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The 4 Types of Real Estate Investments and How They Differ

As a new real estate investor, you’re going to have to purchase property eventually. Which type of property you buy could set the course for your future as a real estate investor. While every investor has his or her own way of doing things (investment strategies), there are only four types of real estate investment properties to choose from. Since each type of property generates profit in different ways, we discuss them below to help you figure out which may be a better fit for you.

1. Residential Real Estate

Residential real estate includes anything people can live in: single-family homes, apartments, condos, townhouses, etc. Often, investors purchase single-family homes and rent them out while they wait for them to increase in value. Other investors purchase multi-family properties to have multiple streams of income coming in. Many new investors get a start in residential real estate investing by purchasing a multi-family property, living in one of the units, and renting out the rest.

2. Commercial Real Estate

Commercial real estate includes any property that can be used for commercial purposes. This includes retail stores, restaurants, and office buildings. Owners of commercial real estate rent out the space(s) to business owners, who then pay a monthly fee to conduct their business there. Commercial real estate investing isn’t as easy and straightforward as residential real estate. For starters, it’s much more expensive to get started and most banks won’t finance you unless you already have a signed lease from a tenant already occupying the property. Furthermore, your credit needs to be impeccable and down payments can be as much as 50 percent. Having said all that, owning a successful commercial building can bring in much higher profits than owning residential properties.

3. Industrial Real Estate

Industrial real estate is any property used for warehousing, manufacturing, or distributing products. These properties are usually owned by highly skilled investors with very extensive/diverse portfolios who know the potential for huge profit when they see it. Real estate investors like putting their money into industrial properties mainly because of their stability. The leases are usually longer and there’s less turnover as tenants don’t vacate this type of property as often as others.

4. Land Investments

Owning land can be a risky investment, however, if that land is located in an area that’s ripe for future development, it could pay off big. The reason investing in land is risky is because raw land won’t generate income on its own. As the owner, you’re responsible for paying taxes on the property, dealing with zoning and environmental issues, and finding developers to turn it into something that will make money. Unless you buy farmland, which can be rented out to farmers to plant, owning land often results in a loss rather than gain if you don’t know what you’re doing. When it comes to real estate investing, it’s important you understand the different types of investment properties so you can determine which is a good fit for you. As a new investor, it’s a good idea to focus on just one type of investment and learn it well before trying to diversify your portfolio.

5 Things Every Real Estate Investor Should Know

To be a good real estate investor, you have to be willing to do your research. If you are new to the game, you’ll want to pay close attention to the information below. In it, we’ll share with you several things every real estate investor should know to stay ahead of the trends and the competition.

1. Local Pricing

As an investor, one of the first things you should look at is the current pricing trends in the area. For example, are prices accelerating more in one area than in another? How does the average home price compare in neighboring towns? Knowing the answers to these questions will help you know which area housing is in highest demand. Studying these trends will help you figure out fair pricing on different types of properties so you get the best deal possible. Seek out real estate agents for local pricing trends, as they have access to the MLS. The internet, newspapers, and town halls are all good sources for pricing information as well.

2. Mortgage Pre-Approval

Real estate investor pros know that getting pre-approved for a mortgage carries serious benefits. First and foremost, the lender locks in an interest rate for you that stays the same regardless of interest rates at the time you actually purchase a home. Secondly, buyers hold you in a higher regard than other prospective buyers who have not sought pre-approval.

3. Developing Communities

One way to ensure your success as a real estate investor is to buy properties in up-and-coming neighborhoods. Growing communities experiencing new infrastructures make for great investment opportunities. Look for things like new developments such as schools, shopping malls, and roads, as these things suggest the area will be experiencing a growth spurt soon. Check with town halls and road or building departments for word of future projects slated to start in the near future.

4. Low-Tax Areas

Comparing property taxes from different areas can help you decide which areas will be in high demand. If taxes are higher or are slated to rise in a given area, but a neighboring community has lower taxes, more people will want to buy in the lower tax community. Check with real estate agents in the area or speak with a local tax assessor to determine property taxes in a given area and whether an assessment is scheduled that might raise taxes.

5. School Rankings

Communities with high ranking schools tend to draw parents hoping to enroll their children in quality education. Good investors know that buying in such areas can lead to high profits. The easiest way to find this information is to contact the board of education in a given area. If you have time, visiting the schools themselves is an option since schools with high rankings gladly share the information. To be a successful real estate investor, you must be willing to do your homework. Tapping into local resources for the information you seek is the best way to stay a step ahead of the competition.

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