Different Types of Investors: Fundamental and Technical
If you’re new to real estate you might think that real estate investors are all the same, but there are some unique differences. In real estate investing, there are 2 types of investors, fundamental investors and technical traders. If you’re curious to learn more about what they are, how they’re similar and how they differ.
Fundamentals of the Fundamental Investor
A fundamental investor is someone who goes after long-term buying and holding properties. These types of investors look at the market on a macro scale, which is the larger picture and relies on overall market fundamentals. These include that real estate prices have been steadily going up over the last 25 years, despite events such as the 2008 financial crisis and the more recent COVID-19 pandemic.. Fundamental real estate investors look at things such as industrial as it is important to look at because real estate is only valuable if there are jobs around to fund it.
A great example of this is real estate prices in downtown Toronto, Ontario, vs. Inuvik, Northwest Territories, both in Canada. However, the industry and job opportunities in Toronto are much greater than in Inuvik, making the city more attractive to live in. Toronto has an abundance of industries and high-paying jobs that drive prices for real estate higher. Jobs and industry are 2 of the key fundamentals that influence real estate prices. Migration is another important fundamental driver of real estate. Real estate investors research patterns to see if people are moving in or out of the area. The more people move into the area the more real estate prices go up as the demand goes up. In Canadian towns that have oil, there is a steady increase in population growth, increasing real estate prices due to the new influx of job opportunities. However, if the industry crashes these same towns will go down with it.
Transportation is another fundamental element of real estate investment, as it looks at whether goods can be transported in and out of the area easily. People need to be able to easily go to and from the area for it to be determined to have a higher value. One of the things real estate investors look at is properties near subway stations, airports, and major highways because these are the properties that grow in value due to their easy transportation access.. Wherever transportation goes, the jobs go and thus the people, and the money go too. Real estate investors who are in the game for the long haul do not have to worry about sudden downturns in the market as they are holding for overall longevity.
Technicalities of a Technical Trader
A technical trader is the type of investor that flips properties and looks at real estate investment on a micro-scale, looking at the trees in the forest as opposed to the whole forest. When they purchase a property they are paying attention to a specific price, and not holding on to a property for longer than 6 months. A technical trader buys a property, forces appreciation, through external updates and renovations, and sells it right away for a quick profit. This type of investor is not concerned about fundamentals and only looks at short-term gains, such as flipping houses. They do not worry about industries, migration, translation etc., and most customers who buy flip properties purchase them based on aesthetics and emotion. The renovations have to dazzle the customer and make it very visually appealing, to create positive and exciting emotions, such as envisioning future memories in that home.
Overall
Both strategies can be successful and can be profitable when utilized effectively. Both of these strategies have their own sets of pros and cons but there is value in each strategy and an experienced real estate investment company knows how to use these strategies well. Depending on the needs of the clients, these strategies can be used interchangeably for the desired result. However, an experienced real estate investor will use BOTH of these strategies because it will create cash not only immediately, but in the future too. Talk about looking out for your future, you can look out for your future in real estate investing too, by following CADMEN properties for more useful advice.
Credit to Money, People, Deal by Stefan Aarnio for source information.