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 more about each type of investment property, keep reading.
Single Family Residential Investment Properties
Whether you are buying a traditional single-family home, condo, townhouse, or co-op, it all falls under the category of single-family residential properties.
Typically, the traditional single-family home offers the easiest buying and selling process and a fairly reliable market and rate of return. Buying a condo means you not only get the unit, but also a share of the common areas. However, you will also pay a condo association fee each month to cover maintenance costs associated with the building.
Townhouses are simply terraced houses, i.e. several terraced houses. Their only stipulation is that they may have to meet requirements regarding exterior paint colors, gardens and possibly parking. Finally, co-ops offer a share in the whole building, which includes the space in which you live. Generally, you must obtain permission from the co-operative association if you want to rent or renovate your home.
Multi-Family Residential Investments
From a simple duplex to a four-unit apartment building, these are all multi-family residential investments typically purchased to provide the investor with ongoing rental income while the property appreciates in value.
The advantage is that these properties provide cash flow that improves over time since mortgage payments will remain fixed while rents will eventually increase. Additionally, buyers of multi-family properties with existing tenants can use a percentage of rental income for their monthly tax return on their mortgage application.
Commercial real estate includes large apartment buildings (more than five units), industrial spaces, retail spaces, and office spaces. Generally, investing in these properties can be complicated and slowed down by bureaucracy and taxes.
If you are considering getting into commercial properties, hire a good accountant and a very experienced commercial real estate lawyer.
It is simply a matter of buying a plot of undeveloped land. The upside 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 the value of the property is steadily appreciating. Look for an area where there is a community, then buy land there.
Real estate investment trusts
Real estate investment trusts (REITs) are private, for-profit corporations that allow small investors to invest in large, income-generating commercial properties.