Recently, more and more people are looking to invest and are carefully considering which sector they should be investing in to have a stable and high income. With the right approach, it is possible to have consistent financial flows and income.
Invest your money in real estate: It is a reliable and profitable choice. While risks always exist, the real estate market tends to recover quickly and continues to grow.
You need to consider many factors before purchasing profitable real estate. Let’s have a look at the types of real estate, define the selection criteria, and review examples of successful investments.
Which real estate investments are the most profitable?
Let’s identify three main categories:
1. Commercial real estate
These properties are designed for entrepreneurial activities. For example, offices, hotels, restaurants, warehouses, and garages. This kind of investment requires more substantial capital, but it usually offers higher returns.
2. Rental real estate
This is the most common type of investment that can provide you with a steady income, it can be for any purpose, residential or commercial rentals. And of course, it does come with some difficulties, such as managing property maintenance and issues related to tenants.
3. Flipping
Flipping is the purchasing of real estate with the intention to resell it at a higher price. Investors get to face a really hard task. They need to carry out market analysis, price monitoring, property selection, purchase, renovation, finding a buyer, and closing the deal. If everything is properly calculated, then this strategy, although risky, can yield significant profits.
What real estate should you choose?
In order to make a profitable real estate investment, earn returns, and avoid risks, you need to consider several factors:
1. Market Conditions: Analyze local real estate market trends and developments, monitor demand dynamics, prices and risks.
2. Location: Select a property in areas with high demand. This can be an apartment in the center of Yerevan, a new building in an eco-friendly district, or a property in a popular tourist destination.
3. Property condition, the quality of construction materials, modern design, and interior finishing do impact profitability.
4. Cash flow: This is the difference between gross income and all expenses (mortgage payments, property taxes, and operating costs).
Risks and ways to minimize them
Investment risks can arise from external factors (economic crises, political events, and natural disasters) or internal factors (insufficient market research or improper allocation of assets. In order to avoid or reduce these risks, investors should choose reliable buyers or tenants, maintain a reserve fund and invest in insurance.
Calculation of income
Of course, investors can’t guarantee profit in advance, but what they can do is calculating the return on real estate investment (ROI). The ROI formula is:
((Annual Investment Income - Expenses) / Expenses) x 100%
If ROI = 100%, the investor has no profit and no loss.
If ROI < 100%, the investment hasn’t been recouped, and the investor incurs losses.
If ROI > 100%, the investment is generating a profit.
Real estate management
If you have already acquired real estate, you need to manage it effectively to maximize its profit. For example, when it comes to rental properties, landlords should select tenants who can pay for repairs when needed and address any issues or conflicts. In the case of buying and selling, it’s important to have a reliable exit strategy, such as waiting for market conditions to improve. If you don’t want to or are too busy to manage your property, you can hire a management company to handle the entire package of services for you.
Examples of successful real estate investments
There is a common stereotype among investors: “It’s better to buy the worst house in the best street than the best house in the worst area.” You may disagree with this, but 100% success of an investment depends on the property’s location (developing cities, resorts, ski areas etc.), and surrounding infrastructure.
Buy an apartment in the center of Yerevan and make a designer renovation. This will make sure that you get a steady cash flow while increasing the property’s value over time. Or invest in a property within a residential complex with well-developed infrastructure. Another ideal example of successful investment is getting residential or commercial real estate near a ski resort.
Conclusion
Investing in real estate is an exciting journey that can bring both profit and valuable experience. You may encounter setbacks along the way, but if you follow the tips listed above and examples of successful investments, then you will able to build a profitable real estate portfolio.
