Choosing the Right Type of Investment Property

Real estate is one of the most popular types of investments for those who wish to look beyond traditional stocks and bonds. When getting started in real estate investing, the first step should be researching the options and choosing which is the best fit. There are four broad types of real estate investments, with a few subcategories in each. Each type has pros and cons, along with unique cash-flow cycles, lending conventions and sets of rules and regulations, which means that different ones will be better fits for different investors. The four basic types include:

Residential Properties

Residential real estate includes everything from single-family homes to condos and townhouses to large multifamily properties like apartment complexes. There are a couple of different paths for those who wish to make money investing in residential properties.

Some people seek a quick, lump sum profit from buying houses, refurbishing them, and then reselling. With the right property purchased at the right price in a booming market, this can be a way to realize a profit on an investment quickly. However, buyers should be aware of potential pitfalls that can include excessive repair costs on a home. It is also imperative to understand property-value trends in an area and what qualities can allow for a quick sale.

In other cases, investors can see recurring profits when they purchase properties and offer them for rent. This path requires an understanding of local and state tenant law, as well as the ability and budget to maintain the property. Potential risks can include empty units, nonpaying tenants and tenants who cause damage to properties. Those interested in this path should explore the potential risks and rewards to see if residential renting is a good fit for them.

Commercial Property

Commercial real estate can range from strip malls to office parks to skyscrapers. In general, these properties are rented to businesses who wish to operate out of the property. Some commercial property houses retail businesses, where members of the public visit to purchase goods or services. In others, businesses cater to other businesses and have few in-person visitors to rent out the property. A property's zoning will determine what uses are allowed. Different uses will come with different requirements, such as minimum parking requirements.

Commercial real estate investing can have some advantages over residential property investing. For instance, tenants are often responsible for maintenance of a property, which can make overhead more predictable. Commercial leases are often measured in years, which makes them a more stable investment. However, commercial real estate investing often involves larger amounts of capital up front.

Industrial Property

Industrial real estate is technically under the umbrella of commercial, but has enough unique quirks to merit a separate listing. Industrial properties tend to be larger. They can involve anything from manufacturing and processing plants to warehouses and distribution centers. Industrial tenants often have needs that are specific to their particular business, so properties will often have to be adapted to those needs. There will also be environmental and zoning regulations that must be observed. However, these tenants tend to have low turnover, which can make this sort of real estate investing more stable over time.

Land

Every type of real estate is dependent on the land beneath it. Land can often be the least expensive type of real estate to buy, which can be appealing to some investors. However, land may require a great deal of investment after the initial purchase in order to turn a profit.

Investors can buy land and make improvements that are as minimal as clearing brush and defining road access. Or, they can begin with raw land that is improved with the addition of buildings that can include houses, condos or retail spaces. An area's zoning will determine what sorts of uses are allowed.

When buying land, be sure to observe what services are available in the area and what would need to be added. For instance, a property that is already on an electrical grid will cost less to improve than one that needs to have electricity run through the neighborhood. Often, improvements like running initial sewer and power lines are the responsibility of the owner, rather than the local government. As a result, this can add significant costs. However, a savvy land purchase in an area that is ripe for development can bring significant returns.

The key when exploring Drake Landing real estate investments is to fully understand the potential costs and the potential profits possible. With a clear understanding of the risks and rewards, investors can make the right choices for their circumstances and ambitions.