strategy adopted by the customers and reduced the hold period to average 25 yrs as compared to previously (55yrs)

 

 

Graph 2: Trend of Market time for Resale and New construction over a period of 10 years

 

Reselling

The trend above in Graph 2 indicates that since Jun 2013, customers are following the strategy of reselling properties with less number of market time i.e holding for less amount of time and hence following the pattern of strategies mentioned below

 

Become A Private Money Lender - With interest rates at traditional lending institutions expected to rise, as they have already started to do, more and more investors are looking in to the services of private money lenders. Private mortgage lending has typically provided an annual return of 8-10%, based on the historical interest rates charged to borrowers.

 

Airbnb Investment Properties- There has been an increase in the number of Airbnb investors as Airbnb investment properties have proved to be lucrative and sometimes produce more income than traditional investments

 

Commercial- These properties are leased to businesses which can range from tiny little stores to shopping malls. While there’s an opportunity to rent out to big businesses and get significant cash flow, vacancies can last a longer than with residential properties

 

Real Estate Wholesaling - Making money in real estate does not always require spending money, there are so many diverse opportunities to invest. Wholesaling is one of the ways you can create an income without having to spend any money at all. A wholesaler finds a seller who wants to put their property up for sale and has not yet gone on the market. The wholesaler finds a buyer and then is entitled to a share of the selling price. To be successful with the real estate investment strategy, you have to network and make contacts in order to have a database of potential sellers and buyers.

 

Rehabbing

Rehabbing is still one of the best real estate investing strategies in 2015 and 2016. Rehabbing, or flipping as it has been dubbed in the past, is one of the most popular exit strategies exercised by real estate investors. Rehabbing is the practice of acquiring a property at a reduced price and selling it for a financial gain after incorporating the appropriate upgrades. In 2015 single-family homes have already established themselves as the prime targets for real estate investors. Subsequently, single-family homes offer the most attractive spreads for the amount of work required. While rehabs are accompanied by the most work-intensive process, the rewards that ensue are well worth it. Rehabs reward investors with the largest spreads in the shortest amount of time.

Real estate investors mostly consider rehabbing a property when the following criteria have been met:

  1. Immediate payment is not expected .
  2. Intent is of generating brand awareness, as it is a prime marketing opportunity.
  3. There is a potential for large profit margins on a subject property.
  4. The property is a safe location.

 

Conclusion

It is important to note, however, that even the best investment strategies are contingent on the market they are carried out in. Take, for example, San Francisco, which has long held the title of one of America’s best real estate investing markets. Not surprisingly, San Francisco has held the top spot for quite some time, as it was recently named the hottest housing market in the summer of 2016. Those implementing the right real estate investing strategies have likely come out on top, regardless of where the market currently resides.

 

Not far behind San Francisco, the Los Angeles real estate market has also seen great improvements since the depths of the recession. The median home price in L.A. was $458,900 during the first quarter of 2016 - nearly double that of the national average. Investment strategies used here are typically of the buy and hold variety, as holding on to the home and collecting rent is a great way to offset high prices. Before deciding on any real estate investment strategies, make sure to thoroughly understand what each strategy entails. It is recommended to do investment property analysis before investing in a rental property or commercial property. Using analytics can help you find the best investment properties and neighborhoods. Few ways to do research before investing is to join real estate investment clubs to learn about investment strategies and to find partners to work with. Also location is key in real estate. Try to explore areas that will give the highest returns and avoid staying in your area just for the sake of convenience.

 

Real estate investing offers a lot more opportunities than most investments. Once enough research is done about different real estate investment strategies, a better idea of which investment strategies need to be adopted

 

 

 

 

 

 

References

Eric Macy, CFA. (n.d.). Retrieved February 24, 2017, from https://russellinvestments.com/us/solutions/institutions/investment-management/real-estate

 

I. (2017, February 13). A Guide to Real Estate Investing. Retrieved February 24, 2017, from http://www.investopedia.com/mortgage/real-estate-investing-guide/

 

Real Estate Investing For Dummies Cheat Sheet. (n.d.). Retrieved February 24, 2017, from http://www.dummies.com/personal-finance/real-estate-investing/real-estate-investing-for-dummies-cheat-sheet/

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Posted by Michael Hobbs on March 23rd, 2017 11:37 AMPost a Comment

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