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Ways to invest in real estate: what to choose?

2019-11-16

There are different types of real estate investing, and choosing the right one should consider what risks you can tolerate, what knowledge you have, how much time you are willing to invest, how much you can invest, and what returns you are looking for.


Real estate rental

It must be acknowledged that the purchase of a house and its rent is one of the most popular and most understandable ways for Lithuanians to invest in real estate, but it requires a significant amount of investment capital - about EUR 30-80 thousand. Meanwhile, the annual rental profitability is about 6%. In order to acquire a real estate object without overpaying the investment, and in a place attractive to tenants, it is necessary to have knowledge in real estate area.

In Vilnius, the historical annual return on rent reaches 6% before taxes, and in Kaunas - 7%. Labour costs are also quite high, as you need to buy a home, maintain it, look for tenants, and so on. The risk depends on whether the real estate is purchased from personal savings or with a loan. If with a loan, then, of course, the risk is higher, as interest rates may rise and housing rents may fall.

Real estate resale

The resale of real estate usually requires even higher investments than renting, as participation in tenders, the purchase of larger property units, abandoned and renovated objects are often used, but, depending on the type of real estate, about EUR 50 thousand capital.

The annual profitability of this investment method is slightly higher - about 10%, but it also takes more labour costs and time, as it has to engage in active exploration, transactions, and sometimes construction work and sales.

The cost of knowledge and time this method of investing requires much more than renting. The main risk is that the acquired real estate will be difficult to sell, so here everything depends on the knowledge and ability to buy real estate below market price and sell it well.

Real estate conversions

At least EUR 50 000 is required for the reconstruction (conversion) of real estate capital, but the return is much higher than in the ways listed above. It ranges from 10% to 20%.

This method of investing requires a lot of knowledge, as it is often necessary to obtain additional permits, change purposes, look for contractors to perform the work.

The labour costs of this method are high, it can be said that it is a second job or even the main activity that you may have to engage in in order to get a higher return.

Real estate development

Investing in real estate development will require the most capital, from about EUR 100 000. The return on this type of investment is one of the highest, at 15-30%, and it is not the limit, as it can be higher. In this case, the entire real estate development infrastructure, team, construction and legal knowledge, and good cash flow planning are required. You will not be able to do without very high labour costs, capital and knowledge. It is already more of the main job than a secondary source of income.

Undoubtedly, the risks in this area are also mostly related to the knowledge and experience in developing real estate projects. Poor planning can lead to the failure of the entire project.

Real estate funds

Real estate funds are both open-ended and closed-ended. Closed-end funds have a fixed term, so the investment is "locked" for 5-7 years. Funds may be intended for informed or retail investors.

The principle of operation is quite simple: the investor entrusts his investments to the real estate fund manager, who invests in real estate and distributes the earned money to investors. Clearly, you are taking administration fees for yourself.

Funds can be those that invest in real estate that generates rental income or those that develop and sell real estate, or mixed. The investment strategy of the funds is described in the fund's prospectus.

There are currently two listed funds in Lithuania that can be invested in small amounts. However, the majority of real estate funds are intended for informed investors, whose minimum investment is from EUR 125 000. And the return can vary from 4% up to 25%.

By choosing this investment method, you entrust money to an investment management fund, so labour costs are low. It is also not necessary to have special knowledge, the main task is to choose a fund.

Real estate crowdfunding

Cluster financing is another way to invest in real estate. There are specialized mortgage financing platforms in Lithuania.

The principle of operation is also simple. The website raises projects that need funding, and people can invest and earn small amounts on them. As an additional security guarantee for investors, real estate is always pledged, the value of which is higher than the investment itself (the amount borrowed).

Investing through crowdfunding platforms with mortgages can start as soon as

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