Real estate investors all have one big thing in common – they purchase property. Other than that, property investors as a group don’t have many commonalities.
Property investment can be quite diverse. Do you invest in residential or commercial property? An inner-city apartment or a rural home? Or even a big block of land to develop?
In our experience, investors tend to fall into one of five buckets, and the reasons and strategies involved can differ significantly for each.
Get rich quick investor
The get rich quick investor is aiming to do just what the name suggests. They’re always quick to jump on the bandwagon when it comes to the next big thing in real estate.
These investors have a high risk appetite and are constantly seeking the highest returns when it comes to rental yields and capital growth.
Their quest for quick cash makes then highly susceptible to media headlines and will be easily swayed by opinions of property spruikers and market commentators. When it comes to mining town booms or a large “state of the art” development.
The problem with this strategy is that it’s impossible to beat the market when you’re reading the news at the same time as everyone else and so more often than not you’re buying when the cycle is at its peak or close to it.
These types of investors don’t typically last long in the real estate game.
The flipper is a DIY enthusiast and watches The Block religiously. We’ve all heard of the ‘buy the worst house on the best street’ strategy, and this is exactly the kind of thing a DIY property investor will look for.
They can easily forget about the fundamentals of property which makes it very easy to overcapitalise and be unable to sell for a profit, even in a strong market. DIYers need to be careful not to get caught up in the excitement (some would say illusion) of turning an old house into a prestige property.
The DIY mentality doesn’t just apply to renovating and flipping a property, they may also decide to handle the property management themselves which can be a huge mistake.
Experienced property owners and investors will know that you can’t do everything alone. It takes a good team to support a successful property investment, so this strategy can cause you to make costly mistakes or overcapitalise.
The circumstantial investor
These types of investors are simply investors by circumstance, sometimes referred to as ‘mum and dad investors’. They didn’t ever buy a property with the intention of keeping it as an investment.
Many homeowners will, at some point in their life, upsize or downsize from their first home. Those who are in a good financial position and with decent capital won’t need to sell their existing home to finance the second one, so they will hold the existing property.
If the market is not strong and it’s not the right time to sell, the mum and dad investor can rent out the old home and use it to generate some passive income. They will have the flexibility to wait as long as necessary to sell at a comfortable price or perhaps they will decide to hold onto it indefinitely.
This method prevents them from paying a heap of fees such as stamp duty, often making it a good decision.
The young gun
The young guns are the headline-worthy investors and are the property industry’s version of rags to riches. The 20-something or 30-something investor who has made it in the property world.
You’ll often read about them in the papers or online accompanied by stories about how they’re proving Bernard Salt wrong and are investing in property, not buying smashed avo on toast.
These investors tend to have at least three investment properties and have usually been riding the upward trending market wave. Many will have had some help with deposits along the way and are usually highly leveraged.
Unlike the get rich quick investor, however, they will do their due diligence before buying anything and generally make sound investment decisions.
The set and forget investor
The set and forget investor is a long-term believer and investor in property.
The saying goes that you make money in property when you buy, not when you sell. By surrounding themselves with an expert team of property advisers, the set and forget investor exemplifies this strategy, knowing that outsourcing the management of their portfolio will pay off in the long run.
Despite having a comprehensive income, they will be very cautious about where they park their money to ensure they’ll be making the best possible returns.
Striking a balance between being very cautious and unemotional, they are typically the most successful real estate investors.
No matter which type of investor you are, Red & Co can help you throughout your property journey. If you need help getting into the property market and want to build a successful portfolio, get in touch with Red & Co at [email protected] or call 1300 887 328.