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What Are The Types Of Real Estate Investments?
Real estate is one of the most lucrative and fastest-growing sectors in the world. It is also arguably one of the oldest, most diverse industries. While most new investors are aware of this, what they don’t know is how many different types of real estate investments exist. Even though real estate viewings are on the rise, it goes without saying that each type of investment has potential benefits and pitfalls.
Real estate is generally seen as a solid long-term investment because, despite fluctuations in the short term, it’s historically less volatile than other options like stocks over time. However, real estate is also less liquid and costs more money upfront. There are many different types of property investment to choose from and ensuring you have the right property for your investment strategy is a tough choice to start with, especially if you have the funds but are a novice when it comes to investing.
If you’re just getting started in the business, it will ...
... be helpful to understand what you’re facing by dividing types of real estate into several categories.
Residential
These are far and away the most popular type of real estate investment. Residential structures are properties such as houses, apartment buildings, townhouses, and vacation houses where a person or family pays you to live in the property. It not only historically offers the best market growth, but it also provides the best rental stability. The length of their stay is based upon the rental or lease agreement.
Commercial
Commercial properties consist mostly of office buildings and skyscrapers. If you were to take some of your savings and construct a small building with individual offices, you could lease them out to companies and small business owners, who would pay you rent to use the property. The commercial real estate market is smaller compared to the residential market but have two main advantages over the latter:
It’s easier to find a commercial property that, once tenanted, is positive in cash flow and still has strong growth potential.
The tenant has the responsibility to maintain the property and return a clean place to you once their tenancy is over.
Crowdfunding Platforms
Crowdfunding platforms are sites that offer investors access to a number of assets that offer high returns and are traditionally reserved for the wealthy. While this offers the ease of finding assets to investors, this type of real estate investment also introduces a high amount of risk. Crowdfunding platforms are typically limited to accredited investors or those with a high net worth. Some sites offer access to nonaccredited investors as well.
REITs
Real Estate Investment Trusts (REITs) are companies that own different types of commercial real estate such as hotels, shops, offices, malls, or restaurants. You can invest in shares of these real estate companies on the stock exchange. When you invest in a REIT, you are investing in the properties these companies own without the added risk of owning the property yourself.
Raw Land
Investors typically buy land for either commercial or residential development. But buying land to develop involves a fair amount of market research, especially if you plan to develop the property yourself. This type of investment is best suited to someone with a large amount of capital to invest and a deep knowledge of all things real estate – building codes, zoning regulations, flood plains – in addition to an understanding of the local residential and commercial rental markets.
So, if you’re considering investing in traditional real estate – like residential or commercial properties – doing your due diligence doesn’t just mean coming up with a down payment. Investors often find themselves wondering what really is the best type of real estate investment, we can certainly tell you that this simple question does not have a simple answer. The best type of investment property will depend on a number of factors, and investors should be careful not to rule out any options when searching for potential deals. Going through real estate viewings and doing your research well is of utmost importance. Choose wisely!
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