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Types of real estate investors

12th Sep 2019

Real estate is one of the best ways to generate solid cash flow when done correctly.

To benefit from the lucrative industry an investor will have to put in work searching the market, navigating contracts, managing properties, remodeling, and selling the property.

If you are looking to real estate, your investment will be guided by your overall goal and having an understanding of different real estate markets will help you make an informed decision.

The type of investor you are will depend on your motive for the property.

1. Investment motive
a) End-User
In this category, the investors purchase property as part of their lifestyle choice. Take for example a couple that is looking to buy a house to raise their children in. As much as the house is an asset, they will buy it to live in – for years. For such an investor, the house is not a profit-making venture but one that is tied in with other factors like social amenities to raise the family in.

b) Speculators
For one to be a successful speculator, you have to be able to locate profitable rental properties and wary not to fall for scams. The goal is to buy property for the lowest price possible and sell at a profit.
Short term speculators go for flipping of properties – increasing the value of assets by upgrading them to sell at a higher price. Purchasing a rundown building in the town and renovating it to attract a high profile type of clientele for the business.

c) Long term investors
An example of this type of investing is when you buy land in a remote area that is set for major development in the future. The growth of town due to devolution has seen land prices in the previously rural areas increase exponentially. As such the buying land for speculation trend has equally increased over the years.

 

Major infrastructural projects also influence the value of property in an area such as how the Standard Gauge Railway (SGR) has seen land prices increase in towns it crosses through.

To be successful in this venture, one has to understand that land is a slow-moving illiquid asset whose value rises steadily over the years.

2. Terms of management
a) Active investors
Here, an investor chooses to be actively involved in the property management process.
This type of investment is common for a small scale type of renting where the landlord with a small and manageable number of extension units take charge of the day to day running of the property and handle repairs and rent collection.

b) Passive investors
An investor can also opt to hire a professional real estate management firm to take over the daily running of the property. As such the investor takes a passive role where they provide financing for the property and receive their dues from the management firms.

3. Legal motive
a) Individual Investors
Most investors are individual investors who take up unlimited liability in property. This means that in the event of defaulting on mortgages or settling other debts, the property can be put up as security.

b) Institutional Investors
An institutional investor is an organization that invests on behalf of its members. With this type of investing, institutions issue bonds to their investors and its benefit is the liquidity of investors who can trade in the bonds.

You may not outrightly fit in a category but as you interact with the real estate market you can go adapt to which suits your position for profits. All in all, do not view real estate as a get-rich-quick scheme.

Real estate market, like the other markets, is therefore complicated. It has various investor groups, who have different motives and based on the competition and co-operation between them, the real estate prices are set.

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Author

danielgathemia01@gmail.com

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