Three Types of Real Estate Investors

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The magic words were spoken somewhere in February of this year… What if we would invest in real estate?

And so we did. In the midst of July, we bought our very first rental property. Of course, there happened quite a few things in between as well. I hoped to give you a detailed post on the financial side of this deal. But instead, we found some new (to us) financial possibilities, which has led us to research a new option on funding for the property. We still have 3 months before the transfer take place, so we take our time.

Today’s housing market is not an easy one. It’s a seller’s market, and every month the prices are going up, so it seems. When real estate profits in general, and especially when their return surpasses those of others assets, more people are looking for ways to invest in it. Buying a normal house (where you want to live in) can be difficult. Let alone buying a rental property.

Instead of peeking into our own numbers and figures, I thought it would be interesting to show our view on the different types of real estate investors we have come across so far.

A few days ago, we’ve talked to a local realtor agent, who happened to sold our current home to us, about the market and how his business is going. He said that a lot of people are expecting that their home should be worth far more than what they are told by an assessor. Additionally, the people looking to sell, or buy a house are increasing by the month. A real estate agent’s job is never done.

It’s a seller’s market, houses are being sold above asking price. And now everybody thinks they can sell their home for the highest price possible. On the other side, there are so many people looking to buy, that the strong competition is causing them to increase bids in order to get their dream home. We’ve heard stories of people paying up far more than the asking price. A home is not to be seen as an investment.

The financial crisis has caused home owners to wait and sit out the bear market, and buyers to face difficulties finding the right property. Right now, the market is being overrun with new listings. And anyone looking for a property, either to live in or as an investment, is surrounded by a great pool of people looking for the same thing.

If there is one thing that we learned, it’s that real estate investing is a substantial part of the market in general. Everything that involves buying and selling a property, either residential or commercial, investors have been playing a big part in it. Due to the low-interest rates on lending capital and a substantial cash availability, the market is thriving. A lot of investors, or people who have been saving their money, have been stepping into real estate in search of higher and growing returns. In my personal opinion, RE investors are probably a big element that pushes the market to higher grounds, and might even play a role in inflating ‘the bubble’.

The residential housing market is to divide into two different groups. The people looking for a place to live and the people looking for a property to invest in. Within the latter, the investors, there are different kinds to distinguish as well. Like the hobby investor, the old money investor and the next generation investor.

The hobby investor

This type of investor is aiming to have a decent additional income every month through investing in real estate. Many will own 1 or a few properties. In most cases, they will stay a bit on the surface of the whole investment market. The focus is to receive an income as passive as possible and like to figure out how it works on their own. For now, we fall into this category.

Old Money

Old money (or ‘oud geld’ in Dutch) is a saying we use to describe a certain type of person. This person has gotten his wealth due to family heritage in the form of money or business. I’ve used this description because within the Dutch real estate market there is a group of people who have a lot already but didn’t build up their wealth on their own. They remain deep down in the depths of this business and aren’t always that active.

The next generation

This is the group who have to build their own little (or big) business in real estate from the grounds up. They are doing this primarily to let the money work for them and secondly because they really like the business. Instead of focusing on passive income, they are really active in this market and do the management themselves by using a personal network of agents, contractors, etc, that works for them. The biggest difference is that they are also willing to share their knowledge with others. Joined ventures are very common, and as long as they can create a win-win situation they will work together with other investors.

Of course, this is my version and view on how investors could be categorized. This is a big market with room for many types of investors. So far, these seem to be the most characteristic.

Our goals are to eventually mix up the first and third category. We would love to do this as a full-time business, but can only do so when we have built up enough wealth and experience. Additional to our dividend investing, real estate will take up a big chunk of our investment strategy. Not only do we like doing it, but more importantly it will give us better returns in the short term due to the use of leverage. For this and probably next year, most of our savings will end up in bricks. We continue to buy dividend stocks as well, but in smaller chunks, than we did before.

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13 thoughts on “Three Types of Real Estate Investors

  1. Interesting piece! I am also looking to start as a hobby investor, but feel that I have to get my own house sorted out first, before I start doing that. Once you’ve made an investment, it doesn’t really make sense to sell it again, especially not if you’re buying to rent. I do have some money stashed away from selling my house, but since I currently live with my boyfriend in his house, I prefer to keep that in cash and not putting it into something else (while we are looking for a house together and might need money for that).

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    • Personal opinion, do use that money to buy an investment property and finance a new place with your boyfriend at 100%. Interest rates are so low it makes very little sense to invest the money into your primary house.

      Liked by 1 person

      • Hi Adine, I can understand that the uncertainty is withholding you for now. But it’s great that you are thinking of starting out as well!

        I agree with Team CF that you can start already if you wanted to. But most importantly is doing something that you feel good about. Getting into something while you don’t know how things turn out can be nerve wracking, but that’s a part we all have to go through 🙂 Good luck on the house hunt!

        Liked by 1 person

  2. Hi there, fellow hobby investors 🙂 This was a nice summary. What I start noticing is that the number (and not the price) of new listings seem to decrease a bit in the last few weeks. Not sure if it’s because of the holiday season or a start of a trend… I think this, plus the low interest rates might still fuel the house price increase at least for a while.
    I’m still very curious to learn some more details of your choice; guess I still need to wait for a while 🙂

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    • Interesting insight. Less supply can really turn the prices to higher ranges. Haven’t seen the same trend (yet), but might be because the area we live in.

      I hope to disclose the details very soon! But really want to get the whole story out 🙂

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  3. Interesting to see how you develop in being a real estate investor. I might end up diversifying towards real estate some day, but for now I stick to ETF’s

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  4. Guess I would fall into the hobby investor since I enjoy the passive income. I just haven’t quite dipped my toe into the real estate market quite yet. It is on my list of things to do. For now, I just keep my exposure to it in the form of REITs. Companies like O will still generate monthly passive income.

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  5. I have been going to open houses recently to find my first rental property. I don’t think we are anywhere near each other in the world, but it feels like I could have wrote this post! Houses are going up and being sold before I even have a chance to work out the numbers. If 2007 showed us anything it can crumble, and I hope to be the guy with cash when it does

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  6. I like the post Divnomics. I bought my first house last year to live in, but also as an investment as I had roommates to help with the mortgage. I’ve since moved out and turned the house to a property manager to manage. Like you, I probably fall under the hobby investor mainly for the passive investments. The goal is to have a few houses, ideally owned free and clear.

    Congrats on getting your first rental property.

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