With the COVID-19 pandemic still keeping economic activity subdued globally, investing in real estate becomes a bigger challenge, especially for those that are in their early stages. To keep profitability and reduce downsides, if that occurs, they need to take some extra measures in how they design a real estate investing strategy. I am Ofir Eyal Bar, and today I will share 4 valuable tips on how to do that, to help other people navigate one of the most uncertain periods in our lifetime.
Alt-text: tips for real estate investing
#1 Have a diversified exposure
Diversification is one of the keywords for real estate investors in 2020. Most of them had given up on the idea of increasing returns and in exchange, they have a risk-averse approach to how they allocate capital. International investors can benefit since they can choose from a wide range of countries, or specific areas in those countries, that are either not affected by the pandemic or have huge growth potential.
As tourism takes a great hit, real estate investors have been focusing on logistics, small houses, rentals, and other similar areas where there is still room for improvements, as the pandemic changed completely how businesses and people operate. For investors with limited capital, on the other hand, diversification can be achieved in many different forms.
One of the most convenient and simple is represented by REITs. They can invest in REITs listed on the public markets, gaining exposure on a wide range of real estate investments by buying a single asset type. However, choosing the right REITs would be the most important tasks, because not all of them invest in the same real estate avenues. There is also no need to travel around the world, reducing expenses and any inconveniences related to the coronavirus.
#2 Start small and then scale up
The real estate investing strategies should be adjusted in 2020, based on market conditions. With profit margins expected to be reduced, investors should be satisfied even if they manage to make a small profit. As a result, when starting a new investment, it would be most appropriate to allocate a limited amount of capital, and once results start to show, scale-up, based on the portfolio asset allocation rules.
Scaling up is a key part of the process, but should be taken into account alongside diversification. Investors should keep a long-term approach and expect to scale up on investment as economic activity continues to recover. The pandemic had generated a fast and sharp decline, creating an unprecedented uncertain environment. Countries like Germany and The Netherlands had managed to keep the situation under control and I am happy that the Ofir Bar portfolio has exposure to those two countries.
However, that’s not the case for the entire world, as weak leadership and lack of public discipline were not helping in keeping the spread of the virus under control. Economic activity remained subdued for a longer period and the recovery will take more time.
As a result, how a country copes with COVID-19 should be an important variable to take into account, when looking after long-term real estate opportunities. That’s where capital will be flowing in the years ahead, providing plenty of upside potential in terms of profit margins and market stability.
#3 Use online real estate investing platforms
Considering real estate investors need to work with an even greater number of variables when finding real estate opportunities, technology can serve as a great tool. More specifically, with real estate investing platforms, they can find the desired locations without having to do a lot of work by hand. That will save time and lead to objective decision-making.
When risks are elevated, our emotions can dampen our ability to make the best decisions. That’s why investors need tools that automate the process and avoid getting hijacked by unexpected emotional reactions.
#4 Study market trends to be one step ahead of the crowd
This is the first time in a century when the world faces a pandemic and despite the short-term market distortions, the real estate market will get back to normal at some point. Educated and smart investors, able to anticipate market development will come on top, so this isn’t the time to complain, but to proactively analyze the market, so future trends won’t take us by surprise.
I think the pandemic made real estate investing an even more challenging activity, but I like that because it will force us all to make changes and adapt to tougher circumstances. It is during these difficult moments humanity finds the drive to take a huge leap forward and use ingenuity, innovation, and intelligence to come with new strategies. The real estate sector is not an exception from the rule, so keep these 4 tips into account, if you want your strategy to outperform the market.