Thread by @TihoBrkan

1/ When people talk about real estate they usually discuss buying a unit / house & holding it as it appreciates in value while earning a rental income.

They compare this strategy to index funds, due to the passive nature of both & conclude that property isn't attractive.

2/ Personally, I would never invest in a finished product which was a) already renovated, b) recently built and/or c) off the plan for a future build.

Buying this kind of property means someone else already bought them low, renovated them or built them from the ground up...

3/ ... which means you will be paying a premium to them. Let me explain in a simplified story so you can understand better.

Imagine a developer buys a new plot of land to build an apartment build with X number of units from the ground up. Firstly, he will have to purchase...

4/ ...this land site from the owner, who of course only wants to sell at a premium for profit. This means the developer has already been outsmarted, so he will have to factor that into the final selling price.

Secondly, to do this project, the developer will have to go out...

5/ ...and get project financing approved. There might be some senior debt, which could cost him anywhere from 5 to 10%; some mezzanine debt which might cost him between 15% plus; & some preferred equity which might cost over 20%.

The developer will also have to pay the...

6/ ... the contracting company which does the work. They too will be charging high prices to make a profit, meaning the developer has to overpay once more. Architects will also charge a premium, too.

The land site, planning costs, construction costs, financing costs all come...

7/ ...at a premium, meaning they're all profiting on the developer's back. The developer is also taking big risks running the deal with leverage & might also have to give a personal guarantee.

Obviously, he wants to be compensated properly for a huge profit.

8/ Who will be paying for all of this?

All of the costs the developer incurred, from the original landowner to the final cost to finish the project will be transferred to the final customer — the buyer.

9/ So the next time you are "investing" into a renovated property or off-the-plan purchase thinking "it's a good deal" the answer is yes, just not for you.

It's a good deal for the developer & his co-investors. You are just a customer, who is overpaying at a premium.

10/ These why investors utilize many different strategies in the real estate market so that it makes actual sense when investing. Here is a list of some of them:

1. Logistics facilities
2. Retirement living
3. Data centres
4. Self Storage facilities
5. Healthcare
6. Hotels

11/ 7. Serviced apartments
8. Airbnb
9. Co-living
10. Student accommodation
11. Science parks
12. CBD offices
13. Parking
14. Retail shops
15. Industrial & warehouse

These strategies, and many others, help investor realize a bigger return relative to basic buy-to-let condos.

12/ Property strategies which I favor personally might not suit you as an investor. There are many ways to skin the cat, so you got to find your own niche and create your own advantages in the game of real estate.

13/ grew up in a family business which focuses on building and importing of high quality, expensive materials used in single-family luxury renovations or ground up builds.

I'm a lot more familiar with this area then many others and one could say it is my bread & butter.

14/ Therefore, I would almost never buy a finished product because I know how much cheaper it is possible for me to find an old, run down unit in a great location and turn it into a desired piece of property which can fetch a premium on the market, through a value add renovation.

15/ You might know a little bit about that, but a whole lot more about student accommodation or retiring living / aged care properties.

These are also heavily favoured by my clients and me due to great secular fundamentals, especially the aged care sector.

16/ I’ve met, read about and follow real estate investors who were at the top of their game in fields like multi-family in Florida & Texas, self-storage in Hong Kong, student accomodation in Manchester (UK), ground up beach front developments in Queensland (AUS), etc etc.

17/ Find your niche and master your sub-sector. Create great connections which will help you along the way including: real estate agents, mortgage brokers, architects, contractors & builders, appraisal, project management and as many others as you might need.

18/ Real estate might not be your thing. Don’t force it if you aren’t passionate about it & it doesn’t excite you.

Of course, trading crypto currency, picking the next small cap that turns into Amazon or running high Sharpe ratio portfolios is just so much sexier (on Twitter).