There are different types of real estate investments as well as methods to invest in them. Selecting the appropriate real estate investment is based on the investor’s unique requirements. Types of real estate investment primarily include residential and commercial.
Residential real estate investment
This real estate investment type includes apartment buildings, condos, townhouses, vacation homes and other types of houses where occupants live in exchange for rents. The duration of their stay at the property depends on the rental or lease agreement between the investor/landlord and the tenant.
A rental property can be one of the best types of real estate investments in terms of long-term income. It usually provides a monthly income unless the property is vacant. Investors in these types of real estate investment collect rent for as long as the investor holds the property without the investment ever losing value. Therefore, the monthly income minus expenses is a lot like a very high interest payment. Rental properties are one of the most common types of real estate investment.
Commercial real estate investment
These types of real estate investment include office buildings and other rental properties which are rented out to businesses to be used for purposes such as small and large storage unit facilities. Purchasing and leasing out commercial properties are very common in terms of real estate investment. This type of real estate investment is often very lucrative since it provides high levels of revenue on a long term basis as businesses usually prefer to stay at a place for a longer duration since moving around frequently has an adverse impact on the reputation of a business. Investment in commercial property usually requires stringent insurance and coding regulations to ensure that the investment is legal and safe.
Retail properties include storefronts, shopping malls etc. These types of real estate investment involves properties that are rented out to businesses for the purpose of serving as retail outlets. Rents on this real estates are collected on agreed rental rates.
These types of properties include special purpose units such as car washing facilities, laundry services, and ice vending machines. They generate significant income for the investor through the services provided at these properties.
This is a unique real estate investment as it combines different types of real estate into one, except residential real estate. Mixed use real estate may include retail, commercial and industrial categories. This is usually appropriate to those who own significant assets such as a large building. Investors may rent out the parts, floors or units of the building to separate categories of tenants who occupy the different parts of the building. For example, investors into this type of real estate can lease out the different parts of the building to a number of tenants such as a bank, corporate businesses and retail service providers. However, such a real estate should divided into exclusive parts in order to provide each tenant a space of their own.
Flipping properties generates huge amounts of profit, and faster, if done appropriately. As it is a high-risk investment, only experienced investors should invest in this type of real estate. These are appropriate for capital gains investors that aim to make money by buying a home and then selling it off after holding it for around two or three months. Investors may carry maintenance and renovation tasks at these properties during the time they hold the property in order to raise the capital value of the property and sell it out at high profits. Though this investment type offers great gains, it involves high levels of risk as such properties may require repairs and maintenance which may be costly.
Moreover, it is necessary to determine the cost of renovations accurately prior to buying as the costs may turn out to be much more than anticipated. This requires skills and experience, so it is not recommended for the beginner to engage in house flipping business right away. However, in case of the experienced real estate investor, the house flipping business can turn out to be rewarding as experienced capital gains investors do not have to deal with landlord-tenant issues which may result in serious consequences.
Though, house flipping business comes with its own disadvantages which concerns the capital gains tax. Due to the quick transactions nature of this real estate investment, flippers are subjected to a high level of capital gains tax. Capital gains investors typically engage in four to six deals annually. Real estate investors who engage in multiple deals within a twelve month period are usually required to pay more taxes.
Owning land is one of the most lucrative real estate opportunities which provides an immediate return on investment if implemented and managed very carefully. Investors can buy a piece of land at an appropriate location and sell it off according to the local zoning laws and other regulations. Real estate investors may buy land at cheaper areas and hold them till the price of the land rises.
As there are a number of different types of real estate investment opportunities for investors, there are a number of options to select from. Types of real estate investments vary on the basis of factors such as the scale of investment, size of the property, lease duration, single-tenant or multi-tenant, residential and commercial, long term and short term, capital gains and cash flow etc., potential investors should carefully consider all the related aspects of real estate investment as it may be one of the most important decisions of a lifetime.
Prospects need to consider the advantages and disadvantages of each property type in term of real estate investment before investing as the viability of investing in a particular property type is unique to an investor and it depends on the investors’ circumstances in determining the type of property to invest into. Therefore, potential investors should consider their personal financial situation, debts, income and credit score before making any decision on real estate investment.
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.