Different Types of Real Estate Investments
The fastest growing commodity for most part of the world is Real Estate.
Real estate investors make money through rental income, appreciation, and profits generated by business activities that depend on the property. The benefits of investing in real estate include passive income, stable cash flow, tax advantages, diversification, and leverage.
Many people are purchasing real estate properties. However, as with any investment, it’s better to be well-versed before diving in with your hard-earned money. Below are the different types of Real Estate Investments you might want to consider.
REITs (Real Estate Investment Trust)
Real estate investment trusts (REITs) offer a way to invest in real estate without having to own, operate, or finance properties.
A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and commercial forests. Some REITs engage in financing real estate. Most countries laws on REITs entitle a real estate company to pay less in corporation tax and capital gains tax. REITs have been criticized as enabling speculation on housing, and reducing housing affordability, without increasing finance for building.
REITs can be publicly traded on major exchanges, publicly registered but non-listed, or private. The two main types of REITs are equity REITs and mortgage REITs (mREITs). In November 2014, equity REITs were recognized as a distinct asset class in the Global Industry Classification Standard by S&P Dow Jones Indices and MSCI. The key statistics to examine the financial position and operation of a REIT are net asset value (NAV), funds from operations (FFO), and adjusted funds from operations (AFFO). – Source
Buying foreclosed homes can be a good real estate investment strategy. However, these investment properties are not for everyone. This is why you, as a real estate investor, should know what you’re getting into.
There are always benefits and consequences to every aspect of real estate investing.
Being aware of these is essential for property investors to take full advantage of the benefits and avoid the pitfalls.
Every real estate investor would want to cut down some expenses when buying an investment property. This is possible when buying foreclosed properties because they are being sold for a much cheaper price than their original market price! More often than not, the property investor buying foreclosed properties gets to pay much less for the investment property than what it’s worth.
Purchasing an investment property to earn rental income can be a risky venture. Being a landlord requires a wide range of skills, which could range from understanding basic tenant law to being able to fix a leaky faucet.
There can be both risks and rewards in renting out properties. So, do your own due diligence and consider the pros and cons before diving in to this type of real estate investment.
Residential is one of the most affordable real estate investments. Residential is also usually less sensitive to economic conditions. People will always need a place to live, but will people always need to go to the fitness gymn that is your tenant? That business may not survive an economic crash when people have less disposable income.
You’re going to need money one way or another in real estate. Here’s the great thing about Residential: it’s easier to get financing. 15-30 year loans are available and everywhere. When compared to CRE, most loans are amortized for less than 30 years with a required balloon payment … which means you’ll probably have to pay off the entirety of the loan within 5-10 years.
Which Real Estate Investment is Best for You?
If you’re considering investing in traditional real estate such as residential or commercial properties, doing your due diligence doesn’t just mean coming up with a down payment. Knowing your local market is important.
If you’d prefer to be more hands-off with your investments, REITs and crowdfunding platforms are easier ways to add real estate to your portfolio without owning physical property.