The 4 Main Types of Real Estate Investment
Real estate investing is much more than buying a property and hoping its value will increase. Among other things, you need to know the types of real estate investment properties and how they can bring you the biggest return on your investment. So, why are property types so important in real estate investing? The short answer is they each produce returns in different ways.
To help you get started, here is a summary of the main types of real estate investment properties.
1. Residential Real Estate Investing
Residential properties include single-family homes, multi-family homes, mobile homes, townhouses, and condos. Each type can generate investment returns in different ways. For example, you can buy a single-family home and hold it until its value increases. Or, you can rent it out while you wait for the value to increase. You can invest in multi-unit properties (one to four-unit homes, apartments) to generate income from multiple sources. If you’re the type who easily gives in to tenants, you may be better off letting a property management service oversee your rental properties.
2. Commercial Real Estate Investing
At its core, commercial real estate is any property used for retail purposes or office space. Investors buy these properties and rent them to business owners who need space to run their companies or buy and sell goods and services. The commercial properties you’re probably most familiar with include restaurants, retail stores, or office complex/suites. Unfortunately, investing in commercial real estate is more complex — and more expensive — than residential real estate. For starters, the information to find out if a commercial property is a good investment isn’t readily available. Additionally, renting a commercial property isn’t as simple as drawing up a rental contract. You will need a comprehensive lease agreement. If you plan on financing your commercial properties, you can expect to make a minimum down payment of 25% to 50%. You’ll need really good credit, and in some cases, banks will require you to have a lease in place from a company that’s already renting a space in the property. Finally, determining the value of your building isn’t as simple as comparing other commercial properties near your location. The type of business — and how much it generates in sales — also affects the value of your building.
3. Industrial Real Estate Investing
Industrial properties typically include buildings used by companies for the manufacturing, warehousing, and distribution of their product. Most industrial real estate investors are highly-skilled with extensive investment portfolios. The buildings are large, expensive, and the tenant’s needs can change at the blink of an eye. However, savvy investors know the type of returns industrial buildings generate. They often yield higher returns with longer leases. Also, turnover rates are much lower. This means you won’t need to find new tenants every six months when a business shuts down.
Investing in Land Obviously, properties need land to stand on. And, buying land is a proven investment strategy that can produce healthy returns. However, buying raw land won’t net you any passive income — unless you purchase farmland. Land is a risky investment. Aside from paying taxes on a property that’s not generating income, you’ll need to deal with zoning issues (how you can use the land), environmental issues, gaining access to utilities, and a plethora of other issues. However, if you buy land in a popular location or a spot that could be the site for future development, it could pay off handsomely in the future.
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