There’s no question of why real estate is a favourite investment method of so many. Real estate investments offer reliable cash flow, tax benefits, profit, a diversified portfolio and the potential to forge wealth.
There are many different kinds of real estate investments; however, most of them fit into just two categories. Physical real estate investments like raw land, residential property and commercial property, and methods that don’t require owning physical property like REITs and crowdfunding platforms.
If you’re thinking about investing in real estate, here are five types to consider:
Residential Real Estate
Residential real estate is probably the most common type of investment made by investors. This type of real estate is anywhere that people live or stay, for example, single-family homes, vacation homes, apartments or multi-family homes. Residential real estate includes both newly constructed homes and homes that are resold.
Residential real estate investors make their money either by collecting rent from tenants or through the appreciated value their property amasses between buying and selling it. Investors are attracted to the residential sector as its much more affordable than other methods of property investment. In addition, this type of real estate is not affected even throughout hard economic times because, essentially, people will always need somewhere to live.
Commercial Real Estate
Commercial real estate, unlike residential, is a space that is rented or leased by a business. Examples of commercial real estate are an office building rented by a single company, a leased restaurant, a gas station, retail spaces and hotels. These are all workspaces that provide the tenant with a way of generating income.
Investors are attracted to commercial real estate for a multitude of reasons. Primarily, higher rent and longer leases lead to a higher and steadier long-term income for owners. There are also certain tax benefits that can be enjoyed when owning this type of property.
Raw Land And New Construction
Raw land is a property in its most natural state; untouched, unoccupied, uncultivated or underdeveloped. Different kinds of raw land real estate investments are commercial and residential, row crop and livestock, and small farmland.
Investors often decide to become involved in raw land real estate as there is much less competition than other sectors. Other advantages are the minor maintenance and ownership costs, low entry-level and potential for a fast return. The best plan of action with raw land investments is first to find a suitable high-growth market and then decide on developing, holding or subdividing the land.
Real Estate Investment Trusts (REITs)
REITs are companies that own, run or finance various kinds of commercial real estate. You can invest in shares of companies like this on a stock exchange in exchange for dividends. There are five types of REITs you can choose to invest in. These are retail REITs, residential REITs, healthcare REITs, office REITs, and mortgage REITs.
The most appealing advantage of investing in REITs is that you invest in the real estate these companies own, yet without as many risks and costs associated with owning real estate directly. A second benefit is that REITs offer more liquidity than other real estate investments; if you suddenly find yourself in need of some cash, you can sell your shares. If you’d like a diverse portfolio, REITs are a great way to achieve this.
Crowdfunding Platforms Or Non-Traded REITs
Real estate crowdfunding platforms offer investors access to high returns but with significant risk. Investment on these platforms is usually open only to wealthy, accredited investors and involves REITs that are not traded on a stock exchange. Non-traded REITs can be highly illiquid, which means your funds will be invested for at least several years. If you require money, you won’t be allowed to pull funds out of the investment.
Choosing The Right Property To Invest In
If you’re considering investing in real estate, you need to make sure you choose the right kind of property to invest in. With traditional real estate like residential or commercial, it’s essential to know your local market. In contrast, REITs and crowdfunding investments are a more hands-off method of adding real estate to your portfolio.
You must first consider your individual preferences, your financial situation, and your investing strategy. Second, and even more important, is to research market profitability, location and risk.
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