Profit-generating approaches in real estate differ in the amount of passive income and the personal time an investor allocates to the entire process.
The average yield stands at 20% per annum. Hence, it's no wonder that experienced investors invariably incorporate real estate into their arsenal of financial instruments.
Let's explore the most suitable strategies for Cyprus.
Strategy #1: Purchasing an Apartment in a New Building and Reselling During the Final Construction Stages
The phase when construction begins is termed "off-plan." The returns range from 15% to 40% per annum, based on the price increase between sales commencement and the final stage. In a growing real estate market, the earnings can indeed be substantial, but during recessions or stagnation, there's a risk of price decline. Therefore, careful object selection is paramount. There are exceptional projects impervious to downturns. The intuition of a professional investor is reliable when choosing properties.
Strategy #2: Buying Old Apartments and Reselling After Renovation
The second approach is somewhat more complex. An investor acquires a subpar apartment in an older building, undertakes significant renovations, furnishes it with quality furniture and appliances, then sells it at a new price as contemporary, move-in-ready accommodation. The returns range from 15% to 30% per annum. This is because undesirable apartments have a slow selling process, whereas renovated properties attract heightened demand and can sell at market price within a month, sometimes even faster.
Strategy #3: Acquiring Property through Auctions
This involves bankruptcy auctions, bank auctions, and commercial auctions from developers. It sounds thrilling, but significant effort, time, nerves, and resources are necessary, potentially yielding substantial gains. If real estate is acquired through this route, an investor can immediately list the property for sale at a regular market price, or independently upgrade the property's class and consequently earn more. Depending on the property's condition, returns can range from 10% to 200% per annum. The complexity lies in independently locating properties on organizational websites. Additionally, the properties themselves may be in dire condition, even lacking utilities and such. The documentation for such properties is also intricate and convoluted. However, if an investor can unravel complicated knots, it's worth taking the risk.
Strategy #4: Subleasing Commercial Real Estate
The keen eye of an experienced investor spots vacant and promising spacious areas. By renting an entire floor and subsequently dividing it into smaller spaces of 30-50 sq. m, one can profit from the difference in square meter rental price. This method could facilitate a modern co-working center or a marketplace. Similar properties can be found on municipality websites or through real estate agencies. It's essential for the long-term lease agreement to note the tenant's right to sublease.
Strategy #5: Reselling Lease Rights
Establish a rental business in a leased space and then sell it. This approach is an extension of the previous earning method. The difference lies in the fact that the investor initially understands their goal and signs a long-term contract for a minimum of 10 years. Theoretically, a prepared business can be sold at an even better price than maintaining one's income from the difference in rental prices for large and small spaces. The market value of the business can be calculated by multiplying the profit difference over a two-year period. Disadvantages include the investor confronting high competition.
Strategy #6. Purchasing Commercial Spaces on the Ground Floors of New Buildings
Street retail is highly popular. In new developments, one can purchase not only residences but also commercial properties on the ground floors. By acquiring spaces in highly trafficked areas, investors can strike gold, as rental prices can far exceed those of other properties in the vicinity. This option is particularly relevant when dealing with large residential complexes.
The strategy is as follows: a commercial space is purchased during the off-plan phase, a contract is established with a future tenant, and then this rental business is sold to another investor.
Strategy #7. Purchase of Any Suitable Premises for Warehousing
In cities with above-average population density, even a regular basement can become a profitable purchase. If you manage to arrange a porch, staircase, and access to a bustling street, it's even better. Rental returns can reach 20-40% per annum. This method of earning resembles a rental business with maritime containers, where an investor leases a plot, places maritime containers on it, divides them into smaller spaces, and rents them out as individual storage units.
Strategy #8. Redevelopment of Old Buildings
The essence is that an investor acquires a dilapidated old building, undertakes significant renovations, divides it into small spaces, and rents them out. Returns range from 30% to 80% per annum when reselling these upgraded premises. The skill to perceive an object's value is crucial. If intuition is lacking, it's better not to risk it. Nevertheless, the promptings of the heart and soul are never dismissed, even in the world of investors.
Strategy #9. Purchase of Large Land Plots
Acquiring an inexpensive land plot can also be achieved through auctions or by finding it through a real estate agency. Note that this pertains specifically to substantial volumes, as in this case, an investor gains an advantage in terms of the price per square meter. By developing the territory, an investor can act as a developer. For example, the entire area can be divided into small cottage plots with connected utilities, and roads can be established between them. Thus, the value of each individual property increases. The annual return on invested capital can reach 20-30%.
Strategy #10. Building Homes on Purchased Land Plots
The continuation of the story with large plots is quite intriguing. If one possesses the knowledge and skills, it's possible to construct modern homes on smaller areas. The cost expended on construction is approximately 20-30% lower than the market value of finished houses. This option is excellent for those who can collaborate with designers and have a sense of style.
Strategy #11. Utilizing Mortgage Leverage
When purchasing new property through a mortgage, typically 20-40% is invested, and the remaining cost is covered through a loan. In this case, the property's price appreciation encompasses the full property value. Consequently, by investing 20%, an investor benefits from price growth on the full value, sometimes even doubling or tripling the initial deposit. Mortgage leverage can also be employed in all other investment methods. Profits are generated by creating a quality finished product for resale.
Strategy #12. Purchase of Small Spaces for Garages, Parking, and Storage
Generally, the cost of such properties is not high, while potential profits can quickly offset the expenses. This is especially relevant in financial centers like Nicosia and Limassol in Cyprus. In other cities, there aren't yet challenges with parking and vacant spaces.
Strategy #13. Purchase of Small Offices
Many small companies actually don't require full-fledged offices but do need a space for registering a legal address and perhaps for conducting business tasks a few hours a week. These are active clients of novice private investors, focused on acquiring small areas. Additionally, smart organization of mail forwarding for future tenants is possible. An excellent option for a start.
Strategy #14. Organization of Hostels and Hotels
This method is similar to dividing large spaces and renting out small premises, but it pertains to the tourism sector. The strategy is as follows: we purchase or lease a building or floor and establish a hotel or other forms of rental property. Cyprus legislation includes several restrictions in the short-term rental law. Proper efforts are required to make the concept viable. This option is suitable for novice investors but can become the beginning of a large business if the investor becomes enthused.
Strategy #15. Organization of Income-Generating Properties
The principle is as follows: we purchase or lease an entire building and divide it into rooms with a small kitchen and bathroom. Alternatively, one can buy a 3-bedroom apartment and transform it into a sort of student dormitory. Rental yield is around 20-25% per annum. It's important to remember that in private and multi-apartment buildings, there are strict regulations concerning the placement of bathrooms, toilets, and additional structures in the process of renovation.
It should be noted that over the past 5 years, Cyprus real estate has increased in price by approximately 30%. Meanwhile, the rental market has its own dynamics, and rental rates have grown by over 50% over the same period.