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Real estate investing is perhaps one of the oldest and well-favored forms of investing. For sure, beginners in real estate investing know that, but what they are missing is that there are various types of real estate investments.
Yes, you heard it right, there are different types of investments in real estate, and each of them offers potential benefits and risks. Each type includes unique lending traditions, standards, cash flows, or methods of success.
It is very important for real estate investors to know about these kinds of investments. Learning them will allow you to have bigger chances to build a fortune on real estate investing. If this sounds exciting, here are the different types of real estate investment you need to know.
Residential Real Estate Investments
People will always look for a place to live, and this makes investing in residential properties as one of the most profitable real estate investment. When the demand is high, it means that your investment is stable.
Another factor that makes investing in residential real estate properties stable is the minimal impact in case of the loss of a single tenant. Whereas, in the other types of real estate investment, losing a tenant can make a big dent in your business.
In the United States, there is a twelve-month basis for residential leases. That means that the stay of your tenants on your property will depend on the lease agreement. A twelve-month duration is not a bad idea to get a significant reward for your business.
You can also avail a government-insured financing for your residential property. In exchange for a small premium, you can now avail of lower interest rates on mortgages, which will improve the return on investment.
Commercial Real Estate Investments
Commercial properties are those that include skyscrapers, buildings, or lands that can generate profit through capital gains and rental income. In most states in the US, a residential property which has many units gets classified as a commercial property for more gains from government taxes.
Real estate investors see a different value to commercial properties from the residential properties. For sure, when you embark on a commercial property investment, you will have more expenses, but you will also have more potential returns on investment.
Also, putting your money on a commercial property investment will help you diversify the risks. For example, if you have an apartment building and you lose a tenant, you will only lose a portion of the total rental income. In a residential area, losing a tenant means losing the entire rental profit.
The cash flow you will get from your commercial property investment is higher than it is in your residential property investment. The only catch is that when rental prices rise, it will be difficult to avail of it because of the old agreements you signed.
Industrial Real Estate Investments
Industrial property investments are what the average real estate investor will call a staple investment. Industrial properties are less intensive with regards to management, and they have more affordable operating expenses than the other types of investments.
Industrial real estate investments will depend on how the owner or tenant will use the property. Usually, people will use an industrial property for manufacturing, distribution centers, warehousing, or research and development.
If you are going to invest in an industrial property, make sure that the location is near to major transport routes. Functionality for the use of space, building configuration, and the availability of an outdoor or covered space is also essential.
Retail Property Investments
You can find a wide variety of retail properties, such as shopping malls, power centers, small retail storefronts, and single tenant properties. Power centers are the more popular retail property investment nowadays because they occupy a large area in a location where business is bustling.
Investing in a retail property also drives more profits for the property owner. There is what you call an income through the percentage of sales that will incentivize the owner to maintain the superior condition of the property. Add that income to the gains from the base rent that the landlord will receive, and that means a significant profit!
In retail properties, there is what they call an anchor, which means a big, popular retailer that acts as an attraction to your property. For example, if a property has a popular food store such as 7-11, it will be known as a food-anchored property.
Such anchors will enhance the value of a property and will draw more income for the property owner. Other drivers for the demand of retail spaces are visibility, location, relative income levels, and consumer density. Also, retail property investments tend to be more profitable in countries with growing economies and high retail sales growth.
Property for Flipping Investments
There is a difference between real estate flipping and buy-and-rent investments. Flippers are what you call the investors who buy a property, hold it for an indefinite time, and sell it when its value increases.
Of course, as with any other business ventures, there are pros and cons to house flipping, and that often involves taxes and mortgages. If a flipper fails to sell a property at an opportune time, it is likely that he or she will continue to pay the property taxes.
Therefore, it is important that you know the ways on how to be a successful property flipper. If you know what you are doing, this type of real estate investment will sure to be a lucrative endeavor.
Real Estate Investment Trusts
Aside from the investments mentioned above, there are also other ways to invest in a property without dealing with its management all by yourself. If you want it this way, you can go for a real estate investment trust.
Real estate investment trust is what you call a portfolio of real estate properties or real estate mortgages traded in the same way as stocks. Investing in real estate investment trust is like buying shares of a corporation, and you will get the income by way of dividends.
REIT will limit personal risks because you will only purchase a portfolio of properties and let a professional real estate team manage it. Of course, you will never worry about the property maintenance and the mortgage loans.
Takeaway
If you are a beginner in real estate investing, it is essential that you know the different types of real estate investment. As such, you will know more about real estate, and there will be a big chance for you to be successful.
source/credit: ashemorgan.com.au
