real estate investments

Types of real estate investments you should know about

What are the different types of real estate investments?

Are you considering investing in property? If well-selected and located, property has a proven track record of creating long-term wealth, and can be passed down through generations, establishing a legacy of wealth. Property can also generate a passive income, meaning you do not have to be actively involved in order for your investments to be lucrative.

But how do start to build a property portfolio? What different avenues are available for you to invest through? There are many ways to make money through property investments. For a short-term profit, you could flip property – buying a fixer-upper with potential, fixing it up and selling it again at a profit. When it comes to long-term property investments, you can look at buying a property to rent out. Not only will you earn a passive income, but your investment will appreciate in value over the long term. You can also invest in vacation rentals, Real Estate Investment Trusts, and more.

But how do you know which type of real estate investment is best suited to you? Below we break down the different types of property investments:

Fix and flips

‘Flipping’ real estate can be risky, and can take a lot of work. However, the potential financial gain can be phenomenal. Flipping property involves finding a home in need of some TLC, preferably at below market value, fixing it up, and then selling it for a profit.

The key to a successful fix and flip is to find a property with lots of potential, and that does not need major renovations – you want to spend as little money as possible to make the biggest profit possible, so you are looking for a property that only needs cosmetic updates. You’d be surprised at how much difference a coat of paint and modern fittings can make to the look and feel of a home, and these are things you can do yourself. If you are planning on using contractors to handle some of the repairs or updates, always get at least three quotes, and ask for references to ensure you will be satisfied with the work.

The major sin of any fix and flip real estate investment is overcapitalisation. Overcapitalisation is when you spend more on fixing a property than you can achieve when selling it. This means you have to establish what you could possibly earn when you sell the property, draw up a strict budget and, most importantly, stick to the budget.

Working with a licensed, experienced real estate agent will help you find the perfect fixer-upper property that meets your requirements. Perfect Agent can help you find the perfect agent to represent you – at no cost. Contact us today.

Long-term rentals

The long-term rental real estate investment class is probably the best known property investment class. People will always need somewhere to live, and if they are unable or unwilling to buy their own home, they will pay rent to live in a home owned by someone else – an investor, or landlord.

As the owner of a long-term real estate investment, you will earn a passive income for as long as you decide to hold on to the property. The property will also appreciate in value, meaning you should be able to sell it for a profit down the line, should you decide to let the property go. The great thing about a long-term real estate investment is that you can use the bank’s money to buy it – you can take out a mortgage to purchase the investment property, and use the rental income to pay off the bond. This means you don’t need to have a large amount of money to buy the property to enjoy the benefits of owning such a stable investment, opening up the investment class to a wider range of aspiring investors.

To ensure you invest in a lucrative investment property, it is advisable to work with a licensed, experienced real estate agent who will be able to guide you in your search. Remember, you are not looking for a home for yourself, but a property can easily be tenanted. Contact Perfect Agent today to find a real estate agent to help you – free of charge.

You also don’t need to be a hands-on landlord – appointing a managing agent means you do not have to worry about the day-to-day management of your real estate investment. Contact Perfect Agent today to find a managing agent to help you – free of charge.

Owner-occupied rentals

Owner-occupied rentals incorporate long-term rentals into homeownership. This is when you rent out rooms or sections of the property you actually live in. What makes an owner-occupied rental an appealing real estate investment is the fact that you have bought your own home, but can use the rental you earn from tenants living in the home with you to pay off your mortgage, alleviating financial pressure on yourself, or to earn additional income.

The drawback is, of course, that you will be sharing your home with others, but the financial benefit can outweigh this.

Vacation rentals

With the rise of short-term booking platforms such as Airbnb, HomeAway and TripAdvisor, investors have again realised just how lucrative vacation rentals can be. These platforms allow real estate owners to let out sections of their homes or purpose-bought properties to holidaymakers.

A perk of this type of rental is that, if you are planning on buying a second or vacation home for yourself, you can utilise vacation rentals to offset the costs of the property, meaning you get to enjoy the benefits of a holiday home at a greatly reduced cost.

However, if you are looking to invest in a vacation rental, you need to be aware that it is a competitive market, and that you will need to furnish the apartment and ensure amenities such as clean towels, cleaning in between bookings, etcetera.

A licensed and experienced agent will be able to guide you on what to look for in a successful vacation rental investment.Contact Perfect Agent today to find a real estate agent to help you – free of charge.

Crowdfunding, or online investment platforms

Crowdfunding real estate investments is still a relatively new concept in Australia. At its most basic definition, crowdfunding is when different people pool their resources (usually money) together to achieve a certain goal. Thus, crowdfunding real estate investments allows a pool of investors share the initial costs of a property investment – which can greatly reduce the costs to each individual investor. However, the profits will also be split accordingly.

Crowdfunding real estate investments can be a very affordable way to start investing in property. Usually, the funds collected during the crowdfunding campaign will be kept in a third-party account, until the total amount required has been achieved, at which time the investment will be made. There are various online platforms where you can find proposed real estate projects to invest in, such as VentureCrowd, Brickraise, and CrowdFundUP.

Real Estate Investment Trusts (REITs)

A Real Estate Investment Trust (REIT) is a company that owns, and usually operates, income-generating properties. This can include commercial properties, apartment blocks, hotels, shopping centres, warehouses, hospitals, office buildings – the list goes on. But how do Australian Real Estate Investment Trusts (A-REITs) work, and earn you money?

In simple terms, Australian Real Estate Investment Trusts (A-REITs) combine the resources of investors together, and then invest in real estate assets. The trust then manages these property assets for profit. Most of the income generated by trusts are generated through rent, most of which is then paid out to investors in the form of dividends.

What makes A-REITs such an appealing investment class to the average person is that you do not need to spend so much to earn dividends. You also do not have the hassle of managing the property portfolio – this is done by a team of experts on behalf of the investors. There are various A-REITs that you can invest in.

Conclusion

Real estate has proven to be an excellent long-term investment. However, it is usually seen as an expensive asset class that requires a large monetary outlay from aspiring investors. Yet, this is not always the case. There are various different avenues through which you can explore and become involved in real estate investments. These include investing in a crowdfunding campaign, letting out a section of the home you live in to pay off your mortgage or earn an income, investing in Real Estate Investment Trusts (REITs), and more. Even when it comes to long-term rentals, you can use the bank’s money to finance the largest portion of the investment.

Whichever route of real estate investment you are considering, you need to do your homework to ensure it will be a viable option for you. One way to ensure success when investing in real estate is to work with a licensed and experienced real estate agent. Are you ready to take the leap and start generating wealth through property investment? Perfect Agent can help you find a top-performing real estate agent to guide you on your journey – free of charge. Contact us today.




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