Apartment rentals REITs, REITs, raw lands land and crowdfunding platforms are all forms of real estate investment.
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There are various kinds of real estate investments, but most fall into 2 categories: Physical real estate investments , such as land, residential and commercial properties, and various other investment options which don’t require the possession of real estate, such as crowdfunding platforms and REITs.
The traditional investment in physical real estate could yield the highest return, but it requires more cash upfront , and may have high ongoing costs. REITs and crowdfunding platforms have lower barriers for entry, which means that you can invest in different types of real estate at cheaper than it costs to invest in even one traditional property. Alternative real estate investments are also a great option because they offer the benefit of not needing to leave your house or change into a suit for investing.
If you’re looking to invest in real estate, here are five types to consider:
1. REITs
Publicly traded REITs that are publicly traded (also known as real estate investment trusts, are companies which manage commercial real estate (think offices, hotels or malls). You can purchase the shares of these companies via an exchange. When you invest in REITs, you invest in the real estate these companies own and are not subject to the risks that come with owning real estate directly.
REITs must pay at 90 percent of their dividends that are tax deductible to shareholders each year. Investors will be able to receive attractive dividends , in addition to diversifying their portfolios through real estate. Publicly traded REITs also have more liquidity than other estate investments: If you’re suddenly in need of cash, you are able to sell your shares via the exchange. If you’d like to buy REITs listed on the stock exchange then you can do that via a broker account.
2. Crowdfunding platforms
Platforms for crowdfunding in real estate offer investors access to property investments that could generate high returns but carry significant risk. Certain crowdfunding platforms are open only to accredited investors, that’s defined as those who have the net worth or joint net worth with spouse, of greater than $1 million — with the exception of the value of their homeor an annual income within the last two years exceeding $200,000 ($300,000 with the spouse).
“Keep your eyes on the prize, as many crowdfunding platforms are relatively new with a short track record and have yet to go through the economic recession.”
Others, such as Fundrise and RealtyMogul are able to provide investors who do not meet these minimums — also known as”nonnaccredited” investors access to funds they would otherwise be capable of investing in. They typically come in the form of non-traded REITs or REITs which don’t trade on the stock exchange. Since they’re not traded publicly, nontraded REITs can be highly liquid, meaning that your funds will be invested for at least a few years, and you may not have the option of pulling your cash out of the investment should you require it. Be aware that most crowdfunding platforms have a short track record, and have yet to weather an economic slump.
3. Residential real estate
Residential real estate can be found almost anywhere where people live or stay, such as single-family houses, condos and vacation houses. Residential real estate investors earn income by acquiring rent (or regular rent for short-term rentals) from tenants, via the appreciation value the property gains between the time they purchase it and the time they let it go, or either.
Affording residential real estate can take many shapes. It could be as easy as renting out a spare bedroom or as difficult as buying and flipping the house to make an income.
4. Commercial real estate
Commercial real property is space that is leased or rented by a company. A commercial building that is rented by a single company or a gas station an open-air mall that has several distinct businesses, and restaurants leased are just a few types of commercial property. If the business is not the owner of the property itself in which case each business has to pay rent to the property owner.
Real estate for retail and industrial use could fall under the commercial umbrella. Industrial real estate typically refers to the properties where products are produced or housed, rather than sold. This includes warehouses and factories. Retail spaces are where customers can purchase a product or service, for example, an apparel store. Commercial properties tend to have longer leases , and they can charge higher rents than residential properties. This may mean greater and steadier long-term income for a property owner. However, they might also require higher down-payments and management costs.
5. Raw land
If you construct it, will people come? The majority of investors purchase land for either residential or commercial development.
However, purchasing land for development will require a significant amount of market research, especially in the case of developing the land yourself. This kind of investment is best advised for someone with substantial funds to invest as well as an extensive grasp of everything related to real estate , including building codes, flooding plains, zoning laws and an understanding of the local residential and commercial rental market.
Which real estate investment is the best?
If you’re thinking about buying traditional propertiesincluding commercial or residential properties — taking your time and doing your research doesn’t just mean having to make a the down payment. Understanding your local market is essential. If there’s not much demand for residential or commercial space in the area you live in or property prices begin declining, your investment could quickly become an expense.
If you’d rather stay more hands-off in managing your investment portfolio, REITs as well as crowdfunding platforms are great ways to include real estate in your portfolio without owning physical property.
Some brokerages provide publicly traded REITs and REIT mutual funds.
