Investing in different types of real estate can be thrilling and rewarding. But it takes lots of experience and money before your goal comes to fruition.
A newbie will think that real estate investing is about buying land and structures in return for more money. You know that this is the road to financial independence in your retirement, and there are risks involved. Yes, you are correct.
You might decide that this is your dream career and willing to invest time, effort, and resources to reach your goal.
But what you don’t know is there are myriad types of real estate investments out there.
Getting Started in Real Estate Investment
Before investing in the different types of real estates, practice what experienced investors
do. Do not buy real estate properties under your name, form a legal entity such as a limited
liability company (LLC) and park your investments there. In case something goes wrong your
assets will be protected.
The real estate business is very risky, each type of investment presents benefits and pitfalls.
Take a hard look at the opportunities and weigh it against the risks before adding
into your investment portfolio.
Commercial investors need at least $50,000 in their pocket, but there are other ways to invest if
you don’t have that amount.
Real estate needs a significant investment in time and effort. Fixing a property is hard work and
you have to keep up with regular maintenance. Unless you’ll hire the services of a commercial
property management company to pick up the slack.
If you want to invest consider these five types of real estate.
Commercial Real Estate
Commercial real estate property is leased by businesses or income-generating industries. There are different types of real estates that include a single storefront, restaurant, hotels, or large shopping centers. Commercial spaces have lengthy lease contracts and charge more than residential rentals.
There are five types of properties under the commercial real estate umbrella.
This is the most common type of commercial space covering single-tenant properties to skyscrapers. Class A commercial real estate is usually run by a professional commercial property management company.
Retail space is a storefront where companies can sell their goods and services to shoppers. These are your banks, clothing stores, fast-food outlets, and strip malls located in urban areas.
Industrial properties refer to warehouses and manufacturing sites where products are produced or stored.
Any time a rent space has more than one unit it is classified as a multifamily property but when it is over four units, it falls under commercial real estate. Tenants are a mix of offices, retailers, and home dwellers.
Special purpose properties were built for a specific purpose, and it will be difficult to remodel the property to serve another use. Some examples are airports, hotels, malls, and hospitals.
Residential Real Estate
There are different types of real estate investments, residential renting is a popular investment choice since people are familiar with leasing a property. These are structures such as townhouses, apartment buildings, condos, or houses that are occupied by a person or a family in exchange for rentals. The length of stay depends on the contract, but mostly residential leases in the United States are on a twelve-month basis.
Investing in residential real estate assets can take many forms. It can be renting out a vacant room or to build residential dwellings if you have the patience to manage tenants. Landlords are assured of a monthly cash flow, appreciation of property, leverage when borrowing money, and tax advantages from the derived income.
However, there are hitches, if a residential real estate stops delivering the expected monthly cash flow and appreciation due to market conditions it will be very hard to cut losses and pull out from the venture. Catching a buyer to find value in the property that you don’t see is like finding a needle in the haystack.
There are also house flippers, who invest in residential types of property. These people are experienced estate appraisers, marketers, and DIYers. They buy undervalued properties and sell it in six months. If they cannot quickly vend the property they will be in hot water, their cash is limited and not enough to pay borrowed money in the long term.
Vacant land, also called raw land, is a property that is unoccupied with no structures or improvements.
Why buy vacant land if you won’t profit from it?
Profit is the least of the worries of an investor with good business acumen. Buying vacant land requires lots of market research especially if you plan to use it for commercial or residential development. It fits someone who has a deep understanding of the types of real estate investments and the rental market. They will not dig deep into their pocket without getting anything in return.
Or they will just let the raw land sit and appreciate, and sell it at the proper time earning big profits. Surely, the property was bought at a price cheaper than developed land and it is in the path of growth. They don’t have to go through the headaches of setting up structures and worry about financing, maintenance, ROI, cash flows, and non-paying tenants.
There are myriad types of real estate investments, but it mainly falls into two classifications. Owning land, residential, and commercial types of properties are called physical real estate investments, and investing that don’t need possession of physical property like real estate investment trusts (REITs).
You can invest in shares of hotels, hospitals, office buildings, and malls on the stock exchange. Through REITs, you are expanding your real estate investment portfolio without facing the risks of directly possessing real estate.
Investors are assured of attractive dividends since REITs are mandated to give shareholders at least 90% of their taxable income every year.
In case you need money, REITs are liquid real estate assets that can be sold on the stock exchange.
Also called single-family detached, is a stand-alone house with a lot that is good for one family.
Unlike condos, townhouses, and multifamily types of property, a single-family residence is built on a piece of property with no shared roofs and walls. The residents will have more privacy since it has some distance from neighbors. It comes in different styles and has its own set of utilities that are not shared with other residents. You can customize your garden or carry out remodeling activities without intruding on your neighbor’s privacy or space.
If you are a capitalist considering a single-family residence from different types of real estates think about the income potential. You will earn more with a multifamily setup. You have to hire help for maintenance and repairs or DIY.