For some people, when they think about being a real estate investor, it means that they get to be the landlord who people call when there are giant bugs in a rental. From this description, being a real estate investor doesn’t sound like an appealing venture. But, on the contrary, investing in a property can be lucrative.
Not every investment requires you to address your tenant’s needs. There are multiple types of real estate properties and assets you can get involved with, allowing you to earn additional income and diversify your investment portfolio. You can get a high return on investment (ROI) through monthly positive cash flow by investing in the right property.
Types of Real Estate Investments
To get you started in your real estate investments, determine the best type of property that fits you and your needs. Whether you plan on owning, developing, or flipping properties, you must first understand the categories of real estate investments.
- Residential real estate
Residential property types are structures like houses, apartment buildings, and condominium units. This type of real estate investment is probably the most widely known. Generally, if a person or family will pay you to live in the property, it’s considered residential real estate. The length of their stay will depend upon the lease or rental agreement. For most residential rentals, contracts cover up to 12 months.
Residential real estate is an active investment, meaning you would need to put in a significant amount of monetary and labor contributions. Be that as it may, they do rake continuous cash flow and sizable profits.
There are many different kinds of residential real estate investments you may not know about. Here are a couple of the common types:
- Vacation rentals
Also known as short-term rentals, this type of investment offers accommodations similar to how hotels work. Guests stay for a night or two, then pack up. Vacation rentals require a lot of hands-on work, and you’ll have to decorate, deep clean, replenish amenities, and replace worn-out items every time new renters come in.
- Long-term rentals
Residential properties with extended leases are considered long-term rentals. With this type of investment, you can avoid the constant in-and-out traffic of renters. Plus, it’s suitable for long-term wealth-building strategies.
Initially, you’ll have to pay for the property acquisition and some renovations. Hiring a property manager who can handle tenant searches, home maintenance, and repairs will allow you to have a hands-off investment. You just need to pay them around 10% of monthly rental earnings, which can be money well spent.
- Fix-and-flip homes
Thanks to home design TV shows, flipping homes have become a popular type of real estate investment. According to the Q2 2021 ATTOM report, “79,733 single-family homes and condominiums in the United States were flipped in the second quarter.” Basically, you buy a distressed property for a low price, then fix it up for profit.
This type of investment is one of the most cash-intensive areas of real estate. It can easily be an overwhelming venture if you’re a new investor, as there can be a lot of logistics needed for repairs and upgrades. Not to mention the large amounts of money you need to shell out.
Residential real estate is best for: Novice investors. You need a lot of patience because you’ll be managing tenants (if you don’t hire a property manager) and doing a lot of upkeep or renovations. For vacation rentals, this investment is good if you have a second or holiday home, as it can generate income while you’re not using the place.
- Commercial real estate
Non-residential properties are typically commercial real estate, and these refer to warehouses, offices, hotels, and retail stores. Residential properties with three or more units attached and are over three stories in height are considered commercial. These types of properties are large-scale apartments, condominiums, dormitories, boarding houses, and convents.
Commercial real estate is an active investment because you’ll need to rent out the space to a business that’ll use it. You can earn from this by collecting rent or selling the property when its value appreciates.
Commercial real estate is best for: More experienced investors. Getting into commercial real estate requires a lot of knowledge in different aspects like legal documents, unique rental contracts, and zoning and building codes. If you’re a novice investor, it’s best to partner with a more experienced one.
- Raw land
In markets with high projected growth, raw or vacant land is an attractive real estate investment. It allows you to develop a property from scratch. However, for this investment to be successful and maximize profits, you must conduct extensive market research. Doing so will ensure that you choose a location where your investment won’t get easily hampered by market factors.
Raw land is best for: Investors with a lot of foresight. Raw land is a blank canvas, allowing you to do whatever you want with it, whether it’s just sitting on it or developing it into subdivisions. If you choose to invest in land, know that the market can change at any time. Having foresight into industry shifts like luxury real estate trends is best for this investment, making it challenging for novice investors.
- Real Estate Investment Trusts (REITs)
REITs are companies that manage multiple real estate investments. With this option, you can generate income from properties managed by REITs. Some of them are publicly traded and typically specialize in commercial real estate.
REITs are best for: Investors who’d like to have passive income. If you opt to invest in commercial real estate but lack the funds to get a property yourself, REITs can be a good option for you.
- Crowdfunding platforms
In crowdfunding platforms, investors band together, usually online, and pool their funds to invest in properties they couldn’t finance independently. This option is also considered passive income. Most deals on these platforms are only available to accredited investors with a high net worth. But, there are some deals available for general investors as well.
Crowdfunding platforms are best for: Accredited investors with tens of thousands of dollars ready for minimum investment. If you’re a non-accredited investor, you can still opt for this option as some deals offer minimum investments as low as $500.
Find an Investment Strategy Fit for You
If you make the right choices, investing in real estate can be worth your time, resources, and effort.
Real estate investments have profit and potential, whether you choose to generate rental income or keep the property to sell later. Take a strategic leap, and don’t let investment nightmares discourage you. Learn from mistakes to find your ideal real estate investment.
