Roman landlords used to invest their riches in vineyards, gold, and farmland. Similarly, today’s high-net-worth individuals invest their money in stocks, real estate, cryptocurrencies, etc. They recognise the importance of multiple baskets for their eggs (money) in today’s competitive world. Diversification helps them reduce the potential risk during market fluctuations, economic downturns, etc. One such investment that high-net-worth individuals make is in real estate. It is a physical and tangible asset that helps serve multiple purposes. Here are some strategies to help high-net-worth individuals for investing in the real estate sector.
1. Direct property ownership
Direct property ownership is the process of purchasing and owning residential and commercial properties to build wealth. Unlike the real estate investment trust, the investor has full control over the property in direct property ownership, which we will discuss later.
Types of direct property ownership
- Residential properties
Residential properties consist of single-family homes and multi-family homes. Single-family homes accommodate single families, whereas multi-family homes are designed to accommodate multiple families. Single-family homes are in high demand, so they provide an investor with a stable income. However, the multi-family home has higher income potential, as an investor can generate income from multiple tenants.
- Commercial properties
Commercial properties are buildings such as showrooms, restaurants, office space and retail stores. A commercial real estate consultant can help you find a commercial property that gives you opportunities to build wealth through leasing spaces to other businesses. They are better than residential properties as their leases are often long term and they are less vulnerable to market fluctuations.
2. Real estate investment trusts (REITs)
A real estate investment trust (REIT) is a company that owns or manages properties, such as shopping malls, apartments, office buildings, etc. Just like owners collect rent from the tenants, they collect money and divide the share between the investors. Companies need to give a big chunk of the profits they earn to the investors. So, investors get regular payments from companies, which they can reinvest if they want. Also, one need not handle tenants, repairs or other issues related to the property.
3. Real estate development
You can invest your capital to finance the construction or renovation of real estate development projects. You can support the development by providing finance for acquiring land, covering the construction costs, obtaining permits and doing several other things. Some investors play a passive role in real estate development by providing funds, while some play an active role by making crucial decisions.The real estate consultant recommends conducting deep research on the project, market conditions, and development team to mitigate the risk associated with investing in real estate development projects.
4. International real estate development
High-net-worth individuals who are settled abroad can think about investing in India. Indian real estate market offers enormous opportunities. Rapid urbanisation, with the growing middle class, has increased the demand for housing, shopping malls, and other spaces. Investors can collaborate with local developers who understand the local market, legalities and other curial aspects. Also, create a clear plan for exiting the investment in the future. This could be selling the developed property, holding it for rental, etc.
5. Real estate crowdfunding
Real estate crowdfunding is a way by which companies get access to capital from a large pool of investors through social media platforms. Crowdfunding is similar to purchasing a share of the property in a real estate project and becoming a shareholder. Investors don’t need to buy the entire property, and they can earn a profit of their share. But, real estate crowdfunding is complicated, and they might not understand all the associated risks.
6. Fix and flip properties
Fix and flip property is a process by which an undervalued property/house is purchased and then renovated or improved to sell it at a higher price. High net worth individuals, those who are comfortable with hands-on with properties, in particular, might find fix and flip properties investment appealing. However, house flipping can be tricky as one has to be accurate in renovation costs to ensure they get more than what they paid for the property.
The bottom line
Before opting for any of these strategies, conduct thorough research to understand the local real estate market dynamics, and consult with the best real estate consultants in Mohali to get optimum advice and reduce your risk. Remember that all of these strategies come with their own pros and cons, and diversification across these strategies can help you maximise your profits.