When it comes to asset classes, real estate is one of the most favored investment opportunities. However, what many property investors do not realize is just how many different types of property investments are their disposal. There are various pros and cons to each of these real estate investments. With this in mind, it is very important to fully understand the various factors at play before you settle on an investment type. In addition, you need to understand the cash flow cycles plus the lending traditions of each investment type. This guide is aimed to help investors appreciate the different types of real estate investments.
When you are certain that property investment is the route that you’d like to pursue, it’s important to get a grasp of what you’re getting yourself into. To start with real estate investment requires dedication, time, effort, and significant resources. However, when done correctly property investment is a path to passive income, as well as financial independence. Let’s get a better grasp of the different kinds of real estate you can invest in.
Categories of real estate
Firstly, it is important that you clearly determine how you intend to make money from your property investment. Whether you intend to make income from real estate flipping or monthly rental income, it is crucial to know the type of property category to invest in.
1. Residential property
Residential real estate is probably the property type most invested in. These properties include new as well as resale homes. Everything from flats, houses, and multi-story structures fall under residential property. Single-family homes tend to be the category of choice under residential investment properties. Residential investment entails that a person or people pay a pre-determined amount to stay in your property. You also continue receiving rental income for the duration of the property ownership. Moreover, your asset will continue to grow in value. As such this can be one of the best investment types when it comes to long-term income.
2. Commercial property
Malls, shopping complexes, and office buildings all fall under commercial real estate. Commercial property is used to generate income either from rental income or capital gain. Moreover, commercial real estate usually involves leases spanning several years. This is significantly crucial when it comes to greater cash flow stability. Another great feature of commercial property is that as you build equity in your business, it becomes more valuable. A more valuable asset will aid you leverage to ultimately increase your property investment portfolio. This coupled with earning potential make commercial real estate a lucrative investment.
3. Industrial property
Industrial real estate includes both warehouses as well as industrial buildings. Any land or buildings suited for industrial activity usually also fall into this classification.
A distinct classification between commercial property and industrial real estate is vital. This is because of the difference in construction, zoning requirements and the way sales of either are handled. One of the reasons why investors are drawn to industrial real estate investment is that it provides a high revenue stream and increased rental yield.
The last classification is land. Land can either be developed or vacant and undeveloped. One of the reasons first-time investors opt to buy land is that it is cheaper than buying developed real estate. However, investing in land also has its downsides. To start with land does not generate income. Moreover, owning land can cost you quite a substantial amount in taxes.
In conclusion, prior to jumping the gun and blindly investing in any one category, or is important to investigate the benefits and setbacks of each. All in all real estate investment is a sound, viable, lucrative, and smart decision.
If you learn to invest properly, real estate will produce income streams for you.