Real estate investing is something we’ve all considered or thought about from time to time. But with so many different factors involved, knowing which route to pursue can feel intimidating. Sometimes a little primer is all you need to get started.
In particular, it’s helpful to understand the major types of real estate investments that exist. Let’s explore them in a little more detail:
1. Single-Family Homes
The single-family residential home is the classic real estate investment – and rightly so. Single-family homes are in abundance in almost every real estate market and the inventory of for-sale properties is typically pretty significant. This gives you the opportunity to patiently wait until the right deal comes along.
Then there’s the historic rise in prices of single-family homes, which means there are two methods of earning money. Monthly cash flow sustains you in the present, while the possibility of selling an appreciated asset in five, 10, or 15 years could leave you with even greater gains in the future.
2. Multifamily Properties
If a single-family home consists of one structure with one tenant (or one household of tenants), a multifamily property is one where there are multiple units adjoined on the same piece of real estate. Types of multifamily properties include duplexes, triplexes, condos, townhomes, and apartment complexes.
The latter type of multifamily property is especially interesting. If you read up on the pros and cons of owning an apartment complex, you’ll discover that this sort of investment is super stable. Whereas other types of real estate experience decline in recessions, the demand for apartments only increases. This makes them the perfect investment for maintaining positive cash flow in any economic environment.
3. Office Space
Office space is abundant and, under the right circumstances, can be purchased at a really good deal. The thing to remember is that office space is extremely volatile. If you don’t buy it at the right time, you can get hung out to dry by factors that are outside of your control.
Office space tends to rise and fall with the health of the economy. When the economy is booming, businesses are growing. Not only are they more willing to lease office space, but they’re also eager to expand, lock into longer leases, and pay rent on time. When the economy is in decline, companies shrink, cut expenses, and some go out of business.
Don’t shy away from investing in office space, but do make sure you’re smart about timing and deal structuring.
4. Retail Space
Retail is another type of commercial real estate investment. This class consists of assets like strip malls, shopping malls, and storefronts.
The great thing about retail space is that it gives you an opportunity to flex your creative muscles. In addition to standard monthly leases, it’s also possible to structure deals where you receive a small percentage of sales in addition to a base rent. Having this sort of skin in the game makes things exciting.
5. Raw Land
It doesn’t sound as sexy as investing in a beautiful brick house or a massive apartment complex, but raw land is hugely advantageous. Every investor should consider adding some to his or her portfolio.
For starters, it’s a finite resource. In case you haven’t noticed, they don’t make any more of the stuff! From 2014 to 2017, roughly 1.15 million new homes were built per year, yet not a single acre of land was created.
Secondly, raw land is easy to keep. You don’t have to deal with cranky tenants, fix leaky pipes, or stress out over vacancy rates and turnovers. You simply hold the land until you think it’s time to sell. (In the meantime, there are plenty of ways to monetize.)
Discovering the Best Fit
Don’t let the superfluity of real estate investment types overwhelm you into not taking action. Instead, view them as an opportunity to find a type of real estate investing that fits your circumstances, finances, and expectations. For some people, gobbling up a bunch of apartment complexes is the way to go. For other people, finances may limit investing to a cheap single-family home or raw land – and that’s okay!
Real estate investing isn’t about taking someone else’s formula and assuming that it’ll become your prescription for success. It’s much more dependent on personal factors and preferences. The more you become comfortable with developing your own investment strategy, the faster your portfolio will grow.