Real estate has long been considered a relatively safe investment and one that can yield significant returns in the long term. Whether it’s rental income or capital appreciation, the wealth-building attributes of real estate make it a popular investment choice for many investors.
According to recent statistics, the global real estate investment market, valued at $11,444.7 billion in 2021, is set to reach $30,575.5 billion by 2031, representing a compound annual growth rate (CAGR) of 10.7% from 2022 to 2031.
For those seeking to capitalize on this growth, an awareness of the different ways to enter the market can be beneficial. It allows investors to build their wealth based on their appetite for risk, financing ability, and other factors which are important to them. In this article, we have outlined a few real estate investment strategies that can help you invest in this sector based on your unique goals and objectives.
Buy-to-Let
A buy-to-let investment involves investing in real estate with the purpose of renting it out to tenants. This medium to long-term strategy aims to generate a cash flow by covering any borrowing costs and other property-related expenses through the rents charged. In addition to the rental income, this strategy aims to build capital through the property’s appreciation in value over time.
This type of investment is common in the residential real estate sector with single-family rentals (SFRs), student housing, and condominiums being popular types of buy-to-let properties.
House Flipping
While the concept of generating a rental yield and capital appreciation are also present with this real estate investment strategy, the potential for capital gains is much greater than other strategies like buy-to-let.
House flipping is a relatively high-risk investment strategy that involves the purchase of a distressed property and renovating it to the point that it is suitable for occupancy. It is then sold relatively quickly for a profit. These properties are typically run-down and in need of significant repair work.
Foreclosed properties or short sales are also commonly purchased for house flipping purposes. Investors seek these undervalued properties and sell them at a price that is substantially higher than their initial investment. While the risk involved and the investment of time and resources is higher here, so too is the potential for large profits.
Real Estate Investment Trusts (REITs)
REITs allow investors to invest in real estate without directly owning any property. Instead, investors give their money to a corporation that owns or invests in income-producing real estate in return for a share of the REIT. Investors receive dividends from the REIT which are made from the income generated by the properties it owns.
This income primarily comes from the rents paid by tenants of the properties within the REIT’s portfolio. This is considered a relatively safe investment that offers investors exposure to the real estate sector without many of the risks that come with direct ownership of the asset.
The real estate investment sector is a varied one that offers a range of investments to suit a variety of risk profiles and investment appetites. By understanding your own investment goals and objectives you can make an informed decision as to which type of real estate investment best aligns with your financial strategy and tolerance for risk.
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