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Profitus news Ways of investing in real estate: what to choose?

2019-11-16 18:00:00


Ways of investing in real estate: what to choose?

There are many different types of real estate investments, and choosing the right one for you should take into account the risk you can tolerate, the knowledge you have, the amount of time you are willing to spend, the amount you can invest, and the return you are looking for.

Real estate rental

It must be recognized that buying and renting a house is one of the most popular and most understandable ways of investing in real estate for Lithuanians, but it requires a considerable investment capital - about 30-80 thousand. Eur. Meanwhile, the annual rental profitability is about 6 percent. In order to purchase a real estate object for investment without overpaying and in an attractive location for tenants, it is necessary to have knowledge.

In Vilnius, the historical annual return from rent is 6 percent. before taxes, and in Kaunas - 7 percent. Labor costs are also quite high because you need to buy housing, maintain it, look for tenants, etc. i.e. The risk depends on whether the real estate is purchased from personal savings or with a loan. If with a loan, the risk is undoubtedly higher, because the interest rate may rise and the housing rent may fall.

Real estate resale

The resale of real estate usually requires even higher investments than renting, because you often participate in auctions, and buy larger property units, and abandoned and renovated objects, but depending on the type of real estate, about 50 thousand may be enough. Eur. capital.

The annual profitability of this investment method is slightly higher - about 10 percent, but it also takes more labor costs and time, because you have to engage in active searches, transactions, and sometimes - construction work and sales.

This method of investment requires much more knowledge and time than renting. The main risk is that the purchased real estate will be difficult to sell, so everything depends on the knowledge and ability to purchase real estate at a lower market price and sell it well.

NT conversions

At least 50 thousand is necessary for real estate reconstruction (conversion). Eur. capital, but the return is much higher than the previously listed methods. It varies between 10-20 percent.

This type of investment requires a lot of knowledge, as it is often necessary to obtain additional permits, change purposes, and look for contractors to carry out the work.

The costs of this type of work are huge, it can be said that it is a second job or even a main activity that you may have to engage in to get a higher return.

The risks of this investment are mostly related to poor knowledge: the acquired property requires more investment in reconstruction than planned, and the complexity of the change of purpose is not taken into account.

Development of real estate

Investing in real estate development will require the most capital, starting at around 100,000. Eur. The return of this investment method is one of the highest - even 15-30 percent, and this is not the limit, because it can be higher. In this case, the entire real estate development infrastructure, team, construction, and legal knowledge, good cash flow planning are necessary. You will not do without very high labor costs, capital, and knowledge. This is more of a main job than a side source of income.

Undoubtedly, risks in this area are also mostly related to 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 of both open and closed types. Closed-end funds are termed, so the investment is "locked" for 5-7 years. Funds can be aimed at 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 the investors. Of course, they take administration fees.

Funds can be those that invest in real estate generating rental income, develop and sell real estate, or a mix. The fund's investment strategy is described in the fund's prospectus.

Currently, there are two listed funds in Lithuania, in which small amounts can be invested. However, the majority of real estate funds are intended for informed investors, whose minimum investment is from 125 thousand. Eur., and the return can be different - from 4 percent. up to 25 percent

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

Real estate crowdfunding

Crowdfunding is another way to invest in real estate. In Lithuania, there are specialized platforms for crowdfunding by mortgaging real estate.

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

Investing through crowdfunding platforms by mortgaging real estate can be started from as little as 100 EUR. and earn an average of about 8

-14 percent annual return on investment.

This method does not require extensive knowledge, as the main work of project and loan selection is done by the platform's team of professionals. It evaluates real estate and risks, provides a detailed description and assessment, and assigns a rating. Only in this case, unlike funds, the platform does not charge any administration fees to investors. The platform earns from those who seek funding.

The main risk is that the borrower will not be able to fulfill the obligations to the investors, but for the purpose of insurance, real estate is pledged, which would be returned after the sale.