There are many different ways to invest in real estate and these real estate investment types which falls under two main categories.
Physical real estate investments include residential, commercial properties and Land. The category is Non-physical real estate investments, such as REITs and crowdfunding platforms.
Traditionally, physical real estate investing can yield a higher rate of return, but it also demands a larger initial investment which can have substantial recurring costs. Because REITs and crowdfunding platforms have a lower financial barrier to entry, you can invest in multiple types of real estate for much less than it would cost to invest in just one traditional property. These alternative real estate investments also have the distinct advantage of not requiring you to leave the house or put on pants to begin investing.
Here are the top five types of real estate to consider if you want to invest in Real Estate and how to invest in the Real Estate:
Real Estate Investment Trust (REITs):
Real Estate Investment Trusts or REITs are publicly traded companies that own commercial real estate (think offices, malls and hotels). On a stock exchange, you can buy shares in these companies. REITs allow you to participate in the real estate that these firms own while avoiding many of the risks that come with owning real estate directly.
Every year, REITs are obligated to return at least 90% of their taxable revenue to shareholders. This means that, in addition to diversifying their portfolios with real estate, investors can earn substantial income. Publicly traded REITs also have more liquidity than other real estate investments since you can sell your shares on the stock exchange if you need money quickly. You can invest in publicly traded REITs through a brokerage account if you have one.
Real estate crowdfunding companies provide investors with access to real estate investments that can yield great profits but also come with a high level of risk. Some crowdfunding are only available to accredited investors, who are defined as individuals with a net worth of more than $1 million, or a joint net worth with a spouse, excluding the value of their home, or an annual income of more than $200,000 in each of the previous two years ($300,000 with a spouse).
Others, such as Fundrise and RealtyMogul, give nonaccredited investors (those who don’t fulfil the minimums) access to investments they wouldn’t otherwise be able to invest in. Nontraded REITs, or REITs that do not trade on the stock exchange, are a common form of these investments. Nontraded REITs can be highly illiquid because they aren’t publicly traded, which means your money will be invested for at least several years and you may not be able to get your money out if you need it. Keep in mind that many crowdfunding companies have only been around for a short time and have yet to survive a recession.
3. Residential Real Estate
Residential real estate includes single-family homes, condos, and vacation homes, among other places where people live or stay. Residential real estate investors generate income or cash flow by collecting rent (or regular payments for short-term or long term rentals) from tenants, or by profiting from the increase in value of their property between the time they buy it and the time they sell it.
Residential real estate investing can take various forms. It could be as easy as renting out a spare room or as complex as purchasing and flipping a home in other to make quick profit.
4. Commercial Real Estate
A piece of commercial real estate is a space that a business rents or leases. Commercial real estate includes office buildings rented by a single company, petrol stations, strip malls with multiple different businesses, and leased restaurants. Each firm would pay rent to the property owner unless it owned the property itself.
Commercial real estate includes both industrial and retail properties. Industrial real estate, such as factories and warehouses, refers to properties where things are created or kept rather than sold. A retail area, such as a clothing store, is where a customer can purchase a product or service. Commercial properties have longer leases and can attract higher rents than residential properties, which means a property owner can expect a higher and more consistent long-term income. They may, however, necessitate larger down payments and property management costs.
5. Raw Land
Investing in land has resulted in some of the most significant fortunes. Investors typically buy land for either commercial or residential development in advance of urban sprawl.
However, acquiring land for development necessitates extensive market research, particularly if you intend to develop the land yourself. This form of investment is best suited to someone with a significant amount of money to invest and a thorough awareness of all things real estate, including building laws, zoning regulations, and flood plains, as well as a knowledge of the local residential and commercial rental markets.
As you can tell, there are a wide range of real estate investment opportunities available with different level of capital from few thousands to millions of dollars. There are massive cash flow and profit opportunities within these properties, which is why real estate investment can be so exciting and so distractive! Knowing your local market is important. If there isn’t much demand for homes or commercial space in your area, or property values start dipping, that investment could quickly turn into a burden.
If you’d prefer to be more hands-off with your investments, REITs and crowdfunding platforms are easier ways to add real estate to your portfolio without owning physical property.