In the common opinion, investing in real estate gives a great chance to preserve the capital “invested” and multiply it in the long run, while “immediately” – without waiting many years – it allows you to obtain a fair passive income from renting. However, are “apartments for rent” the only method of operation on this market? How to invest in real estate to achieve above-average profits in practice? There are many possible business paths that differ in the level of possible profit, the amount of risk or the investor’s time commitment. In this article, we have prepared a list of 6 proven methods of investing in real estate. Learn the details, understand your opportunities and threats related to this market segment.
Apartments for long-term rental
This is, of course, the most typical and popular solution, which is worth paying more attention to. The fact is that any person with the right capital can quickly enter this market.
However, the question arises: how to do it? how to “crank” the highest ROI? How to invest in real estate for long-term rental? A large number of people buy an apartment from a developer, make an appointment with the renovation team for finishing, search, purchase and equip the apartment on their own, going through the ordeal of improper performance of work, failure to meet deadlines, underestimation of investment costs, which ultimately results in a profit lower than expected. On top of that, there is the stress of servicing tenants and the fear of damaging the apartment or not paying rent.
A more mature investor, however, approaches the subject completely differently and reaches for the so-called ready-made investment. In short, a ready-made apartment is an apartment prepared specifically for rent, already inhabited by tenants, operated by a specialized rental management company. In such a model, as an investor, you do practically nothing – everything is done quickly, efficiently, maintenance-free, within a strictly defined budget. You can buy such a ready-made apartment or, even better, have a ready-made investment tailored to your needs. Already at the decision-making stage, you know what your rental profit will be, everything is clear and transparent.
And what if you already own an apartment and are wondering whether to rent it? It is necessary to prepare them properly in advance and raise the standard if you want to attract well-paying tenants.
There is a common belief that renovating on your own is cheaper than commissioning it to a company. This is often a misconception, not taking into account that your expense is also the time you spend. A professional partner with experience and contacts will certainly do it better, faster, and often more advantageously thanks to discounts from suppliers and favorable rates for subcontractors. He will provide you with a clear cost estimate and schedule. For example: Pracownia Nieruchomości offers its contractors a service called “Design and Finishing”, which includes comprehensive preparation of the property for rent, from 3D visualization, design, to comprehensive finishing works, furnishing the apartment and home staging. Your investment apartment will be ready for rent in 40 working days at an attractive price.
Apartments for short-term rental
Another method of investing in real estate is to buy an apartment for short-term rental. As the name suggests, this variant is about finding a tenant for a short time, often days. Therefore, short-term rental is related to the accommodation business. For several years, since the popularization of such online platforms of giants as booking.com or Airbnb, every real estate offerer can easily reach millions of people around the world with their product and deal with renting apartments for accommodation – for employees, guests, tourists.
Sounds great, right? However, this benefit has a drawback – high commissions charged by platforms and their market dominance. It is estimated that platforms are currently responsible for as much as 80% of bookings on the hotel market. So before you enter the short-term rental market, read the commercial terms and conditions of platforms such as booking.com and Airbnb and include these costs in the overall calculation of the profitability of the venture. Also check if and with what methods you will be able to reduce platform commissions.
Due to the fact that it is rented for short periods, and therefore necessarily has a high turnover of tenants, the specifics of such activity will be different than when renting apartments for a longer period of time. First of all, short-term rental is associated with the need to frequently “supervise” the apartment – in such an apartment you will have to clean on an ongoing basis, replace bedding, towels, equipment, etc. If we do not use a solution such as a key box or a code lock, we will have to deliver and collect keys from individual tenants.
Short-term rental is therefore a much more absorbing activity. Profits from short-term rentals can be large, but they are much riskier than renting for longer periods. All it takes is a weaker tourist season and the profitability of the business is already plummeting. However, the costs of running it will certainly be much higher. An apartment rented for accommodation wears out faster, you need to provide equipment, the property will need renovation more often.