One of the world’s most lucrative markets is real estate. In Perth, it is no different; it stands as an attractive and reliable investment opportunity.
There are many complexities in the real estate market, and becoming a property investor is not an easy venture. Success as a real estate investor is dependent on your commitment, patience, and expertise at hand. Careful strategic planning and a deep understanding of the market is key.
Real Estate valuation services in Perth often serve as a useful tool for investors. The insights offered in reports are hugely beneficial and allow for informed decision-making.
If real estate investment is a road you’re considering going down, going over some reliable strategies and mistakes to avoid is key.
Key real estate investment strategies
The journey into property investment can be difficult and overwhelming, so getting familiar with some important strategies is a critical move.
Some of the most reliable real estate investment strategies are:
Purchase and hold
The purchase and hold method is a long-term investment strategy that involves maintaining ownership of the property for a lengthy period. The way you earn money is via rental income and the natural appreciation of property over long stretches of time.
Upgrading and flipping
Flipping real estate is a hands-on investment strategy that requires patience and careful strategic planning. A property is bought, often in a relatively low condition, for an affordable price, and then renovations and upgrades are implemented to boost the value. You’ll need an eye for a good deal and a deep understanding of market trends.
Real Estate Investment Trusts (REITs)
A REIT is a company that owns, manages or finances real estate investments. If you’d prefer to not directly own any property, you can gain exposure to the market by investing in a REIT company instead.
Investment pooling
Sometimes referred to as real estate crowdfunding, with this method, real estate investors pool their money together online. The aim of this is to tackle larger real estate investment projects that are often difficult to chase as an individual investor.
Consider Airbnb’s
Going this route is reliant on short-term rental for higher prices rather than long-term consistent rental income. With the right planning, property management and decision-making, you may be able to yield higher returns through this method.
Invest in commercial property
In general, commercial property is highly valuable. Renting out properties for office spaces, retail stores, or construction sites can lead to high passive income and long-term appreciation.
Real estate partnerships
Becoming a real estate investor does not have to be a solo venture, instead, you can form a real estate partnership with someone you trust. By partnering with other investors, you may have access to more lucrative opportunities.
Remember, don’t just grab a strategy and run with it. First and foremost, do your research, review the market conditions, and determine your financial position. The risks are always going to be plenty, so be prepared to face plenty of challenges and obstacles.
What are the main risks of real estate investment?
Like with any investment opportunity, some inherent risks and challenges lie ahead. A few of the main risks associated with real estate investment are:
Market risk
The property market is an ever-evolving and fluctuating one. The market value of a property can rises and fall due to a range of different contributing factors such as:
- Economic conditions
- Interest rates
- Local demand
- Supply dynamics
Liquidity risk
An investment in real estate is far less liquid than an investment in something like stocks or bonds. If you choose to sell, you may have to wait for some time before finding a buyer, especially if the market conditions aren’t great.
Tenant risk
People are unpredictable. The risk of unruly or lawless tenants is always there. As such, you should interview and screen all tenants before signing contracts.
Interest rate risks
Financing is a key part of real estate investment. Any time that interest rates rise, it becomes more difficult for people to secure favourable loans, increasing the cost of borrowing and disrupting cash flow and investment returns.
Getting a valuation service is a great way to determine the market value of a property you’re considering and gain important insights into its existing condition.
Operational risk
As an investor, you’ll need to oversee consistent and effective property management. This includes a range of operational tasks such as regular maintenance and repairs, tenant management, and taking care of any relevant operational issues. A lack of proper management can ultimately increase your expenses.
Legal risk
Real estate investment comes with plenty of red tape. You’ll need to stay in compliance with all zoning laws and government regulations to avoid penalties and fines. A change in regulation can also have an impact on a property’s market value.
Development risk
Anytime that you enter a new construction or development project, there are a range of inherent risks. You may experience delays, cost overruns and fluctuations in the market.
Environmental risks
As an investor, you need to keep in mind climate risks and environmental issues. Air quality, pollution, water contamination, and more are all key factors when seeking an investment property.
Mistakes to avoid as a real estate investor
Reviewing some of the common mistakes that investors make can help you prevent making the same ones down the line.
A few of the common mistakes include:
Lack of research
Not doing the proper research can have devastating and lasting consequences for property investors. Diving into this investment venture unprepared leads to ill-informed decisions and repetitive mistakes.
Overestimating returns
Always do careful calculations and hire a professional service to help you determine potential returns. If you overestimate your profit and come up short, you find yourself in a financially vulnerable situation.
Ignoring cash flow
Cash flow is critical. Not having a handle on your cash flow can lead to an inability to pay contractors and professionals and ultimately build up your debt significantly.
Emotional investment
Real estate investment is about making smart financial decisions. Getting involved emotionally can lead to bad financial choices that have lasting consequences.
Bad financial planning
A lack of financial planning can leave you regretting ever getting into real estate investment. If you end up not profiting and taking on excessive debt, you may spend ages trying to recover.
Ignoring exit strategies
Always have contingency plans and exit strategies in place. Without them, you may find yourself struggling for a way out if the circumstances have changed.
Conclusion
If you’re thinking about jumping into the world of real estate investment, understanding the different strategies, risks and mistakes is key.
By reviewing the different investment strategies such as purchasing and holding as well as relying on short-term rental income, you can decide on a path best suited to you.
From the financial risks to tenant worries, there are plenty of obstacles you’re going to face. Strategic planning and informed decision-making are hugely important for investors.
A few common mistakes investors make include the lack of research, bad financial planning, getting emotionally invested, ignoring exit strategies, neglecting cash flow and overestimating returns.
If you’d like to learn more about real estate investment and valuation services, give us a call today. At Perth Property Valuers Metro, our accredited property specialists are happy to assist.