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A Short Course on Real Estate Investment Types

Posted by Ron Neal on Thursday, April 5th, 2018 at 10:24am.

A Short Course on Real Estate InvestmentAlthough new real estate investors sometimes make all the right decisions simply on instinct, it pays to know about the different types of real estate investment that are possible. Having a firm grasp on the advantages and pitfalls of each type not only increases opportunities, but broadens the field and makes it more likely that the return on investment is in line with expectations.

Real estate, in general, is considered one of the more reliable and stable asset classes, but there are unique advantages to certain types of real estate. Finding a niche may require some trial and error or a period of experimentation before settling on a specific type. Experienced investors also note that there is some value in diversification, and they welcome "good deals" in any of the various real estate categories.

Residential

Single-family homes, duplexes and small-unit apartment buildings are often attractive to novice investors because they provide an ongoing income stream and usually do not require a major investment of either time or money. The ability to leverage property with a minimum cash investment makes rental property a good choice.

Other savvy investors pursue a fix and flip strategy with great success; the key to success with this strategy however is having each property thoroughly inspected to ensure the soundness of the investment. Building a portfolio of smaller properties, however, can be demanding, and may be a challenge for a part-time investor who chooses not to take advantage of a professional management company. It is, however, a good way to start down the path of real estate investing.

Commercial

Small office buildings and retail stores, whether free-standing or contained within a strip center or small development, are often attractive to new investors. In contrast to residential property, lease terms for commercial real estate are often three-to-five years or longer, meaning that the income stream is more stable and turnover is much lower. The "hassle factor" can also be lower.

One disadvantage may be in developing areas or hot markets where lease rates rise significantly over a short-period of time. There are also many variants in commercial leases, so it is always wise to work with an agent or knowledgeable tax and legal advisers when considering commercial real estate in Saanich. In addition, commercial property is valued differently from residential property. An investor must be prepared to look at performance and evaluate the potential return based on unique variables.

Industrial Real Estate

A special category of commercial real estate, industrial property might have an existing building, but often is raw land that carries zoning making it suitable for manufacturing, warehouse, large-scale storage or distribution facilities. In developing areas, a tract in the path of future growth can be an extremely profitable investment. Small tracts of land in growing communities are often attractive to restaurant chains, banks, gas stations and small to mid-size retailers, and options for long-term land leases make for interesting investment. Land can also represent a bargain investment if the seller is willing to carry a note, or needs to sell quickly.

Another option for undeveloped land is a "place holder" like mini-warehouses or free-standing car washes. They can be economical to build and can provide an income stream until such time as the land can be sold at a profit for permanent development.

Mixed-Use Real Estate

Exactly what it sounds like, mixed use real estate supports several different uses on a single tract of land or within a single building. In some cities, mixed use developments include a mixture of restaurant, retail and office space on street level, along with adjacent entertainment and service businesses and apartments or condominiums upper floors or nearby buildings. If there is public transportation in the mix, such a development finds favor with young professionals as well as retirees, both in urban areas and vacation destinations.

Other Types

An additional opportunity for investing in real estate with minimal risk is the Real Estate Investment Trust, REIT, a type of "paper transaction" that spreads both risk and potential among a group of investors who own a share or a percentage interest in real property, but do not individually hold title to specific property.

Tax Liens and Notes are also sometimes considered a type of real estate investment. This type of investment, although it can be very profitable, requires a thorough understanding of the process, and investors must be thorough with the performance of due diligence.

Individual goals, expertise, financial resources, cash flow needs, potential return, long-term viability, time and management requirements, and many other factors will play into a decision about the "right" types of real estate for an individual investor.

Real estate investments can provide passive income that over time will contribute to financial independence. Property carries the ability to produce substantial returns, but losses are also a possibility. Buying and selling always involves some risk, so financial stability, experience and a clear focus on goals and expertise are vital attributes for successful investing.

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The Neal Estate Team

The Neal Estate Team is your #1 source for all of your Victoria BC real estate needs. Get in touch with us online or by phone at (250) 386-8181 to speak with a Victoria real estate buying or selling expert today. With decades of experience as a top selling Victoria REALTOR® and ranked in top 1% globally with over 4,000 transactions and $1 Billion SOLD, Ron Neal & The Neal Estate Team have the industry experience and market knowledge to help you make smart and informed buying or selling decisions. 


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