Investing in real estate is a great option to generate income and increase assets. However, it is worthwhile to examine what types of real estate investments are available in the market to find out which one will help you get better returns and benefits.
Learn the features of the main types of real estate investment as follows:
- Residential Real Estate
A residential property is where the primary purpose is for households to live in. Some examples are single-family homes, condos, cooperatives, duplexes, townhouses, or multifamily residences. This type of real estate is ideal for many investors because it is easier to earn a profit.
There are many residential real estate investment strategies to implement and different levels of competition in the markets. Choosing the right exit strategy and the market is critical. Some examples are wholesaling, remodeling, buying, and holding properties, which generate rental income.
Investing in residential real estate can generate attractive returns because besides obtaining a steady cash flow, residential real estate has tax exemptions.
- Commercial Real Estate (CRE)
This property is used solely for business purposes, intended for profit-generating activities rather than regular residential purposes. Commercial real estate examples are office, retail, industrial, mall, multifamily, and hotel projects.
Due to its potential for higher cash flow, commercial properties are considered one of the best investments. Investing in commercial real estate can support the goal of improving local communities.
Likewise, commercial properties can represent higher earning potential, longer leases, and lower vacancy rates than other real estates.
There is less competition in commercial real estate because buying these properties can be a big responsibility than residential homes.
- Vacant Land
Vacant land is a plot of land without any established commercial or residential real estate. It is cheaper to own because it has not been developed.
Investing in vacant land can be a good investment as it produces passive income or large profits depending on how the land is purchased and sold.
Vacant land is most attractive in markets with high projected growth as land, in general, is in demand. Also, it is a relatively low maintenance investment.
Some of the more common methods of buying and selling raw land are:
1. Flipping land, which means buy a parcel of land for a low price and then sell it later for a higher price.
2. Developing raw land. Some investors buy land to develop it themselves to develop commercial or residential properties. However, it can also be a long and costly process.
3. Buy and hold. Usually, land investors buy raw land with the purpose of holding it in a long term but waiting for the demand to increase (the value of the land or due to the water, air, or mineral rights).
- Real Estate Investment Trusts (REITs) and Real Estate Investment Groups (REIGs)
A real estate investment trust (REIT) is a company that owns, operates, or finances commercial properties, such as office and apartment buildings, warehouses, hospitals, shopping centers, student housing, hotels, and timberlands. In Mexico, the equivalent of REITs is known as FIBRAs (Fideicomiso de Infraestructura y Bienes Raíces).
A real estate investment group (REIG), on the other hand, refers to a business that focuses its efforts and capital on investing in real estate. In search of profits, REIGs may choose to buy, renovate, sell, or finance properties. REIGs do not qualify as REITs and are not subject to any specific limitations or disclosures.
- Mortgage Investment Corporations (MIC) and Mortage-Backed Securities (MBS)
A mortgage investment corporation provides secured loans to builders and developers by mortgages as it mitigates the time and risk of investing in individual mortgages. Meanwhile, mortgage-backed security is formed by pooling together mortgages exclusively