Real estate investment is considered to be one of the most sought-after investment opportunities in Pakistan and for all the right reasons. Some of the most lucrative features that separate real estate from other investment ideas in Pakistan include – high return on investment, financial security, asset appreciation and transparency in investment.
Real estate is a vast field, and there are different types of investors associated with real estate. This blog brings you a concise yet comprehensive guide about the types of investors in Pakistan.
To explore different types of investors in Pakistan, keep on scrolling.
Types of real estate investors
All investors have a common trait: they make investments to improve their financial situation, but it must be kept in mind that each one has its own peculiarities. There are numerous ways to invest money, either individually or as a business. Real estate investors specialize in buying and selling real estate to develop, rent, or sell with a significant return on capital.
Some of the most common types of real estate investors are:
These traditional financial institutions are the best known for real estate investment. Most of the financial institutions involved investors in the debt economy. Banks look at a variety of metrics, including net cash flow, loan value, capitalization rate, and many more, to determine the amount of equity available for the loan, which will finance the purchase of a given property.
The banks take risks in exchange for interest rates and mortgages on the properties.
REIB is also gaining popularity by leaps and bounds. Real Estate Investment Banking (REIB) is made up of an industrial group focusing on the investment banking division of an investment bank. They specialize in advising real estate companies in everything related to strategic transactions, including mergers and acquisitions, divestments and capital services, debt and equity and other related topics.
REIB usually works with real estate firms, real estate development investment trusts, lodging, gaming centres like casinos, and real estate investment trusts (REITs). Although the REIB does not invest in properties, it qualifies as an investor because it directly influences property sales and acquisition operations through advisory services and earns high dividends through them.
Angel investors in the name given to people with large economic assets who invest in aspiring entrepreneurs. They lend venture capital to those who have already generated their own project but are not ready to invest venture capital.
Real estate venture capitalists provide loans to new or old businesses for real estate development and property acquisitions. New companies must demonstrate high growth potential in the real estate industry to access venture capitalists and their financing. Generally, the capital comes from wealthy investors, investment banks, and any other financial institution committed to real estate. When investing in startups, the returns are low at first, but if the negotiation is successful, the payoff may be above average.
Personal investors are also known as private money lenders. Anyone can be a private investor as long as they have the funds to invest. They establish interest rates of around 12 – 15%. They generally lend to established real estate funds to ensure a quick return on their initial investment.
Real Estate Investors:
Real estate investors, as their names suggest, buy real estate assets with the intention of making a profit, either through short-term or long-term investments. Common exit strategies include wholesaling, purchase and maintenance.
It is a type of investment with a mega commercial structure that incorporates capital from multiple investors and invests them in securities. Unlike mutual funds, hedge funds take more risk, and their leverage is not limited by official regulators.
Real estate hedge funds invest in companies listed on the stock market, such as mutual funds or real estate investment trusts (REITs). They also use their investment to buy real, usually underperforming real estate.
Types of real estate investments
There is a wide range of properties in the real estate market. However, it is possible to divide them into four main groups: residential and commercial, industrial and mixed-use.
Residential real estate:
They are made up of residential properties, which in turn can be: multi-family or single-family homes, townhouses and condominiums. Constant and effective maintenance, together with efficient administration, ensure absolute occupancy and increase in value. Residential leases generally last six to twelve months, leading to a much faster adjustment to market conditions than other types of real estate investments.
Commercial real estate:
These investment assets can include retail and wholesale store ownership, office buildings, storage facilities, general warehouses, hotels. This type of real estate investment is usually more expensive and complicated than the residential one. Leases are longer than for residential ones, and costs are measured per square meter, as is profitability. You can change tenants or lease terms and adapt to the market more often by sticking to short-term leases.
Industrial real estate:
They involve industrial warehouses, merchandise storage centres or any other type of real estate that generates income from the use of the facilities by customers. Industrial real estate investments can often have significant fees and service income streams, such as adding coin-operated vacuums to a car wash to increase the return on investment for the owner.
Mixed-use real estate:
Mixed-use properties are those that combine several of the above categories into a single project. Mixed-use real estate investments are popular for those with significant assets because they have a degree of diversification built-in, which is important for controlling risk.
Real Estate Investment Strategies
The benefits of investing in real estate are numerous and can vary depending on the investor’s goal. The amount of money to invest in real estate may depend on the risk tolerance of the investor.
It is relevant to know the main real estate investment strategies since these will allow evaluating the possibilities of generating profits in the short, medium and long term.
The best-known way to invest in real estate is by renting properties. Buying a house and renting it to others is a quick and direct way to generate income. The rental can be long-term or vacation. Success depends on finding responsible tenants and maintaining the home. This will ensure a fixed monthly income, with which you can buy another property. It is suggested to rent the property by room if its structure allows it. The dividends generated by this strategy ensure an early cash flow to the investor.
Real estate development:
The generation of value through the material improvements made in real estate is known as real estate development. The real estate developer builds new structures, modifies existing ones. Generally, any improvement that is made adds value to the property. It can develop on land and structures, temporary or permanent, that occupy the land.
Real Estate Investment Trusts (REIT):
This strategy is highly appreciated by investors because it literally shares the burden of financial responsibility. REITs allow you to have commercial real estate without owning physical office buildings, shopping centers, apartment buildings or hotels. These trusts own and operate properties to generate income. By purchasing shares, the investor participates in the profits from the sale of properties or the income from the rental of properties.
Online real estate investment platforms:
Fundraising companies provide online platforms that connect real estate developers, who require financing for the execution of projects, with individual investors, who seek to obtain profits in real estate, without all the baggage of responsibilities that it entails. They can invest in debt or equity.
So, these are the types of investors that are prevalent in the Pakistani real estate market. We hope this blog will act as a good guide and help you make well informed real estate decisions.
If you have questions or queries, let us know in the comments section below, and we will get back to you as soon as possible.