Investing Capital

Real estate: what do you want to achieve as an investor?

Last week I published a post on why property - or real estate - is still such a sought-after asset class for investors. As its title suggests, the entire focus was on explaining why even in 2017 - going into 2018 - real estate investing is still so popular.

Talking about everything from the point that it can be brilliant for portfolio diversification, right through to the simple fact there are always going to be opportunities, the overarching point was that real estate is naturally so versatile. There are quite literally opportunities open at each end of the scale that it makes it an asset class accessible for almost everyone.

And whilst this is undoubtedly one of the most positive elements of real estate investing, it can be somewhat of a double-edged sword.

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When you have choice, it can be confusing. It can be daunting and it's not unheard of for it to cause more problems than it answers. For anyone who's taken a child to a toy shop and asked them to pick a new toy, you'll have directly experienced this!

For this reason, if you're looking to begin investing into real estate, you need to first understand what you actually want to achieve.

Real estate investing: for growth or for income

On the highest levels, the decision you need to make should more often than not branch out from a single umbrella question - do you want to invest with the aim of seeing a return in (what's usually at least) several years, or do you want to invest and receive a regular income?

Before we move on, it's important to understand that real estate investing can actually allow you to achieve both. This is a particularly appealing aspect for the asset class and one that's not often seen with other asset classes.

However, to keep things as simple and as straightforward as possible - something that's particularly important if it's your first foray into the world of real estate investing - let's keep the options separate at this stage.

The difference between growth and income real estate investments

The opportunities that fall under each of the two umbrella areas can both be fantastic. Successful investors have benefited from each, and will undoubtedly continue to do so.

But they do differ. Considerably so, too.

In essence, when you're looking to invest into growth-based opportunities, you're investing with a view to seeing a return over a period of time. This would generally be at least several months, but could realistically be many years.

A perfect example of this is a residential development project, one whereby you invest at the stage of buying land and generally don't see a financial return until the houses have been built and sold.

Conversely, investing in real estate opportunities that are income-based generally have the opposite focus and rather than producing a return only after a period of time, they deliver what's often a smaller return, but on a much more frequent basis.

Buy To Let is an ideal example of this. You purchase an investment property, often mortgaged, and let it out to tenants for a monthly yield. After covering the cost of the mortgage, the yield will generally have a sufficient amount remaining, which is the return on your investment.

How do you make the decision?

You understand how you want your money to, ideally, work best for you.

We don't give financial advice at GCV, but we strongly recommend you seek it out and take it when you're looking to make a financial investment of any type.

how to get started with property investments

When you do so, the professional will ask you to think about exactly this. They'll talk about your short and long term financial ambitions and discuss what matters most in terms of seeing a return on your investments.

The answers to these discussions - and many more, such as around your preferences toward investment risk levels - will naturally lead you down the path of investing for growth or investing for income. You may not be completely on one path and could easily have an appetite that works for both growth and income-based investments, but the discussions will undoubtedly start you moving forward in the most suitable way.

Is there a right or wrong choice?

When talking about investing for growth or income, it's always an individual decision. On that level, there's no right or wrong answer - they're both favourable routes and can both be perfect options.

But in fact, because of this there is a right or wrong choice.

The success of an investment is based on a vast array of different points, but success for one person can be viewed completely different to another.

If you have £50,000 to invest into a commercial property with the focus of letting it for a relatively secure yield, but instead invest it into a residential property to be sold in three years for profit, it's not going to have the desired impact.

The latter option may undoubtedly be particularly appealing to some, but it could be completely against the needs, desires and expectations of others. It's brilliant if you're looking for growth, but completely the wrong choice if you're looking for recurring income.

Making the decision

To get into real estate as an investor, there a whole host of considerations, and we've produced a guide to integrating property investments into your portfolio, which offers a great starting point.

The versatility offered through real instate investments is considerable and it's important this is both truly appreciated and understood. The greater your education, the more informed of a decision you can make - and the more informed the decision, the more likely it is the real estate investments you make, be those growth or income-focused, will be most suited to you. 

Driving Growth.
Creating Value.
Delivering Impact.

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Growth Capital Ventures (GCV) is backed by funds managed by Maven Capital Partners, one of the UK’s leading private equity and alternative asset managers.