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.