Today there are a number of common property investment strategies being utilised by individual real estate investors. Each investment strategy is different, targeting a variety of asset classes, risk levels, potential returns and investment terms.
IPIN offers a selection of non-standard real estate-based investment strategies exclusively to members. We believe our proprietary strategies deliver enhanced investment returns with reduced investment risk. To learn more about the proprietary strategies available to members and view case studies from investing members click here.
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 research the due diligence that has been conducted as part of the investment proposal and, wherever possible, undertake your own research and due diligence (see our overview here).
Buy to let
Buy to let is simply purchasing a property and letting it out. Reasonable yields can be expected to be between 7-12%, 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.
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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.
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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.
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The term leaseback is generally referred to with respect to an option that encourages long-term property investment (typically around 20 years) into property in France. The property owner sells the property usually at below market value then effectively rents it back off of the new owner, typically with pre-agreed usage rights. The financial benefits of the leaseback can be very impressive indeed, often guaranteeing rental yields and sizeable tax rebates, although often the original owner has buy-back rights which can potentially result in loss in some cases.
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A relatively new and growing real estate investment trend is the purchase of commercial hotel rooms by private investors. The most common model for hotel investment strategies is where the investor makes returns from the ongoing occupancy of his particular room, with or without personal usage rights. Provided a reputable hotel management company is behind the development and occupancy rates are good, this style of investment offers a relatively low entry, hands-off option with respectable returns and potential capital gain over the medium and long term.
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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.
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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. Historically, fractional property investment has differing reputations depending on the location of the asset. In the us and canada it has been marketed and promoted with success on large properties (usually on golf courses, ski lodges and lakeside holiday homes) with regulated brokers. In europe however, fractional property is still in its infancy (emerging as a result of lower lending rates with respect to ltv) and general lack of affordability. Presently there is little regulation and its profitability has yet to be proven.