No doubt, investing your money in real estate compared to other investments is the most profitable, least risky, and the most stable way of generating cash flow. But, have you considered what the different types of real estate properties are before making investments?
Real estate investing doesn’t always come with a road map, and the road to riches is often winding. Still, being curious about real estate is good. Also, how do you know which type of real estate property is right for you?
So, while getting started in real estate, understanding the different types of real estate investments can help you choose the right option. Further, the article will give a gist of different kinds of real estate investments and suggest ways to invest in these properties.
Types of Real Estate Property in India
Residential Real Estate
Residential properties are one of the most popular investments in real estate. This dynamic yet unique investment type is a starting point for aspiring real estate investors because of its low cost of entry and more comfortable to obtain financing than other properties.
Eventually, such properties fill one of the basic human needs and reflect your dearest aspirations. Individuals are driven out mostly to purchase the real property through the residential category, striving for homeownership.
The common types of residential properties include:
Single Family Homes
Single-family homes or SFH are homes built on a single lot, with no shared walls. Such houses have a garage either attached or detached.
Often these types of residential property values increase over time. And the single-family homes that are located in the booming area generally hold a high resale value.
Condominiums or Condos are the single units within a larger building or a community called apartments. These are most popular in urban, high-density areas with many restaurants and shops.
Since the condo owners are not responsible for the exterior part of the unit, they are required to make only fewer repairs. As such, investors mostly don’t have to worry about fixing the roof or landscaping the unit.
A townhouse is a hybrid term between a condo and a single-family home. They are often with multiple floors, with one or two shared walls with small yard space. They are larger than a condo but smaller than single-family houses.
Generally, these types of residential properties are less expensive to purchase than a single-family or multifamily property.
In cooperatives or co-ops, you hold a title to a shared building. In other words, everyone intending owns the structure together. Co-op owners are charged maintenance fees. So, the Home-owner’s Association or also called HOA, expenses are lower compared to the condos.
These types of properties consist of two or more units. It can be either row house-style, multiple floors, or range from duplex to a four-plex. Along with this includes garden apartments, mid-rise apartments, and high-rise apartments.
The only difference between a condo and multifamily houses is that the latter can’t be purchased individually, there’s one owner for the whole building. Further, buying multifamily with a single mortgage can lead you to less paperwork and headache than buying two single-family homes.
Ways for investing in Residential Properties
There are comprehensive options for investing in residential real estate. Some of these includes:
Fix and Flip method
Fix-and-Flip is a strategy of purchasing a residential property, renovating it, and then selling it at a profit. Investors typically, under this method, buy a distressed property at a discount. Perhaps, the property could be distressed because it might have lapsed repair due to abandonment or the current owner’s inability to pay for the upkeep.
The investors will need to make some changes depending on the current market and then look for the agents to sell as quickly as possible when the market is ripe.
Some investors who intend to earn long-term income can invest by buying a cash flow property and holding on as a rental property.
In addition to the above, there are other ways to invest in residential properties such as vacation homes, wholesaling, or mortgage notes.
However, knowing these pro tips while investing in residential properties can help support in the right stuff. Some of these include:
- Try to familiarize yourself with the market.
- Find the right type of property for your area.
- Identify the ways for funding the down payments.
- There are several tax benefits in holding residential properties. Try to look up the ways for claiming tax benefits.
Commercial Real Estate
These properties are best for making investments, including industrial space, retails, hospitality projects. Such properties are specifically designed for investors seeking to improve their local communities. These types of properties usually come with the potential higher cash flow. Investors opting for CRE can benefit from longer leases and low vacancy rates than other forms of real estate.
Like multifamily properties, office buildings are also designed to low, mid, and high rise based on their size.
Office buildings are categorized into:
Class A buildings are good in terms of construction and location.
Class B buildings are good in terms of high-quality construction.
Industrial space also varies in size based on their specific uses:
Heavy manufacturing are those properties usually customized with heavy machinery for the end-user.
Light assembly properties usually include storage, product assembly, and office space.
Flex warehouse is an industrial property used for the mixed purpose either as industrial and office space.
Bulk warehouses are the properties used for regional distribution of products and easy access by trucks in the highway system.
These properties are sub-categorized into:
Shopping centers typically contain a mix of small retail stores like restaurants, dry cleaners, etc.
Community retail centers are properties occupied by community centers, grocery stores, and drug stores.
Power center includes several smaller, inline retail stores but is differentiated by significant box retailers, such as Walmart.
Hotel and Lodging
Hotels are categorized into:
Full-service hotels are hotels located in the central business districts or tourist areas.
Limited-service hotels are hotels that come with limited service and include boutique properties.
Extended hotels are hotels that come with large rooms, small kitchens designed for staying a week or more.
These properties typically consisted of hospitals, clinics, doctor’s offices, or senior care facilities.
Unique purpose property in real estate includes publicly held properties like places for religion, schools, libraries, cemeteries, and parks.
Ways of investing in CRE
The common ways of investing in CRE:
Real Estate Investment Trusts or REITs
REITs or Real Estate Investment Trusts can be purchased from the stock markets, just like any other company or dividend stock. The real estate companies issuing REITs tend to pay generous dividends to the investors. This is because REITs shares are mostly invested in income-producing properties such as CRE to be the right choice for passive income-oriented investments.
Owning a REIT is that the investors can buy and sell REITs just as quickly and efficiently as mutual funds. Yet can benefit from the diversification of entirely different markets.
Real Estate Crowdfunding
Real estate crowdfunding, a new passive income, can also make your income increase twice more in value. You need not necessarily use crowdfunding directly. Instead, you can lend money to potential investors through online sites.
In this way, you can eliminate the high-pressure of managing the property yourself. Also, you need not have a detailed contact of the borrower nor an equity stake in the property.
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Buying and managing a commercial property on your own
Commercial real estate can also be another path to diversify real estate investments. This investment type consists of purchasing properties, leasing out space to businesses for a steady cash flow.
Out of the above, REITs and crowdfunding doesn’t require active participation from the investors. Such types of properties are passive forms of investments with no hurdle of managing or owning on themselves.
Knowing the pro tips in the corner can help you in investing in commercial properties. Some of these tips include:
- Try to choose the right location.
- Identify and analyze the comparable properties.
- Using the right metrics for the evaluation of the property.
- CRE are properties that come with longer leases. So, investors need to create leases lasting for multiple years.
Vacant land, also called raw land, refers to an underdeveloped or unoccupied area. The cost of such land varies directly depending on the size of the land you are buying, the location, and the earth’s zoning use.
There are several exit strategies while purchasing raw land, and it is often a great way to earn steady cash flow.
The vacant land typically comprises working farms, ranches, timberland, orchards, or any new construction site.
The developers mostly acquire such vacant land and combine it with other properties by assembling and rezone it to increase the property’s density and value.
Ways for investing in Vacant Land
The land is a long term investment. It is purchased with the hope that the value of the property will appreciate with time.
However, investing in vacant land can be done either through-
Developing Raw Land
Under this method, investors can buy the land and develop it by themselves. Though this will take a long time, yet venturing into this will be a profitable one.
If you wish to develop a commercial or residential property, building from the ground up, buying raw land in a suitable location and under the right zoning will play an inevitable part in the process.
Buy and Hold Land
Under this method, investors buy raw land with the intent to hold ground for the long-term. This can be because they want to develop the land in the future or wait until the land’s value increases for sale in the future.
Sometimes, they want to hold land for obtaining legal rights to the property, including water, air, or mineral rights. While the owner has the property, they are liable for payment of annual taxes during the entire period.
Buy and Lease
If owning land aims to create a passive income, the landowner can lease the land to the other party. For instance, if a land investor owns 30 acres of farmland, rather than farming the ground on its own, it can lease the land to a farmer.
As a result, farmers pay the monthly rent to the landowner and are responsible for the land development and land maintenance, including payment of taxes.
These strategies typically work for increasing the value of the property by adding profits to it. In addition to this, knowing the tips can also help you a lot in figuring out the right stuff. Some of the recommendations include:
- Identification of the high-growth market area.
- It would be best to decide whether you want to either develop, subdivide, or hold the land in the long term.
- Acquiring the right permits for the intended area.
- Market research is quite essential for investing in raw land. You need to look for any recent developments in that area for a positive cash flow.
As a real estate investor, it’s essential to understand which type of real estate investing is suitable for you. So, before you invest, you should learn which type of investment fits your needs, capability, and lifestyle.
For instance, if you own multiple real estate properties, you can either choose to set up for sale or rent, which will grow your passive income. However, if you aim for high revenue, you should consider investing in commercial or raw land real estate.
Similarly, on the other side, if you want to own hassle-free properties, you can instead buy exchange-traded stocks (ETFs) or invest in REITs from real estate companies.
Check out Assetmonk, a credential platform offering the best investment opportunities across different real estate properties, either Commercial, Residential, Co-living, and Senior living, with an expected IRR upto 21% good capital appreciation on assets.
Types of Real Estate Property FAQ's:
The standard tips for investing in vacant land:
- Identification of the high-growth market area.
- You need to decide whether you want to either develop, subdivide, or hold the land in the long term.
- Acquiring the right permits for the intended area.
The only difference between a condo and multifamily houses is that the latter can’t be purchased individually, there’s one owner for the whole building.
The different ways for investing in residential properties are- Fix and flip method and Rental income.
The type of property investments in CRE includes office space, retail space, industrial space, healthcare centers, etc.