The concept and practice of investing in the real estate industry warrant a comprehensive understanding of the industry. To have successful investment endeavours in the real estate industry, read on. It’s of utmost importance to understand that there are various types of real estate investors. Yes, before delving into buying an investment property, let’s take a moment to learn about the different types of investors.
A real estate investor: What is it?
Before learning about the different types of investors in the real estate market, let’s comprehend the meaning of this term. An investor with one or more real estate assets in their portfolio is a real estate investor. But an investor owning and renting real estate property is just one of the different types of real estate investors. Another popular type is an investor who is living in the property purchased by them (home-ownership). According to the Statista Research Department, in 2021, Switzerland has a home-ownership rate of 41.6%.
Types of investors
- Buy-and-hold investor
This is the type of real-estate investor that purchases an investment property and then rents the same. It is one of the active types of investment because monthly income is generated from renting out the property. This is a long-term approach to real estate investing as the returns are relatively stable by nature. A buy-and-hold investor has to carry out several functions. These include marketing the property for tenants, handling maintenance issues, selecting the correct applicant, and so on. For making this type of investment passive, hiring a property management company is ideal.
- Fix-and-flip investor
This is the type of real estate investment wherein the investor actively searches for a property that is undervalued. Once the appropriate property has been identified, the investor will buy it. Then the investor will fix the property and market the improved property. The resale price of the property will be higher than the price paid by the investor to purchase it. Therefore, the difference between the resale price and the initial investment is the profit incurred by the investor. This is a short-term but highly active strategy. If the investor can purchase the right property, it can potentially yield very high returns.
- REIT investor
This investment strategy is the most passive form of investing in the real estate market. REIT stands for a real estate investment trust. In this method, the investor invests indirectly in the real estate industry like one buys shares in the stock market. A REIT investor will purchase shares of a real estate company. Therefore, the investor receives dividends when the real estate company pays out the profits made.
REITs are of two types, namely, publicly-traded REIT and non-traded/private REIT. Publicly traded REITs list and trade their shares on major stock exchanges. Individuals enthusiastic about real estate investment (without much experience) can also invest in REITs. REITs are also required to pay out 90% of the income made as dividends. According to Statista, the net market capitalization of Segro (a real estate company in the UK) was 18 billion euros as of July 2021.
- Wholesale investors
Such investors act as the middleman between an end buyer and a property owner. In this investment strategy, the investor finds a real estate property that is under-priced in the market. The investor purchases this real estate deal. After that, the investor sells this property to a buyer for a higher price without fixing and/or flipping the property. Therefore, the profit made by the wholesale investor will be the difference between the original price and the resale price of the property. This real estate investment strategy is relatively passive. However, there is potential to make a substantial profit. It’s important to have a strong network of real estate contacts to get distressed sellers and interested buyers.
To choose the correct real estate investment strategy, some factors should be considered. These include one’s experience in the real estate industry, contacts, expertise, long-term versus short-term goals, and so on.