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If you're new to real estate investing, or any form of investing, it can seem like a minefield.
You’d be forgiven for thinking that it’s only for wealthy entrepreneurs with millions of $ to spend. That may have seemed like the norm a few years ago, but fortunately times have evolved.
In fact, we’d argue there’s never been a better time to start investing in real estate
We know mortgages and mortgage down payments are much more expensive than they were many years ago. But until recently, it was difficult to invest in ‘institutional grade’ real estate without being an institutional investor or having tens of thousands of $ in the bank.
Luckily, that’s all changed, thanks to the rise of real estate crowdfunding platforms like Bricksave, which allow you to invest in shares of real estate assets (properties). Other investors purchase the remaining shares so that the property is collectively purchased on a buy-to-let basis.
When we say ‘investors’, we’re referring to ordinary people, not professional investors or people on first-name terms with every realtor in the city.
With Bricksave, you can invest in institutional-grade properties for as little as $1,000.
But once you get started, how can you maximise your returns? This is an incredibly important question if you’re new to investing and/or don’t have much knowledge of the real estate market.
Firstly, like with all forms of investing, there are no guarantees. But there are several things you can do to improve your prospects of generating sustainable, long-term returns while investing via a real estate crowdfunding platform.
Here they are!
Keeping your investments in a professionally managed platform could help you generate better long-term returns
In behavioural finance, investors tend to believe that they are behaving rationally when they're not. For example, people usually think they tolerate more risk than they actually do, but it is common for people's feelings to cloud their judgement. This can lead investors to buy and/or sell at the wrong time, reducing their ability to generate stable returns over time.
Professionally platforms, like Bricksave, are run by people who are trained to understand human biases and remain focused on generating consistent, long-term returns.
On Bricksave’s real estate crowdfunding platform, your investments will be managed by people who:
Once your investment term has finished, you could sell it and convert it into cash.
Beware that if you withdraw a large amount of cash (i.e. $10,000 or more), you may end up with a rather large tax bill, depending on the laws in your jurisdiction. Taking out smaller amounts of cash from your investments over a longer time period may be more tax-efficient, (reducing the total amount of tax you have to pay), depending on how much you withdraw.
But if you want to maximise your long-term investment returns, reinvest your money instead.
Before we talk about that in more detail, let’s discuss investment timelines.
Why is Bricksave intended for investors who have a maximum term of four years?
Four years is is the average time period you need to keep a rental property to allow it to appreciate in value so you can sell it for a profit.
Real estate investments are subject to various fees, such as taxes, stamp duty, legal fees and commissions), which are likely to cancel out any earnings from capital appreciation before four years (on average). However, this also depends on the property, the market conditions, and the business cycle; in some cases, a property can be sold in a shorter or longer period than four years.
Why not have ten-year investment terms?
If you’re familiar with investing, you may have been told that you should keep your money locked away for at least 5 or 10 years, or perhaps even longer. This may be sensible advice if:
However, Bricksave’s real estate crowdfunding platform is designed to be a little more flexible. Many of our investors need liquidity (the ability to convert their real estate assets into cash without reducing the value of their investments) in a shorter time frame than ten years. For example, they may wish to use the money to fund:
However, as we outlined earlier, investors should avoid selling their real estate assets before four years.
But if you don’t need the cash after four years, you don’t have to withdraw it
That leads us to the second way to increase your investment performance:
When an investment term ends and you sell your real estate asset, you can reinvest your returns into another property instead.
It’s easy to do this on Bricksave’s platform.
With your digital wallet, you can:
How does reinvesting work in practice?
Reinvesting your profits enables you to grow your returns and take advantage of real estate market growth in different regions. For example:
The real estate market in location A may grow by 25% from 2023 to 2027 but only 5% from 2027 to 2031.
The market in location B may grow 5% from 2023 to 2027 but 25% from 2027 to 2031.
Naturally, it would make sense to invest in a property in market A from 2023 to 2027, then reinvest your profits in another property in location B from 2027 to 2031.
But how do you know which areas are likely to see the best growth in the next four years?
This is where it pays to use a crowdfunding platform.
Before investing in a property, Bricksave analyses the 100 largest population centres in a region to identify which ones are delivering the best rental yields. It also:
By January 2023, Bricksave funded more than 210 properties and generated average investor yields of 7.26%.
As you continue to reinvest your profits, compounding will do its magic
There’s a popular saying that ‘money makes money’. This is no joke. As an investment increases in value, new interest is earned on previous interest. That means you earn 'returns upon returns' that go far beyond the original sum of money that you invested.
This is basically how compounding works.
But it doesn’t happen overnight
Time is your friend here. Or, as many investors would say, it’s ‘time in’, not ‘timing’.
The longer you reinvest your money, the more interest you’ll earn as your investments continue to compound. Take the following hypothetical example:
By the time you have around $35,000 invested on Bricksave’s platform, you could start reinvesting your returns every month.
How would this work?
The relative returns are the same for every investor invested in the same property
The example above doesn’t take taxes into account, but it gives you an idea of how relatively easy it is to generate decent returns for minimal effort.
Remember, this is only hypothetical! All investing carries risks, and there is no guarantee that you will make a profit.
Beware of any platform that ‘promises’ returns or ‘guarantees’ that you will make a minimum profit. This leads us to the third way to increase your investment performance:
There are hundreds of real estate crowdfunding platforms to choose from in 2023. Here are some factors you need to bear in mind:
Who is running the platform?
Is it managed by a team of experienced real investors and financial professionals? Check the credentials of the senior management, or visit their LinkedIn profiles to get a better idea of their background.
What type of properties does the platform specialise in?
You should invest in properties that have good potential for capital appreciation in a region with a strong rental market. These properties will normally be fully managed*, which means you don't have to worry about all the legal and administrative work, or finding reliable tenants.
*Bricksave manages all properties listed on its platform.
What type of returns do the real estate assets generate?
A real estate crowdfunding platform should be transparent about investment returns and the risks associated with each property. To reiterate: if you see words like ‘promise’ or ‘guarantee’, or figures that look suspiciously high, look away. Remember, there is always a risk that you may end up with less money than what you originally invested.
However, on Bricksave's platform, investors have earned an average of 9% annual returns in recent years.
What are the fees and minimum deposit?
Some crowdfunding platforms require very large deposits of several thousand $, while others, like Bricksave, allow you to get started with as little as $1000.
How easy would it be to diversify your real estate assets?
Does the platform offer properties in different regions? Although Bricksave is currently focused on the U.S market, this includes properties in Chicago, Miami and Philadelphia, all of which have very different real estate markets.
We are also planning to offer real estate properties in the Middle East and Switzerland, So stay tuned!
We want to help new and experienced investors, and financial advisers, access the best real estate investment opportunities in the U.S. (and soon, the world!). Get in touch with us today.
Or learn more about how real estate crowdfunding works.
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Investing carries risks, including loss of capital and illiquidity. Please read our Risk Warning before investing.