Real Estate Investment Insights: Tips and Strategies for Property Investors | Nestfully

Real Estate Investment Insights: Tips and Strategies for Property Investors

In a world where costs are constantly on the rise, an increasing number of people are deciding to look into the world of becoming property investors. The reality is, it's an excellent idea. There are many opportunities in property investment, which often creates a steady stream of passive income and allows you to gain wealth. The key is understanding what a property investor is, which types of properties are available, and which ones will provide the biggest return on investment for you.

What Is a Property Investor?

Property investors are people who buy residential and commercial properties intending to make a profit. You can do this in several ways. Some investors purchase the property, upgrade it, and resell it for a higher price. Other investors keep their properties and lease them to residential or commercial renters. Sometimes, investors present their properties to governmental land-use agencies to realize a profit. Depending on your situation, you may buy and sell properties alone, work with a partner, or join a network of investors who work together.

Property investors play an important role in the residential and commercial real estate market. By investing in properties, upgrading them, and reselling them, they create a competitive market. As a real estate investor, you provide clients with the properties they need to live comfortably or to do business in a commercial building. There are several different types of investors in the property market:

  • Private Individuals –Individuals who have the knowledge and interest in investing typically put their money into properties that have an expected financial return upon upgrade and resale. Individuals focus more on demonstrated opportunity.
  • Institutional Investors –Institutional investors are people who join a company or organization and invest money for other people. Their portfolios contain more than 1,000 units and may include limited liability corporations, real estate investment trusts, and limited liability partnerships.
  • Real Estate Investment Trusts – REITs are companies that own, operate, or finance properties that produce income. This creates a steady income stream for the investors but does not have much capital appreciation. Most REITs are traded like stocks and typically are invested in apartments, cell towers, hotels, offices, warehouses, and more.

What Does a Property Investor Do?

Property investors do a lot of different things, depending on the type of investments they take on. Some investors invest in residential real estate and flip homes. This involves buying a property that requires improvements, paying for those improvements, and then selling the home for more than you paid for it. Other residential investors may keep the home in their name but rent it out to families to gain passive income.

Other investors do so by joining a real estate investment group. REIGs are a group of investors who work together to purchase real estate and make a profit from it. The group may be your family, your friends, or simply a group of real estate agents with similar investment goals. This is another excellent way to earn passive income.

Finally, some investors put their money into real estate investment trusts. REITs own a group of properties, such as several office buildings, strip malls, or shopping malls. Putting your money into a REIT is similar to buying into the stock market. You can either purchase shares in an REIT, or you can invest directly into it.

Types of Property Investors

 

 

Real Estate Investors

Real estate investors put their money into new real estate endeavors in several ways. One popular method is becoming an REIT investor. REITs own diverse portfolios that may include residential homes, apartment buildings, offices, retail outlets, warehouses, and more. Buying into an REIT is much like buying into a stock market and generates passive income.

Some investors are institutional investors. Institutional investors typically focus on commercial properties. This type of investment offers such benefits as the financial capacity for larger and more diversified investments, access to experts and professional management, and access to opportunities of scale that can reduce transaction costs. There are challenges, though, including limited flexibility, market sensitivity, and reduced control for individual investors.

Individual Property Investors

Individual property investors are investors who decide to "go it alone" when investing. They may become institutional investors or REIT investors, but many of them buy homes and invest in them on their own. There are several ways they do this.

Buy-and-Hold Investors

Buy-and-hold is a passive, long-term investment strategy. It creates a stable investment over time, regardless of any fluctuations in the long term. Buy-and-hold tends to outperform active management but may not sell at optimal times.

Flippers

Investment flippers are people who purchase a property, make structural upgrades, and resell the property for more than they purchased it.

Large-Scale Investors

Large-scale investors are people who have at least 100 units in their real estate portfolio. Roughly 3% of investor-owned homes in the country are part of a large-scale portfolio.

Mid-Size Investors

Mid-size investors, sometimes called middle-market real estate investors, typically own properties that do not exceed $50 million. Investments typically include office, retail space, or apartment buildings.

Small Investors

Small investors are usually people who are just getting into real estate investment. They may choose to invest their money in one or a few single-family homes to dip their toes into the world of investment and decide if it's right for them.

Institutional Property Investors

Institutional property investors work with many clients to diversify their portfolios. While they may focus on pension funds and insurance companies overall, they usually include real estate investments at a rate of 8% to 15% of their portfolio. They typically have significant capital to invest, which helps to build up the real estate market and create more income for them.

Real Estate Investment Trusts

REITs work as a publicly traded company and invest in income properties. As a requirement, they pay out as much as 90% of the profits as dividends. REITs are popular because they promote portfolio diversification, gain more appreciation, provide dividend payments, are more liquid, and have more attractive returns.

Crowdfunded real estate platforms are on the rise, and there are several apps you can use to invest in an REIT. Some of the most popular include Fundrise, which many people consider the best app overall, as well as YieldStreet, Percent, and Crowdstreet.

Benefits of Property Investments

 

 

Potential Returns on Investment

The potential return on investment is why so many people are interested in becoming property investors. Currently, the median return on a real estate investment is 8.6%. Residential properties generate an average return of 10.6% annually while REITs generate 11.8% and commercial properties return an average of 9.5% annually. Vacation rentals are also a good investment, although their ROI can vary greatly. Experts recommend not investing in a vacation property unless it returns at least 15%.

The estimated historical annual return range for a diversified portfolio is 6% to 10% without leverage and 4.5% to 12% for a vacation rental. With leverage, those numbers climb to 7% to 12% for single-family residential homes and 5% to 15% for vacation properties. The target investment periods are five to seven years and five to 15 years, respectively.

There are several inclusive estimated costs to consider when factoring return ranges. Those costs include attorney fees, closing fees, escrow deposits, homeowners insurance, inspections, title insurance, and more. These returns are calculated using the internal rate of return formula. The IRR can be calculated in Microsoft Excel using its IRR function.

Diversification of Investment Portfolios

You can diversify your investment portfolio in a variety of ways:

  • REITs
  • Direct real estate
  • Raw land
  • Vacation rentals
  • Private equity
  • Commercial real estate
  • Real estate funds
  • Wholesaling
  • Crowdfunding
  • Flipping
  • Family offices
  • Real estate development

 

Historically, the cost of real estate has not correlated with how the stock market is doing. This means it is less likely that you'll lose money. Long-term stability is one of the biggest benefits of investing in real estate.

Passive Income Generation

Property investors know there are plenty of passive ways to earn income with real estate. This includes investing in REITs, vacation rentals, storage units, rental properties, commercial leasing, retail leasing, and property management.

Passive rental income helps you reach your wealth-building goals over time by allowing you to save money for your personal finances, as well as by letting you invest in other properties.

Hedge Against Inflation

Real estate is an excellent hedge against inflation because real estate is in limited supply but has a constant demand. This means property rents can be driven higher, especially during inflationary periods. That rental income then provides a steady cash flow for the landlord.

Gain Wealth by Becoming a Property Investor

Property investors have a wide variety of ways to earn passive income and gain wealth over the years. Are you interested in learning more about how to invest in your first property? It's not as hard as it seems! Learn more about property investment from Nestfully and set yourself on the path to success by creating an account with us today.