The low interest rate is a chain of consequences of COVID-19 effects, which encourage more and more people to invest, especially in real estate. All investors, when investing in real estate, expect that the property’s value will increase over time and bring back big return on investment. There are four main types of real estate investments: residential, commercial, industrial, and land investing and new construction. If you are a new investor, you probably wonder what the differences between property types and what types are considered the best in all of them. The following article will discuss all of these concerning aspects.
First of all, the most common is residential real estate, which includes single-family homes, duplexes, multifamily homes and vacation homes. One of the greatest benefits of residential real estate is that it is easy to generate steady returns. A residential real estate investment can provide a stable cash flow when being managed correctly. In addition, residential real estate benefits from some tax breaks. Depending on characteristics, each type can generate return on investment in different ways. For example, with single-family homes, investors rent it out or sell when the property’s value increase. With multifamily houses, investors can get income from multiple sources. Some investors have started by buying a multi-unit property while living in one and renting out the others.
The second type is commercial real estate investment. It is any property used for retail purposes or office space. It is considered the best type of real estate investment because of its higher potential for cash flow. Most investors choose commercial real estate due to higher earning potential, higher peak stability due to long rental period and lower vacancy rate than other types. Low competitiveness is also an advantage of this type as buying these properties can be a bigger undertaking than working with residential homes. On the other hand, the disadvantage of commercial real estate is that it is more complicated and more expensive than residential real estate. Moreover, renting a commercial property is not as simple as making a single rental contract, which you will have to provide a comprehensive lease.
The third type is industrial real estate investing. It includes buildings used by companies for the manufacturing, warehousing, and distribution of their product. Most industrial real estate investors are experienced in the investment sector with highly skilled portfolios. The strength of this type of investment is high profitability and long rental period. Savvy investors understand that higher returns come with more risks. Obviously, industrial real estate buildings have larger areas, which means higher investment costs. Moreover, tenants’ needs can change any time as the business is shut down.
The last type is land investing and new construction. Raw land refers to a vacant land that is available for purchase. New construction is when a property has been built on land. Investing in raw land is high risk. Investors face planning and environmental issues and pay taxes even though it does not generate any income (except agricultural land). In contrast, if you can get a raw land in a location where it will be developed in the future, it can bring in huge profits.
So, what is the best type of real estate investment? The answer is that it depends on the individual circumstances, goals, market, and strategy of the investor. Individuals should consider the pros and cons of each type to make the best decision.
Author: Vy Yakushenko
Clever Real Estate. (2019, April 3). The 4 Main Types of Real Estate Investment Properties. Retrieved from https://listwithclever.com/real-estate-blog/main-types-of-real-estate-investment-properties/
Esajian, P. (n.d.). The Best Types Of Real Estate Investments. Retrieved from https://www.fortunebuilders.com/best-type-property-real-estate-investing/