High Profit Investing in Real Estate: Strategy Fundamentals
Significant profits in property can be achieved if a property’s value increases considerably after its purchase, or if a property is bought considerably below its true market value.
- Property value increases can be triggered by increases in a property’s income and by declines in market capitalization rates.- Capitalization-rate declines can be triggered by strengthening local market conditions, which improve investor risk perceptions and appreciation expectations, as well as by decreases in interest rates and returns in alternative investment vehicles, such as stocks and bonds.
- Property-income increases can be triggered by macroeconomic factors, which influence the demand and supply for all property types or a specific property type, and by microeconomic and location-specific forces.
- The three crucial components of property investment decisions targeting high returns include appropriate timing, property type, and location. These need to be chosen in a way that will maximize the investor’s benefit from macroeconomic and locational forces expected to significantly boost property income and values.
- Properties with big profit potential can be classified into four broad categories depending on the source of the expected value growth:
1) properties with market-driven value-increase potential
2) properties with development-driven value-increase potential
3) mismanaged properties, and
4) bargain properties.