Different Types of Real Estate Investments: Understanding The Difference
Real estate investments are the process of buying property to gain profit from its rental or sale. The type of investing you choose will determine how much money you can make and the amount of risk involved with your funds.
There are several types of real estate investments, each targeting a unique group of investors. Understanding the differences in each type of investing will help you choose the right path for your Real Estate Investments. The following are the various types of real estate investments:
1. Rental Properties
One of the best ways to make money near real estate investments is to purchase a home, condo, or other rental property. Rental properties can generate monthly income that can be used for many purposes, such as offsetting the costs of owning the home and even being put into savings.
The first step in purchasing a rental property is identifying an area with high growth potential and low inventory. The idea behind this is to buy a piece of property that will see rising prices in the future. You need to be knowledgeable about the real estate market to make any money.
You should find the best real estate school to receive a proper education. You can purchase a home outright or take out a mortgage to finance the building.
Rental income is the most significant benefit of this type of investing as it gives you a chance to offset the costs of owning a home and make money from it at the same time. You can also gain profit by selling your rental property, primarily if real estate prices shoot up in the process.
2. Commercial Properties
Real estate investments could be commercialized and buy and sell commercial property such as businesses and office buildings. This type of investing is riskier than owning a rental property since there will be no monthly income to offset costs.
Commercial properties can produce a steady income when they are fully leased. The average return on investment is around 10%.
The first step in purchasing commercial property is finding an area with solid business demand. You need to know how much it will cost to run a business and what expenses are involved, including taxes. It would be best to find real estate schools online or offline to provide you with the necessary education.
Purchasing commercial properties can be complicated. You need to know about dealing with commercial property laws, financing, and management. Contracts are critical when selling or leasing out a commercial building.
Real estate investments trusts (REITs) are companies that invest in real estate products to generate passive income. Their main products include mortgages, property management, and commercial buildings.
REITs provide the same benefits of owning a rental property but without the need for you to manage it personally; this means no costs for monthly maintenance or repairs. The biggest benefit of investing in REITs is their steady and consistent income.
Unlike rental property, the monthly income from commercial properties has no dependence on real estate prices, as long as you can find tenants for your building. REITs also make it possible to diversify investments since they provide investment opportunities over different sectors such as healthcare and technology.
4. Raw Land
Raw land is real estate that has not been developed yet. It could be an empty plot of land, a smaller lot where a house once stood, or a parcel of land designated for different purposes.
Although it does not provide a steady monthly income like rental properties and commercial properties, raw land can offer you more profit in the long run because of rapidly changing prices in the market.
Raw land does not have tenants paying their monthly rent or workers who provide a regular salary. The only source of income from raw land is the capital gains from real estate value appreciation if you sell it, which can be an option after several years.
You should buy this type of investment only if you have more money to spare and are willing to wait for the right time to sell it. Making the right real estate investments decisions will give you more profits in the long run, so do not rush into anything.
Make yourself knowledgeable by taking online or offline courses on how to be a successful landlord, manager, or investor of commercial buildings.
5. Industrial Real Estate
Industrial real estate refers to any type of commercial pad, warehouse, distribution center, and other forms of property designed to be explicitly used by industry. Investments in this sector provide lower incomes than rental properties or commercial properties but can increase your long-term wealth.
Industrial real estate is complicated for beginners to understand and invest in because it requires expertise in doing the necessary research. You need to understand what industry is thriving in your region and which has a high demand for spaces such as warehouses, distribution centers, or factories.
For example, if you invest in a warehouse space and it does not get leased within six months after purchase, you will be forced to lower its rental price, or you will not be able to pay the mortgage, which can lead to foreclosure and bankruptcy.
Industrial real estate is only recommended for experienced investors with expertise in this industry.
As with any other type of real estate investments, assessing the demand for commercial property in a particular area is essential before purchasing a building. You can find many professionals who offer advice about commercial properties that you can hire if you need further assistance.
Real estate investments is one of the best ways to diversify your investment portfolio, but it is also one of the riskiest. Make sure that you understand everything about maximizing your earnings when investing in commercial property before making any purchases.