Types of Real Estate Investors
Real Estate markets can be extremely complicated. The price movements in this market are usually slow and difficult to come by. A major factor behind this is the type of investors who put their money in the real estate markets. Therefore, an understanding of the real estate markets has to be rooted in an understanding of the underlying participants as well as their motives.
Investment Motive
Three major categories of the investors in the market:
Speculators:
Most of these speculators are either people trying to make a quick buck by selling their phony “surefire real estate profit strategy” or people who have fallen prey to these con men and are actually trying these phony strategies in the market. This category of investors was hard to find just a few years ago. However, of late, they have become a lot more common.
End Users:
These people do not look at real estate as a purely financial decision. They look at it as a lifestyle choice. This is because they have to stay in that house day in and day out. Hence, factors such as lifestyle amenities available nearby as well as the distance it takes to commute to work become extremely important.
Long Term Investors:
Like the “flippers”, these people too invest in the real estate market to make money. However, their decisions are not short term. They understand that real estate is a slow moving, illiquid kind of asset that steadily grows in value over a number of years.
Degree of Control
These categories are distinguished based on the degree of control they exert on the property in question.
Active Investors:
Some long term investors prefer to manage the property themselves. They are the ones who conduct the repairs, find the tenants and rent out their properties
Passive Investors:
There are other long term investors which have the ownership of the property. However, they do not take interest in managing its day to day affairs. To do so, they either hire employees or they end up hiring professional real estate management firms.
Legal Entity
Lastly, the type of real estate investors can also be distinguished based on the type of legal entity they are. Legal entity is important because it determines the amount of liability that a person has.
Individual Investors:
Individual investors have an unlimited liability. This means that if they undertake a mortgage on one house and default on it, their other assets can be liquidated to make up for the loss.
Institutional Investors:
There are many institutional investors in the real estate market as well. These institutions usually finance themselves by issuing long term bonds in the bond markets. Since these bonds have a secondary market, they are very liquid and provide the investors with the ability to enter and exit the real estate market without any major hassles.