Real estate goes beyond just buying property for rental and commercial purposes. It is also not just for rich people, other average investors should also seriously consider investing in real estate as there are limitless opportunities for everyone. If you want to build wealth and generate income, then real estate is one of the ways to do so. With the different options, is there a best way to invest in real estate?
Every option there is to real estate comes with different risk levels, investment dynamics, as well as capital requirements. So presented with the different options, you can choose what works best for you. On this account, here is a list of the types of real estate.
REITs is an abbreviation of Real Estate Investment Trusts. Instead of directly buying real estate property, you could invest through REITs. Companies purchase, operate and manage real estate that they trade on stock exchanges. They are also known as real estate investment trusts, so when you invest in REITs, you don’t suffer risks associated with them since you invest through the companies that own them. Also, the best way to invest in REITs is to buy through a brokerage account.
The expected return to shareholders for REITs is a minimum of 90% of the taxable income. This way, if you invest in a REIT you stand to gain desirable dividends. One of the unique characteristics that set REITs apart from other real estate investments is that they have more liquidity. So if you incur an emergency you could sell your REIT shares on the stock exchange. What’s more, REITs are a good way of diversifying your real estate portfolio.
Residential Real Estate
This is one of the most obvious and common ways of investing in real estate and can be as simple or as complicated as you want it to be since it can take different forms. Vacation homes, single-family homes, and condos are examples of residential real estate where investors get income through rent or payments made for short-term rentals. Also, from the time property is purchased to when it is sold, the value appreciates and owners can earn from this accrued income.
It is one of the best types of real estate investment due to the fact that it combines different aspects such as equity appreciation, income as well as ease of use when it comes to property purchase.
Commercial Real Estate
The space that businesses rent or lease to operate from sums up what commercial real estate is. Gas stations, offices, restaurants, strip malls, and cafes, etc are all examples under this category where the business owners pay rent to the property owners. But in instances where the business itself is the owner of the property, it does not apply. Also, commercial real estate could comprise of industrial and retail categories. Retail spaces are where business owners use as stations to sell their product or services, eg an apparel store. On the other hand, the properties where products are manufactured or housed i.e factories and warehouses are referred to as an industrial real estate.
While both residential and commercial real estate are rental property, the latter usually has longer leases and higher rent rates. This might be a more profitable venture for a property owner who wants a long-term income source, although it might cost more.
With the huge financial responsibility comes less competition when compared to other forms of rental property. And there are multiple options to choose from, some with long-term triple-net leases that bring in higher returns with very little management needs.
Instead of buying already-developed property, you might also opt for raw land, then develop the property later. Simply put, raw land is any available vacant land for purchase. It is best to look for raw land available in areas with a high projected growth so that you don’t have to worry about profitability later. However, you might need to conduct in-depth research on important factors such as local rental property markets, and most importantly, other things like flood plains, building codes, and zoning regulations. In addition to having ample knowledge about real estate, you might also need a large amount of investment capital if you decide to invest in raw land.
When investing in raw land, you could focus either on construction or long-term buy and hold, both of the methods offer attractive profits. Just like any other real estate investment, you will need to thoroughly research then choose a desirable location for your investment. When compared to most types of real estate, raw land is simple and offers more potential for massive profits.
Fix and Flip
Fixing and flipping houses entails purchasing an undervalued property then repairing it before selling it at a better price. Most of the investors that use this real estate approach get to enjoy huge returns within a short period of time. Optionally, you would have to purchase property, and instead of renovating, wait until the market improves.
Flipping houses can also be a risky venture if you don’t know how to use the local market to hedge your bets. Also, putting houses in the market does not guarantee a purchase. The 70% rule could help you avoid losing money when flipping houses. Since you gain money when you buy rather than after selling, ensure that all costs including holding, acquisition, repair fall below the 70% mark of the expected income after selling the property.
When it comes to fixing and flipping houses, time is precious so you need to act fast, from when you start repairing to when you sell off the property. The best thing is to schedule the renovations beforehand, so they can start immediately after you close on the home. Although you might get taxed heavily after selling, setting realistic prices will help to get a buyer quickly.
You don’t have to invest in one form of real estate, if you have the financial muscle to venture into other forms, it would only be beneficial because you would be diversifying your investment portfolio. The last thing you want is to have your investment get hampered by market factors, so don’t just invest in the next available real estate investment. A rule of thumb before investing is doing detailed research for the kind of real estate you want to invest in as well as the market. Before getting into any real estate investment, understand both sides of the coin.