Most real estate investments will fall into five categories – single-family residential investment properties, multi-family residential investments, commercial properties, undeveloped land or lots, and real estate investment trusts. To learn about each type of investment property, keep reading.
Single Family Residential Investment Properties
Whether you’re purchasing a traditional single-family home, condo, town house or cooperative, these all fall under the header of single-family residential properties.
Typically, the traditional single-family home offers the easiest purchasing and selling process along with a fairly reliable market and rate of return. Buying a condo means you not only get the unit, but also a share of the common areas. However, you’ll also be paying for condo association fees each month to cover the maintenance costs associated with the building.
Town homes are simply attached homes – that is, more than one attached to others. Their only stipulation is that they may have to meet requirements about exterior paint colors, gardens and possibly parking. Finally, co-operatives offer a share in the entire building, which includes the space in which you live. Generally, you need to obtain permission from the co-op association if you want to rent or renovate your unit.
Multi-Family Residential Investments
From a simple duplex to a four-unit apartment building, these are all multi-family residential investments typically purchased to provide the investor with ongoing rental income while the property appreciates in value.
The advantage is that these properties provide cash flow which improves with time since the mortgage payments will remain fixed while rents eventually increase. In addition, buyers of multi-family properties with existing tenants can use a percentage of the rental income toward their monthly income statement on their mortgage application.
Commercial property includes large apartment buildings (more than five units), industrial space, retail space and office space. Typically, investment in these properties can be complicated and dragged down with bureaucracy and taxes.
If you’re considering jumping into commercial properties, hire a good accountant and a very experienced commercial real estate lawyer.
This involves simply buying a plot of land that doesn’t have a building on it. The advantage is it often costs less and you don’t have to deal with tenants or property maintenance. The trick is finding land in an area where property value is steadily appreciating. So, look for an area where a community is expanding, and then purchase land there.
Real Estate Investment Trusts
Real Estate Investment Trusts (REIT) are private, for-profit companies that let small investors invest in large, commercial, income-producing properties.