TYPES OF REAL ESTATE INVESTORS BY IZABELLA LIPETSKI
A real estate investor is any investor who purposefully adds a real estate asset to their portfolio. Truthfully, real estate investors are available in many shapes and sizes. While many of us consider someone, who buys and holds a rental property as the classic example of a real estate investor, that is only one type. It is possible for real estate investors to put their money into a real estate investment company (REIT), to follow a fix-and-flip investment strategy, or to be wholesalers.
It is also possible for real estate investors to be individual investors, institutional investors, or to fall somewhere in the middle. In this case, other financial institutions or banks would count as institutional investors, while individual people would count as individual investors. However, it is also possible for people to start a real estate investment trust, which would fall somewhere in between those two ends of the real estate investing spectrum.
REITs
Publicly traded REITs, or real estate investment trusts, are companies that own commercial real estate (offices, think hotels, and malls). You can invest in shares of those companies on a stock market. By investing in REITs, you are investing in the real estate these companies own, without as many of the risks related to owning real estate directly.
REITs are required to return a minimum of 90% of their taxable income to shareholders annually. This suggests investors can receive attractive dividends additionally to diversifying their portfolios with real estate. Publicly traded REITs also offer more liquidity than other real estate investments: If you discover yourself suddenly needing some cash, you’ll sell your shares on the stock market. If you would like to take a position in publicly traded REITs, you can do so through an account.
BUY-AND-HOLD INVESTOR
Buy-and-hold investing is the classic example of real estate investing, where you purchase an investment property and rent it out for consistent monthly income. Overall, this is a comparatively active type of real estate investing. You have to do the groundwork of selling for a tenant, vetting all the potential applicants, and being on call to handle maintenance issues. It is also meant to be a long-term strategy since investors tend to shop for an investment property and keep it in their portfolio for multiple years.
The big advantage of following a buy-and-hold investment strategy is that you have the chance to realize relatively stable returns. In this case, landlords can usually calculate an equivalent amount of income coming in monthly. Additionally, if you hire a property management company, you will also have the chance to show this into a more passive investment.
FIX-AND-FLIP INVESTOR
There is fix-and-flip investing. This is an equivalent kind of investing that you often see on HGTV. In this scenario, the investor will do their best to seek out a real estate deal that’s undervalued for the market. Then, they will fix it up and sell for resale at a way higher price. Once the customer is found, the investor gets to keep the difference between the initial investment and therefore the final sale price as profit.
The main advantage of this kind of real estate investing is that, if you find the proper investment opportunity, it has the potential for top returns. In addition, it is a short-term investment strategy, meaning you could see a return on your investment in few months.
This is also an active investment strategy. In this case, it is up to you or your real estate agent to find out the right real estate deal. Then, you have to work out a way to fix up the property. Here, you can achieve better returns if you can do the work yourself. Finally, there is also the risk that you could over-improve the property and lose money on the deal when it is time to sell.
WHOLESALING
On the opposite hand, real estate wholesalers will act as an intermediary between a landowner and an end buyer. Here, the investment strategy is to find out an underpriced real estate deal. Then, to quickly sell it for a better price to an interested buyer without rehabbing it first. In this scenario, you get to keep the difference between the worth you purchased the property and therefore the price you sold it for as a profit.
In truth, this is a comparatively passive investment strategy, and you have the potential to make a large profit. Typically, wholesalers will buy and sell a property on the same day to chop down on carrying costs
INVESTMENT MOTIVE
The most important feature based on which we will distinguish real estate investors is their investment motive. All investors buy real estate. However, not all of them do for some reason. Let’s have a look at the three major types of investors in the market.
SPECULATORS
These are the type of investors that should not be called “investors” in the first place. They provide a nasty name to real estate investing. They will make a classy operation like real estate investing sound a no-brainer. These people claim to possess made 1,000,000 dollars in 4 years with no investment of their own just by flipping real estate. The reality is that such results are rarely obtained. Real estate investment is an old-fashioned investment game that only pays off at the end of the day. Most of those speculators are either people trying to make a fast buck by selling their phony “surefire real estate profit strategy”. This category of investors was hard to find out just a few years ago.
END USERS
This is often the most common category of investors that you will find in the real estate market. Usually, people that buy real estate are buying their own homes. They have the intention of staying in the house for many years. This changes their outlook towards the investment. These people don’t check out real estate as a purely financial decision. They look at it as a lifestyle choice. This is because they want to stay in the home day in and out. Hence, factors like lifestyle amenities available nearby also because the distance it takes to commute to figure become extremely important. The demand for these kinds of investors is often predicted supported where their job locations currently are or are expected to be soon.
LONG TERM INVESTORS
Lastly, we have long-term real estate investors. Just like the “flippers”, these people too invest in the real estate market to make money. However, their decisions aren’t short-term. They understand that real estate is a slow-moving, illiquid type of asset that steadily grows in value over a year.
LEGAL ENTITY
The type of real estate investors also can be distinguished based on the type of legal entity they are. The legal entity is important because it determines the quantity of liability that an individual has.
INDIVIDUAL INVESTORS
Many investors in the real estate market are individual investors. Individual investors have a vast liability. This suggests that if they undertake a mortgage on one house and default it, their other assets are often liquidated to make good the loss.
INSTITUTIONAL INVESTORS
There are many institutional investors in the real estate market also. These institutions usually finance themselves by issuing future bonds in the bond markets. Since these bonds have a secondary market, they’re very liquid and supply the investors with the ability to enter and exit the real estate market with no major hassles. While, in terms of number, individual real estate investors may outnumber the institutional investors, in terms of scale or volume, they are no match for the big corporations who invest billions of dollars in real estate investments.
BOTTOM LINE
The real estate market, just like the other markets, is therefore complicated. It has various investor groups, who have different motives, and based on the competition and cooperation between them, the real estate prices are set. Real estate investments are often excellent due to diversifying your portfolio. However, if you are just getting started during this arena, it is often confusing to differentiate between the various kinds of real estate investors. Here is Izabella Lipetski the top real estate agent in East Bay California as your guide to your options. Get in touch with Izabella Lipetski and she will help you to find your type of investors and give you a far better idea of what kind of real estate investing is right for you.