You do not need to buy a flat for rent, just like anyone else. There are various investment strategies. Which investment strategy should you choose?
There are four main property investment strategies: speculation, money flow, return on investment and increase in value.
The main differences between those strategies are linked to three key aspects: how much work an investor needs to put into the investment, the date of return on investment and the profit itself. There is no perfect strategy that would allow you to generate big, quick and efortless profits. Each investor needs to consider their possibilities, limits and motivation.
There are no good and bad strategies. The way you act should always reflect your personal preferences and limits. What are the limits? One of them is you time – how much time you have got and how much of it you can spend on your investment. It is worth being a little bit skeptical regarding what you know about the property market. Some strategies are more complex than others. If you do not consider yourself fully prepared to take on the challenge, think of expanding your knowledge and learning from the experience of some more experienced investors. The expertise you already have anyways should be adjusted to the local market standards. Not every investment strategy fits every property. The decision must be based on profound market analysis and the business plan project. Last but not least, the final factor is your individual risk tolerance. You should always match your investment style to your financial and emotional capabilities and consider how much you are ready to invest and what consequences it could bring.
Speculation is based on one simple rule – buy cheap, sell high. There are a lot dangers and expectations hiding behind this rule. Effective speculation requires excellent knowledge of the market and fast decisions. Hardly ever you can find good occasions on classified ads portals, and once they appear they are quickly spotted by the investment professionals. To get a good deal you need to get in touch with the seller before they publish the ads.There are a lot of ways to achieve it, such as flyers distributed in the district of your interest,your network or auction bailiff.
Having cash handy is always the key to success. The good deal might be available only for limited period of time – too limited to ask for a bank mortgage or decide for too long. This makes speculation one of the riskiest strategies. You can end up with some quick overwhealming profit as well as with having your funds frozen for a long time – or even loosing your money.
Money flow can be a better strategy for those who do not accept high risk or have no money available. The strategy is about passive profits generated by the properties you own. Simplicity and safety are the biggest pros of this investment style. The biggest con is that you need to wait much longer for your profits – usually about a dozen years. In return you can enjoy regular cash in, that can be used for anything you want – you can compare it to a brooke or a river of money, depending on the situation.
The most popular tactic of money flow is buying a flat for rent – in the biggest cities the yearly return on investment can reach 5-6 %, which makes it more attractive than locating your money in a bank or investing in bonds.
Return on investment
This strategy is very similar to money flow. The difference is that this time the investor is to buy, restore or renovate a property thinking of an actual tenant and their business, having signed a proper lease. The biggest advantage of this solution is that it is long-term. The property should meet individual, often non-standard requirements of the tenants, which gives the investor some sense of safety – in the same time such tailor-made investment can be risky if for any reasons the tenant’s business would stop making profits.
Increase in value
This strategy is based on buying properties labeled as difficult or unattractive and making them attractive for potential buyers. When it comes to renting a flat, this can be done by dividing it into many separate rooms. The price of a single room goes up together with its size – but it is no proportional increase, which means you can make better profits out of the same size of a flat if only you manage to squeeze more rooms in. Another solution is adjusting the property to the needs of particular tenants. If you want to rent the space out, spend some time thinking about potential needs of you tenants – there will be different for restaurant owners and hairdressers and this is why it is so important when it comes to meeting the regulations and finding the tenants.
In Poland there are more and more people who can afford investing in properties – but not everyone knows how to start off. If you decide to enter the property market, spend some time to analyze the market and find the strategy that is right for you – considering your individual preferences and limits. More tips and tricks can be found in my book ‘Let’s make money on property investment’.