7 Successful Property Investment Strategies. – Ola Awodipe
Each investment strategy is different, targeting a variety of asset classes, risk levels, potential returns and investment terms.
However, most individuals do not consider an investment strategy in real estate beyond home ownership, overlooking tremendous opportunities to enjoy the benefits of the real estate fund sector.
When it comes to investing, using a property investment strategy is essential to success. However, strategies depend on the investor’s objectives and can vary greatly.
Before choosing an appropriate property investment strategy it is important to define your overall investment objective and what you wish to gain from any investment. Once you have identified the investment strategy that best matches your requirements, you should undertake your own research and due diligence
1. Exit – the most important part of the strategy.
When investing, the first thing you should do is devise an exit strategy – a well thought-out plan, clearly focusing on how and when you’re going to sell your investment and make a profit and whether or not you are going to buy another. It’s crucial that you decide before you make
your initial offer and seek professional advice on property investment. Be aware of the economy, interest rates and job situation in the area. They can all affect the total profit once you sell up. It’s also worth
considering what you’ll do if property values begin to fall or if it takes a long time to find a buyer.
This strategy is widely recommended when seeking property investment advice. It is the process of buying a property with the aim of renting it out to make capital gains as well as income returns. Typically, an investor will hold on to the property for a period of 2 to 5 years before selling. In the meantime, it can be rented out for various purposes or long-term rental in order to generate income.
The process of buying and selling a property at a profit and within a short period of time is commonly referred to as “flipping”. Under favourable market conditions this can be an extremely profitable property investment strategy – purchasing a property at below market value and profiting via capital appreciation whilst demand is high. Experienced property “flippers” will often progress to purchasing tired properties, renovating them and reselling to build in added profit. Given the strategy’s reliance upon the ability to acquire a property sufficiently below market value and sell at a profit in a short space of time, flipping is currently viewed as carrying significant risk with likely associated costs.
4. Buy to let
Buy to let is simply purchasing a property and renting it out to tenants. Reasonable yields can be expected, although failure to consider variables prior to purchase can greatly affect this. Factors such as rising interest rates, ongoing maintenance costs, periods of vacancy or potentially even negative equity make the buy to let strategy increasingly difficult to successfully forecast under current market conditions. Extensive research and due diligence is strongly recommended to reduce your risk and liability. Buy to let carries with it landlord obligations and potential tax implications and hence is not
suitable for investors looking for a hands-off strategy.
Property funds can allow incredible diversification for investors. By entering into a fund you are in essence investing into a piece of somebody else’s property. A benefit to property related funds is that
entrance levels can be low and past performance on listed funds can be tracked and seen clearly prior to commitment. Remember though, as with any investment, past performance is no guarantee of future success. Returns will likely be lower than straight-forward property investment in the same sector, but risk is significantly reduced and
investment terms much shorter.
REITS (real estate investment trusts) are becoming more widely available. Like funds, they permit extensive diversification and percentage payouts on profitable performance are set out by law in most cases. Reits are also trackable like funds meaning they can be fully researched and judged with respect to their performance. Low entry levels make them attractive to smaller investors and REITS carry certain positive tax benefits. Quoted REITS in Nigeria include UACN Property Development Company PLC and Union Home REITS.
Fractional ownership is investing in property by purchasing one of a number of shares in an asset. As a part-owner of that asset you become the beneficiary of usage rights and any profit from capital
appreciation or rental income proportionate to your share. Fractional properties are usually sold and managed by organisations who also claim a share of the property and the associated benefits.