Most real estate investments fall into five categories: single-family residential investment properties, multi-family residential investments, commercial properties, undeveloped land or lots, and real estate investment trusts. To learn about each type of investment property, read on.
Single Family Residential Investment Properties
Whether you’re buying a traditional single-family home, condo, townhouse, or co-op, these all fall under the heading of single-family residential properties.
Typically, the traditional single-family home offers the easiest buying and selling process along with a fairly reliable market and rate of return. Buying a condo means that you not only get the unit, but also a piece of the common areas. However, you will also pay the condo association fees each month to cover the maintenance costs associated with the building.
Semi-detached houses are simply semi-detached houses, that is, more than one attached to others. Their only stipulation is that they may have to meet requirements on exterior paint colors, landscaping, and possibly parking. Finally, co-ops offer a share in the entire building, which includes the space in which you live. Generally, you must obtain permission from the cooperative association if you wish to rent or renovate your unit.
Multi-Family Residential Investments
From a simple duplex to a four-unit apartment building, these are all multi-family residential investments that are typically purchased to provide the investor with ongoing rental income as the property increases in value.
The advantage is that these properties provide cash flow that improves over time, since mortgage payments will remain flat while rents will eventually increase. Also, buyers of multi-family properties with existing tenants can use a percentage of the rental income for their monthly income statement on their mortgage application.
commercial properties
Commercial property includes large apartment buildings (more than five units), industrial space, retail space, and office space. Investing in these properties can often be complicated and dragged down by red tape and taxes.
If you are considering the plunge into commercial real estate, hire a good accountant and an experienced commercial real estate attorney.
undeveloped land
This simply involves purchasing land that does not have a building on it. The advantage is that it often costs less and you don’t have to deal with tenants or property maintenance. The trick is to find land in an area where property values are constantly appreciating. So, find an area where a community is expanding, and then buy land there.
Real Estate Investment Trusts
Real estate investment trusts (REITs) are private, for-profit companies that allow small investors to invest in large, income-producing commercial properties.
