Real estate investing is much more than buying a property and hoping its value will increase. Among other things, you need to know the types of real estate investment properties and how they can bring you the biggest return on your investment. Read more to learn about the four main types of real estate investment properties.
If you want to succeed as a real estate investor, you’re going to need to buy a property at some point. And, the type of property you buy could determine your future as a real estate investor. Remember, there are a hundred different investment strategies available in real estate investing but only four types of real estate: residential, commercial, industrial and land.
So, why are property types so important in real estate investing? The short answer is they each produce returns in different ways. To help you get started, here is a summary of the main types of real estate investment properties.
Residential Real Estate Investing
Residential properties include single-family homes, multi-family homes, mobile homes, townhouses, and condos. Each type can generate investment returns in different ways.
For example, you can buy a single-family home and hold it until its value increases. Or, you can rent it out while you wait for the value to increase (many buy and hold investors rent their properties to pay their mortgages).
You can invest in multi-unit properties (one to four-unit homes, apartments) to generate income from multiple sources. For example, some skilled investors got their start by buying a four-unit property while living in one unit and renting out the other three units.
Mobile homes, townhouses, and condos all offer different investment strategies. You can invest in a mobile home park and receive income from several rental units, or you can buy a condo or townhouse and wait for the value to increase or rent them out for passive income.
Many successful investors buy more than one townhouse or condo in the same complex. This strategy allows them to manage their properties more efficiently since there in the same location.
Commercial Real Estate Investing
At its core, commercial real estate is any property used for retail purposes or office space. Investors buy these properties and rent them to business owners who need space to run their companies or buy and sell goods and services.
The commercial properties you’re probably most familiar with include restaurants, retail stores, or the place where you go to work (unless you work in manufacturing).
Unfortunately, investing in commercial real estate is more complex — and more expensive — than residential real estate. For starters, the information to find out if a commercial property is a good investment isn’t readily available.
Additionally, renting a commercial property isn’t as simple as drawing up a rental contract. You will need a comprehensive lease agreement.
If you plan on financing your commercial properties, you can expect to make a minimum down payment of 25% to 50%. You’ll need really good credit, and in some cases, banks will require you to have a lease in place from a company that’s already renting a space in the property.
Finally, determining the value of your building isn’t as simple as comparing other commercial properties near your location. The type of business — and how much it generates in sales — also affects the value of your building.
Industrial Real Estate Investing
Industrial properties typically include buildings used by companies for the manufacturing, warehousing, and distribution of their product. Most industrial real estate investors are highly-skilled with extensive investment portfolios. The buildings are large, expensive, and the tenant’s needs can change at the blink of an eye.
However, savvy investors know the type of returns industrial buildings generate. They often yield higher returns with longer leases. Also, turnover rates are much lower. This means you won’t need to find new tenants every six months when a business shuts down.
Investing in Land
Obviously, properties need land to stand on. And, buying land is a proven investment strategy that can produce healthy returns. However, buying raw land won’t net you any passive income — unless you purchase farmland.
Land is a risky investment. Aside from paying taxes on a property that’s not generating income, you’ll need to deal with zoning issues (how you can use the land), environmental issues, gaining access to utilities, and a plethora of other issues.
However, if you buy land in a popular location or a spot that could be the site for future development, it could pay off handsomely in the future.
Why You Need an Agent
If you’re new to the property investing game, you’ll need an experienced agent to help you find a property that makes you money.
Finding an investment property isn’t as simple as looking through listings on sites like Zillow and Realtor.com. Our expert Clever Partner Agents will help you find the right investment property and not just any property.
Finding the right properties as a new real estate investor will determine the future of your investing career.
