There is much more to any real estate investment than merely purchasing an investment property. Real investors are of four different types, with each having its respective merits and demerits. Before delving deep into the different types, it is vital to know who is a real estate investor and what his role is.
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Facts about a Real Estate Investor
A real estate investor is an investor that purposefully adds real estate assets to the portfolio. They come in different sizes and shapes. Though people consider a person that purchases and holds rental properties as a real estate investor, the truth is, this is just a type. They can be wholesalers, follow the investment strategy of fix-and-flip, or put their cash into REIT. Besides, it is also possible for them to be institutional investors, individual investors, or somewhere in the middle.
Here, banks or any other financial institution will fall under institutional investors, and individual people are individual investors. Individuals may also begin a real estate investment company that may fall somewhere amidst these two ends of the spectrum of real estate investing. To know more about real estate investors, please visit My Friend Fernando Calgary.
Real Estate Investors- the 4 Different Types
After knowing a little about real estate investors, the next step is to explore the four different types. It will give people a good idea of the role and function of each.
- REIT Investor – To invest in REIT or a real estate investment trust is a highly passive type of real estate investments accessible. It is akin to investing in a stock market. Here one will purchase a real estate investment company’s shares and get dividends as the company pays out profits. REIT is publicly traded and has shares listed as well as traded on key stock exchanges. But a REID that is non-traded will be listed with the SEC, yet is not traded publicly or is likely to be a private company.
A key perk of making investments in a REIT is that everybody can do it like stocks. Here real estate experience is not needed, nor does one need to be an accredited investor. It is as easy as purchasing and selling shares. REITs notably have to pay 90% of the income as dividends. However, it has a downside: one has minimum control over what they invest in or managed. Besides, its dividends are taxed.
- Buy-and-hold Investor – This again is a classic real estate investing example, where one buys an investment and rent the same for constant monthly income. It is an active type of real estate investing. It is a long-term strategy as investors tend to purchase a property and keep the same portfolio for several years. A big plus of following this strategy is one gets the chance to attain comparatively stable returns. Landlords, in this case, can count on that same sum of rental income that comes every month. Besides, if one hires a property management company, they also can turn this into passive investments. However, its downside is that this can be surplus work for smaller returns than they may find with another method.
- Fix-and-flip Investor – The next is fix-and-flip investing. Here the investor will leave no stone unturned to come across a real estate deal which for the market, is undervalued. After this, they will fix it up and market the same for resale at a higher price. After discovering the buyer, the investor keeps the difference amid the final sale price as profit and the initial investment. A key perk of investing in this is that if one gets the perfect investment opportunity, this will have the potential for higher returns. Besides, this investment strategy is short-term, which means one can expect an ROI in just a couple of months.
Also, this is an immensely active investment strategy. Here the decision rests on one or their agent in finding the most appropriate real estate deal. After this, they need to find out ways of fixing up the property. If one does the work himself, then he can attain better results. But if one is not handy, he will require planning for paying the labor costs in their budget. Ultimately, there is the peril that one may over-improve the property and thus lose an amount on the deal when selling it.
- Wholesaling – A real estate wholesaler, on the other hand, will serve as a mediator between an end buyer and a property. The investment strategy, in this case, is in finding a real estate deal that is underpriced and then sells it to an interested buyer quickly sans rehabbing it first. During such a state of affairs, one can keep the difference between the amount invested in the property and the amount he sold. It is a comparatively passive investment strategy, and one has the potential of making a sizeable profit.
Wholesalers typically will purchase and sell a property on the same day to avoid carrying costs. However, to make this work, you need to establish contact with real estate investors to help find them, distressed sellers, and interested buyers. To know more, visit the website of leading real estate investment companies.
Which will be the Best Match?
After having some idea of the four different forms of real estate investors, it is vital to consider which investment strategy will fit your requirements. Considering this, we will discuss some criteria. Keep reading to know which will best match your choice.
- Passive vs. Active Investing – First and foremost, you need to choose between passive or active investing. Active indicates more work, but in return, one has the potential of making higher profits. Here one is trading effort and time for the size of their returns. Examples include buy-and-hold and fix-and-flip. There is less work in passive investment, but one may cut into some of their profits. Examples include wholesaling and REITs.
- Short-term vs. Long-term Gains – After deciding between passive and active investing, the next one needs to focus on long-term or short-term gains. Although it is not always so, short-term gains often take more effort to realize than long-term gains. Examples of long-term gains include buy-and-hold, and REITs and examples of short-term gains include wholesaling and fix-and-flip.
With these pointers mentioned above, hope you can make an informed decision on the type of real estate investment that is right for you.