The best types of real estate investments
There are several types of real estate investments like land, residential and commercial properties. Investing in traditional, physical real estate can offer a high return, but it also requires more money upfront and it can have high ongoing costs.
If you’re looking to invest in real estate, here are three types to consider:
- Residential real estate
Residential real estate is virtually anywhere that people live or stay, such as single-family homes, condos and vacation homes. Residential real estate investors make money by collecting rent (or regular payments for short-term rentals) from property tenants, through the appreciated value their property accrues between when they buy it and when they sell it, or both.
Investing in residential real estate can take many forms. It can be as simple as renting out a spare room or as complicated as buying and flipping a house for a profit.
- Commercial real estate
It is a space that is rented or leased by a business. An office building rented by a single business, a gas station, a strip mall with several unique businesses and leased restaurants are all examples of commercial real estate. Unless the business owns the property itself, each business would pay rent to the property owner.
Industrial and retail real estate can fall under the commercial umbrella. Industrial real estate generally refers to properties where products are made or housed rather than sold, like warehouses and factories. Retail space is where a customer can buy a product or service, like a clothing store. Commercial properties tend to have longer leases and can command more rent than residential properties, which may mean greater and steadier long-term income for a property owner. But they may also require higher down payments and property management expenses.
- Raw land
If you build it, will they come? Investors typically buy land for either commercial or residential development.
But buying land to develop involves a fair amount of market research, especially if you plan to develop the property yourself. This type of investment is best suited to someone with a large amount of capital to invest and a deep knowledge of all thing’s real estate —building codes, zoning regulations, flood plains — in addition to an understanding of the local residential and commercial rental markets.
Which real estate investment is best for you?
If you’re considering investing in traditional real estate — like residential or commercial properties — doing your due diligence doesn’t just mean coming up with a down payment. 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.