Real estate is one of the most profitable investments that a person can make, whether they’re a seasoned investor or a first-time investor. However, there are several categories of real estate that you can invest in, so you may be wondering what is the best type of real estate investment. The simple answer is “whatever works best for you”, but finding the best investment for you takes a lot of research and understanding of the different categories of real estate. Here are five examples of real estate you can invest in.
#1: Commercial Real Estate
Commercial real estate is referred to as any type of building where business is conducted, so this includes, but is not limited to office buildings, shopping centers (including malls), hotels, and even industrial buildings such as factories and warehouses. Apartment complexes are also sometimes considered commercial or mixed-use properties.
Commercial properties are one of the best types of real estate to invest in because of the higher amount and steadier cash flow. Leases for commercial buildings are much longer than leases for residential buildings, and they have more units than residential properties. More units equal more tenants, and more tenants equal more money.
#2: Crowdfunding Platforms
Crowdfunding is the process of raising money from a large number of people to fund a project or business venture. These platforms are typically reserved for accredited investors and the wealthy and can be done through social media, but there are actual crowdfunding websites. The main type of real estate investment from these platforms is in the form of a real estate investment trust, another type of real estate investment.
#3: Raw Land
Raw land, or just land, refers to unoccupied and underutilized land in the form of vacant land, ranches, or farms. The most profitable land, no matter what type it is, has to be in an area where there is high projected growth. This requires extensive market research on the investors’ part to ensure a return on investment.
Purchasing real estate in the form of land is great for investors who are looking to develop a property from start to finish. Many business owners choose to buy land to build their business and warehouse so that they’ll own virtually every part of their business. It’s also a good business venture for the investors who want to hold on to real estate to let it appreciate, which raw land does in the same way as a physical building.
#4: Real Estate Investment Trusts
Real estate investment trusts, abbreviated as REITs, are companies that own hotels, malls, and other commercial real estate buildings. You can invest in these REITs, which allow you to invest in expensive commercial real estate without actually purchasing a commercial property. REITs return 90% of their taxable income to shareholders annually, making this a very popular option for those wanting to get their feet wet in the real estate investing world.
While this is a great way to earn profits from commercial real estate, it still doesn’t earn you as much as investing in an actual commercial property would. However, this method has much fewer risks, another reason why it’s popular among first-time real estate investors.
#5: Residential Real Estate
Residential real estate is probably the first type of real estate that comes to mind for most people. As the name suggests, these are properties that house individuals. Examples of residential real estate include:
- Single-family homes (including vacation homes)
- Multi-family homes (including duplexes and quadruplexes)
- Apartments (considered a multi-family residence, commercial property, and mixed-use)
Many people invest in additional residential property to rent out as short-term rentals (vacation homes) or long-term rentals. Residential real estate is also the most affordable type of property for most people, and there are many ways to finance residential properties, whether it’s in the form of a bank loan, money from a credit union, or a DSCR loan from lending companies like Visio Lending.
The best type of real estate investment depends on your goals as an investor. Any type of real estate investment can add diversity to any investor’s portfolio, so choose the type of real estate you’re most comfortable with. If you’re a first-time investor, you may want to consider REITs or residential real estate as your first investment. They’re much easier to navigate than crowdfunding platforms (in most cases), raw land, and commercial real estate— which can be twice as expensive as residential real estate.