For the Investor seeking to capitalise on prevailing market conditions in the US housing market without taking on the long-term risks associated with real estate ownership; property trading offers a viable alternative to traditional buy to let investments discussed previously within this document. Strategic property trading involves the identification of suitable properties that can be acquired with a deep discount to market value, and where further value can often be added through refurbishment or development. The Investor then seeks to sell the property for a price closer to market value, and effectively turns the original purchase discount into a liquid capital gain which may then be used – along with the original seed capital – to acquire further properties. This short term, opportunistic trading strategy allows Investors to capitalise on market conditions and utilise capital most effectively whilst removing the long-term financial liabilities associated with real estate ownership.
As with rental investments, trading properties has a number of marked advantages and disadvantages in terms of risk and reward. The most obvious advantages are; the superior financial reward resultant of utilising capital more than once to generate a significant profit, which can also be used to reinvest in the short term, and essentially building a compound rate of return; combined with the fact that properties are held for only very short periods of time, thus removing many of the financial risks associated with property ownership (especially overseas). Finally, Investors are not reliant on market-driven capital growth to generate a capital profit, as financial returns are generated at the point of purchase through the discount, rather than at the point of sale.
In terms of risk to capital, there are a number of areas to carefully consider when taking such an opportunistic short-term approach to property investing. Operating such a strategy invariably requires in-depth local market knowledge, access to suitable properties with substantial discounts, and the ability to refurbish and resell properties in the open market in a short timeframe. As with any market in which the Investor is not experienced, a joint venture based on a profit share with a local partner seems to be the preferable approach amongst the Investor we interviewed. During our investigations, we founds that there were no real structured property trading options available to UK Investors, although a number of US realtors were found to be operating just such a strategy for local Accredited Investors, normally basing their remuneration on an equal share of profits after the successful sale of properties acquired using Investor capital. This symbiotic relationship between capital and expertise seems to work very well, as all of the US real estate Investors we spoke to have found they have been able to generate annualised returns of up to 60 per cent with as little as $50,000 invested.