Unknown to many, there are quite a few options for them when it comes to investing in real estate. For this post, we’ll focus on direct investment options – those that require the investor to be directly connected to physical real estate.
But first, let’s look at some of the pros and cons of investing in real estate.
PROS OF REAL ESTATE INVESTMENT
- You have direct control of your own investment. You can manage them, or opt to choose a property manager to do it for you.
- You have a stable source of passive or active income. In cases where you lease your property investment, you can rely on rent payments as your income.
- Your investment can grow in value provided that you consider market trends and value-add after-repairs.
- You can receive tax benefits if you know how to make tax exemptions work for your investments.
- Your property investments are assets and they fulfill a basic need not only for you but for other people.
CONS OF REAL ESTATE INVESTMENT
- The property market doesn’t offer a guarantee. At one point, property values may rise but in some instances they can fall to unexpected levels.
- If you invest on rental properties, you have to be a landlord and an investor at the same time in most cases.
- Securing financing can be a bit of a challenge especially if you don’t have other sources of equity.
- You can encounter cashflow issues if your property remains vacant for extended periods or if property values fall.
- You need to know a lot about the legalities involved in owning property investments.
- If you’re unaware of asset protection, you might go bankrupt over liabilities on a single property.
But despite the cons listed above, most property investors have made it big while others are making it big. How they’ve done it or how they’re doing it is a different discussion. For now, let’s take a look at the different types of real estate that you can invest on.
RESIDENTIAL REAL ESTATE
This type includes properties such as townhouses, apartments, houses, vacation homes, and other types of residences. Property investors generate income most commonly through rentals or by flipping.
COMMERCIAL REAL ESTATE
This type includes skyscrapers and office buildings. The primary source of income is rent. Unlike residential real estate, commercial real estate offers more stable source of income because tenants are locked in for longer periods. And while market activity can cause rent values to rise or fall, commercial real estate rents remain stable in reference to the lease period.
INDUSTRIAL REAL ESTATE
This type mainly consists of warehouses used a fulfillment centers, distribution centers, storage units, and other special purposes. Industrial real estate also offers additional opportunities to generate income like installing vending machines in spaces used as car wash areas, coin-operated vacuum cleaners, etc.
RETAIL REAL ESTATE
Shopping malls, storefronts, strip malls, coffee shops, and hypermarkets are only a few examples of retail real estate investments. And sometimes, on top of the rent paid by tenants, the investor may also receive shares from sales which can be used to keep the property in very good condition.
MIXED REAL ESTATE
This type is a combination of any or all of the aforementioned real estate investment types. Because of the mixed nature of investment, investors can profit from a diversified source of income. Since income diversification is a factor in risk control, investors who opt for mixed real estate have more security.
There are other types of real estate investments that don’t require direct involvement from the investor. Things like Real Estate Investment Trusts or REITS and tax lien certificates are two examples. These will be discussed in a separate article.