There is no one best strategy to invest in real estate. It all depends on your financial goal, financial situation, risk tolerance, and what you want to achieve with the investment.
However, there are various general strategies to invest in real estate that include but are not limited to the following.
Valuing investing – It’s about finding some under-valued property, making some renovations, and selling at a higher price. However, this strategy is not straightforward, it requires active market research and the opportunity to find and invest in such property. In addition to this, it’s important to keep sufficient funds in hand as these opportunities are missed in no time.
The good thing about this strategy is that funds are not stuck for a long time and money is realized in a short span of time.
Buying and selling – It’s a widely used and simplest strategy in terms of practice. It’s a simple buying, holding and then selling at a higher price. However, an important point to note is that always consider the inflation rate when setting the selling price otherwise you might lose in terms of effective rate. Let me explain the effective rate. For instance, if you’ve earned 10% profit on sale and inflation is 8%, an effective return amounts to 2% (10%-8%).
Diversification of portfolio – Try to invest in different types of real states. For instance, you can opt for commercial, residential, and industrial properties. It helps to distribute the risk. For instance, if the market for residential real estate falls down, commercial might remain stable and vice versa. Hence, it’s a great help in the distribution of the risk and a great strategy to safeguard yourself.
REIT investment – It’s about investing in the trust that generates income from real estate assets. The generated income is distributed among the members of trust. The best part of this investing strategy is that it brings diversification, and a stable portfolio with diversified risk. Further, a small investment can also be made in the funds. However, it brings lower or no control over investing decisions.
The philosophy of REIT investment is the same as that of mutual funds where investment is made in shares of different companies.
Crowdfunding for real estate investment – It’s a modern mode of investment that involves multiple online investors investing in a specific property. The best part of this strategy is that investments can be made in smaller amounts. So, the risk is lower and return as well.
The best investment strategy for real estate is based on your financial goals, risk tolerance, risk appetite, and how you want to manage your investment.
Also read, personal finance management
Conclusion
The best investment strategy for real estate is based on your financial goals, risk tolerance, risk appetite, and how you want to manage your investment.
