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5 Types Of Real Estate To Start Investing In
When you start to consider investing your time and money on real estate, residential property is often the only option one would consider.
This narrows the choices down to single-family homes and condominiums.
It’s not surprising as residential real estate is often seen as an entry level investment when one first steps foot into real estate investing.
While buying into the space where major property players lurk is definitely not the best place to start your real estating journey, a beginner’s options are not limited to residences.
There are various other types of real estate suitable for a first-timer walking into the industry.
Land investment has been around for centuries.
An investors with great vision can legitimately pick up plots of land on the cheap and cash out with many multiples of his initial investment.
The problem is that while land investments can be affordable, it comes with a lot of risk as well.
In fact, it might be too much risks for the average person to stomach.
So risky are land investments that many professionals in the industry see land investments as land speculation instead.
This is because there is no guarantee that a plot of land will be worth much more in the foreseeable future.
Buyers are literally placing a bet that the area would be developed in the future. The development, or rate of development, will depend on many factor our of an investor’s control. Including major investments by the government and private sector.
A great disadvantage of buying land for investment is that there is not rental income to pay off the holding costs.
Yet if you have a huge hunch, and the capital required is small, you might find oil under your land if lady luck is on your side…
On a serious note, for rookies buying into land, it is best to have experts for guidance.
Land REITs for example are managed by experts. And might be a good option for entry level investors.
2) Rental property
One of the most common routes newbie investors is to snap up turnkey rental property.
This are basically houses that are already generating a rental income from tenants.
Projects like these allow the individual investor to instantly become a landlord and learn the trade before becoming ready to move towards bigger property.
And if the rental property is in the neighborhood where you live, you will already implicitly understand the market dynamics that exists around the location.
A new landlord with intimate knowledge of a local area can often outperform an experienced investor who is from out of town.
The main problem with turnkey property is in identifying one that is not ripping you off.
And just because a house has inherited tenants does not guarantee a recurring flow of rental income as tenants making prompt payments cannot be assumed.
A bigger challenge arrives when you are buying a property to convert into a rental.
Saying that, acquiring residential property to rent out is far and away the most popular way new real estate investors get started in the game.
3) Apartment builings
A building with a hundred residential units is probably out of the league that most of us operate in.
But apartment buildings with less than 20 units can sometimes be quite affordable if you are able to find the right guys to finance it.
Apartment buildings are not just for experienced investors. New investors with some experience should seriously look into them as well.
- They come with better tax benefits
- They diversify your risks of bad tenants
- They diversify your income distribution
- They give you room to try out new stuff
What even better is that if you intend to be a hands-on landlord, you can reserve a unit for yourself as well… and basically live rent-free.
4) Office space
Stepping into this space might require an investor to step out of his comfort zone.
Because instead of dealing with individuals as tenants, the landlord would most probably be dealing with companies as tenants now.
This can present a totally different set of challenges and approach.
Documentation would be different. So will legal requirements. Authorities are also known to be harsher to commercial landlords compared to residential.
But there are overwhelming advantages of commercial real estate that residential real estate don’t even come close to.
When you are new to commercial property, it is best to go with space that caters to the mass market. Because going into niches can cost you big time if you are not familiar with how that niche operates in the space.
Another segment of commercial property is retail.
While some might be dreaming about leasing their retail units to brands like Louis Vuitton or Hermes, it is very unlikely that you would have them as your commercial tenants anytime soon.
This is because they play in a different playing field than the average real estate investor.
However, there are thousands of small businesses that require retail space to market and sell their products.
If you are a retailer yourself, buying your own retail space can be a good investment itself.
If you intend to become a landlord of retail space, get ready for challenges in various areas.
Everything would be nice and dandy should you manage to sign up a tenant with a stable business for the long term.
On the other hand, small retailers often refuse to renew their lease after a year or two due to under-performing revenue. Some might even be unable to pay rental citing a lack of traffic.