Real estate is one of the promising forms of investment. If you play your cards right, it can be a source of long-term income. In this post by Cash for Homes Arizona, we look at various real estate investment types along with which one might be best for you.
Commercial Real Estate
Industrial, office, hospitality, multifamily, and retail projects are some of the best investments in terms of commercial real estate properties. The reason why commercial properties are thought to be the best is due to the high cash flow. When compared with other types; commercial real estate investments carry a low vacancy rate and longer lease term.
The potential for income is higher too. Also, because purchasing commercial estate is a huge undertaking, investors enjoy less competition than they do with residential homes.
Residential Real Estate
Residential real estate carries several options in terms of rental properties. Out of those, single-family homes are the most common forms of investments. Other common options are vacation homes, multifamily properties, and duplexes. Because of the sheer number of options and varying levels of competition across markets; it is important that you pick the right exit strategy. Rehabbing, wholesaling, and buy & hold properties are the most common exit strategies.
Be careful when picking your strategies and do so based on your market. Properly managed real estate can be one of the most attractive profit-making schemes. Other than a steady cash flow, this type of real estate investment comes with myriad tax breaks.
Raw Land Investing & New Construction
Raw land is any vacant space available for buying. It’s quite an attractive option in markets that carry a high projected growth rate. New construction is also another excellent option in rapidly growing markets. No matter whether you want to make a profit from investing in long-term buy and hold or invest in a fresh property from start to finish; raw land & new construction are two unique and highly profitable opportunities.
To maximize profit, investors must perform in-depth market research. This is essential to pick the right area and to avoid succumbing to external market factors.
Real Estate Investment Trusts (REITs)
Companies that own commercial properties such as malls, restaurants, shops, and hotels count as real estate investment trusts. One form of real estate investing is putting your money in REITs on the stock exchange. You are essentially investing in a part of the estate that the REITs own without carrying the entire risk of property on your shoulders.
It is a requirement for these trusts to return ninety percent of a company’s taxable income to its shareholders so that they can diversify/maintain their portfolio and also keep receiving dividends. Publicly traded real estate trusts come with flexible liquidity in comparison with other real estate investments. In case you need your funds during an emergency, you can always share your stocks on the exchange.
Any residential property with four or less than four units constitutes ‘long-term rentals’. It’s estimated that 2/3rd of the American population lives in long-term rental housing rather than an apartment. Examples of these housing are – mobile homes, quads, duplexes, and single-family homes.
investing/owning a rental property comes with myriad benefits such as easy management and collection of rents from multiple tenants. Additionally, you can also keep depreciating your building’s value to enjoy tax benefits. You can always write off the cost of improvements on carpeting, appliances, and any wear & tear due to age from your taxes.
On the flip side, being a landlord comes with the headaches of finding the right tenant, ensuring timely rent collection, and having to repeat the same process every time they leave. You’re also responsible for repairs and maintenance work. Let’s not forget that you’re also likely to be involved in a lawsuit because of the liabilities that come with owning rental properties and the associated laws.
Which Real Estate Option is Best For You?
There’s no ‘right’ answer to this question. Your best real estate option will depend on a variety of individual circumstances such as the preferred style of investment, market area, goals, and financial capacity. Although there are some key factors that investors must bear in mind; in the end, you will have to weigh each option’s pros and cons to pick the ‘best’ choice.
Never underestimate the importance of location when thinking in real estate terms. If you’re thinking about up and coming markets, vacant land & new construction is likely to be your best bet. For investors inclined towards more ‘mature’ markets; residential properties are better.
Other than location, think about how much risk you can bear, the kind of involvement you want to have, and the target profitability. If you want to remain passive in the whole process, try to opt for ‘buy and hold commercial/residential properties’. You can have a property manager looking after the property. If you wish to resume a more proactive role, then rehabbing residential homes and developing vacant lands will be more rewarding for you.
If this is your first time in the real estate arena, you may want to begin with residential properties to get a taste of waters before transitioning towards commercial properties. You may also find success by investing in a mix of property types.
Investors in real estate have endless options to choose from. They also have myriad ways to expand their investment portfolio. If you put in research and creativity; you’ll see that there’s investment niche for every single person.