Different types of investments require different types of investors. Different types of properties require different types of investments.
In order to find the best type of investment for you as a real estate investor, you will first need to understand the different types of properties, which directly ties to the type of investment that you can make.
These are the most common different types of investments in the real estate market based on the types of properties or the methods of investment:
Different Types of Investments: Residential Properties
The most common of the different types of investments in the real estate market is investing in residential properties. This includes the purchasing and selling or renting out of any property type that falls under the category of residential real estate, including single-family homes, condos, and vacation houses.
There are three types of residential property investments that are worth mentioning here:
Traditional/Long-Term Rental Properties
This type of investment involves the purchase or the owning of a residential property for the sole purpose of renting it out through a long-term lease. This is a very common type of real estate investment; it is the easiest to get into, and it has the lowest risk with regards to failure.
Long-term rental property investing allows the landlord to generate a steady rental income which is used to pay off the mortgage as well as cover all the expenses related to the rental property; over a period of time the property will start generating a higher profit and will have acquired a sufficient return on investment.
Related: What Are the Major Incentives to Buy and Rent Residential Properties?
Short-Term and Airbnb Rental Properties
Short-term rental property investments are very similar to traditional rental properties, but they rely on short-term tenants to generate rental income. Airbnb, although relatively new, made this type of investment increasingly popular in recent years. Some Airbnb rentals generate a higher cash flow than traditional rental properties, and it allows home owners to rent our sections or rooms in their homes to prospected tenants, allowing them to benefit from home ownership mortgage advantages while also benefiting from a passive rental income.
A common type of short-term rental properties is vacation homes, as it allows you to rent out your vacation home whenever you’re not staying in it in order to help cover its running expenses.
Fix-and-Flips
Out of all the different types of investments in the real estate market, this type might be the quickest way to earn a profit. Fix-and-flips are real estate properties that are on the market for a value that is lower than their fair market value. Real estate investors purchase these properties for the purpose of renovating them or repairing them before selling them back for a higher value than they paid for, earning a profit through the margin of buying and selling prices.
Related: 5 Tricks to Save on Fix-and-Flips
Different Types of Investments: Commercial Properties
Commercial real estate mostly refers to office buildings, as these are the most common type of commercial properties. Investors in commercial real estate develop or purchase office buildings and skyscrapers with the purpose of renting them out to companies, firms, and corporations. This type of real estate investment is fairly reliable depending on the area, which should be studied closely before making the investment, as most expanding areas require new office buildings for the increasing number of jobs and businesses that will be looking for new office spaces to rent.
Importantly, since commercial real estate properties are usually associated with higher running costs, they would result in bigger losses on your investment if you fail to find tenants to occupy the property and pay towards these expenses.
Related: What Are the Best Ways to Make Money in Commercial Real Estate for Rent?
Different Types of Investments: Industrial Properties
Industrial properties, while very common, are not often considered by the everyday real estate investor. That does not mean, however, that they cannot be as profitable, if not more profitable, than the other different types of investments. Industrial properties include warehouses, distributions centers, storage units, or even car-washes. They usually generate an income through customers who temporarily use the property, but they also allow the real estate investor to make certain additions to the property in order to increase its passive income. This can be done by simple additions, such as vending machines or coin-operated vacuum cleaners for cars, which gives them additional flexibility when it comes to their use, which in turn gives them a larger pool of prospective users or renters that might find a use for them.
Different Types of Investments: Retail Real Estate
Out of all the different types of investments, retail real estate might be the most diversified when it comes to its use. Retail real estate includes shopping malls and strip malls, in addition to any other storefronts. This type of real estate benefits greatly from general developments and area growth. Whether the area is growing more towards residential real estate or commercial real estate, there is always a chance for retail real estate to grow on the back of another growing type of real estate.
If the area has several developing office buildings, for example, then a retail real estate can be turned into an office supplies store, giving you the opportunity as an owner to easily find prospected tenants that are willing to rent your retail property to turn it into the said store.
Additionally, in some cases, the landlord of the retail property can also receive a percentage of the sales made by the tenant store on top of the normal rent, which further incentivizes him/her to manage the property and keep it in a good shape.
Different Types of Investments: REITs
REITs, or Real Estate Investment Trusts, are among the most popular of the different types of investments. Investing through a REIT means that you’re buying shares of a corporation that owns real estate, giving you partial ownership over properties without having to invest any time or effort into the investment or managing it.
Although investing in REITs is very similar to investing in stocks, REITs are limited to investing in real estate properties, and the investor has the opportunity to choose the type of real estate properties that he/she would like to invest in through the REIT, having some control over his/her investment.
Different Types of Investments: Conclusion
To conclude, the different types of investments possible in the real estate market depend on the different types of real estate properties that exist. Each type of real estate property is more associated with a particular type of real estate investment, and deciding on the type of investment highly depends on the type of investor that you are.
So, which of the different types of investments do you believe suits you best? Contact us, let us know, and we might be able to help you find the perfect property for your investment, as well as provide you with different analytical and comparative data from other properties in the area in order to help you make the best investment decisions.
Go ahead and give Mashvisor a look, and don’t forget to sign up to gain access to our platform.