The Best Types Of Real Estate Investments

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What are considered the best types of real estate investments? With the U.S. real estate market on the rise, investors are sifting through every available property type to discover which will help them profit. So which sectors and properties are the best move for investors today? Keep reading to learn more about the best type of real estate investment for you.

Types of Real Estate Investments

There are several types of real estate investors should be familiar with: commercial, residential, raw land, new construction, crowdfunding platforms, and REITs. Each of these types will come with unique advantages and disadvantages that investors should evaluate. Let’s look at each of the options available:

  • Commercial Real Estate

  • Residential Real Estate

  • Raw Land & New Contruction

  • Real Estate Investment Trusts (REITs)

  • Crowdfunding Platforms

Commercial Real Estate

The best commercial properties to invest in include industrial, office, retail, hospitality and multifamily projects. For investors with a strong focus on improving their local communities, commercial real estate investing can support that focus.

One reason commercial properties are considered to be one of the best types of real estate investments is because of the potential for higher cash flow. Investors who opt for commercial properties may find they represent higher income potential, longer leases and lower vacancy rates when compared to other forms of real estate. Investors may also enjoy less competition in commercial real estate because purchasing these properties can be a larger undertaking than working with residential homes. To learn more about getting started in , be sure to read this article.

Residential Real Estate

There are numerous types of rental property in residential real estate, though the most common is thought to be single-family homes. Other residential properties include duplexes, multifamily properties and vacation homes. Residential real estate is ideal for many investors because it can be easier to turn profits consistently. Of course, there are many residential real estate investing strategies to deploy and different levels of competition across markets — what may be right for one investor may not be best for the next. For this reason, choosing the right exit strategy and market is key when it comes to residential real estate.

The most common exit strategies used in residential real estate include wholesaling, rehabbing, and buy and hold properties, which can be used to generate rental income. Investors should be careful to consider which strategies would work best in their market area by conducting a thorough market analysis.

When managed correctly, a residential real estate investment can yield attractive profits. This is because, in addition to earning steady cash flow, residential real estate benefits from a number of tax breaks.

Raw Land Investing & New Construction

Raw land investing and new construction represent two different types of real estate investments that can help diversify an investor’s portfolio. Raw land refers to any vacant land available for purchase and is most attractive in markets with high projected growth. New construction is not much different; however, properties have already been built on the land. Investing in new construction is also popular in rapidly growing markets.

While many investors may be unfamiliar with raw land and new construction investing, these investment types can represent attractive profits for investors. Whether you are interested in developing a property from start to finish, or profiting from a long-term buy and hold, raw land and new construction provide a unique opportunity to real estate investors.

In order to maximize profits when investing in raw land and new construction, investors should be prepared to complete extensive market research. This will ensure you choose a desirable area and will also prevent the investment from being hampered by market factors.

Real Estate Investment Trusts (REITs)

Real estate investment trusts or REITs are companies that own different types of commercial real estate such as hotels, shops, offices, malls, or restaurants. You can invest in shares of these real estate companies on the stock exchange. When you invest in a REIT, you are investing in the properties these companies own without the added risk of owning the property yourself.

Every year, it is a requirement for REITs to return 90% of their taxable income to shareholders. This offers investors to receive dividends while diversifying their portfolio at the same time. Publically traded REITs also offer flexible liquidity in contrast to other types of real estate investments. You can sell your shares of the company on the stock exchange when you need emergency funds.

Crowdfunding Platforms

Crowdfunding platforms are sites that offer investors access to a number of assets that offer high returns and are traditionally reserved for the wealthy. While this offers the ease of finding assets to investors, this type of real estate investment also introduces a high amount of risk. Crowdfunding platforms are typically limited to accredited investors or those with a high net worth. Some sites offer access to nonaccredited investors as well.

The main types of real estate investments that come from crowdfunding platforms are nontraded REITs or REITs that are not on the stock exchange. In terms of nontraded REITs, your funds may be invested for several years with no possibility of pulling your money out when you need it.

What Is the Best Type of Real Estate investment?

The best type of real estate investment will depend on your individual circumstances, goals, market area and preferred investing strategy. While many investors want a more straightforward answer, determining the best type of investment property is a subjective process. Choosing the right property type comes down to weighing the pros and cons of each option, though there are a few key factors investors should keep in mind as they seek the best choice.

When it comes to choosing the best type of investment property, the importance of location can not be understated. Investors operating in “up-and-coming” markets may find success with vacant land or new construction, while investors working in more “mature” markets may be interested in residential properties.

Aside from location, investors should also be aware of their own preferences when it comes to investing. Assess your preferred level of involvement, risk tolerance, and profitability as you decide which property type to invest in. Investors wishing to take on a more passive role may opt for buy and hold commercial or residential properties and employ a property manager. Those hoping to take on a more active role, on the other hand, may find developing vacant land or rehabbing residential homes to be more fulfilling.

As you choose the best type of investment property for you, it is also important to keep in mind that many investors find success investing in a variety of property types. It is not uncommon for investors to familiarize themselves with residential real estate before moving on to commercial properties, for example. That being said, there is no reason investors cannot achieve success investing in multiple property types.


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types of real estate investment

Where To Find Real Estate Investment Properties

Many investors can get so caught up in identifying a property type, that when the time comes to find an actual property, they don’t know where to start. So as you familiarize yourself with different property types, also be sure to learn where and how to find each one. Here are a few options investors may find useful:

MLS Listings & FSBOs

Many investors find properties on the MLS or through for sale by owner (FSBO) listing. There are tons of properties on the market that fly under the radar because investors and homebuyers don’t know where to look. Some of these properties simply suffer from poor or non-existent marketing, while others are overpriced when listed and therefore failed to receive any attention. This means that those investors willing to sort through the MLS can find a variety of investment opportunities.

In order to access the MLS, investors either need to be a real estate agent themselves or be willing to work with one. This way, investors can consistently track or be alerted to new listings in their target area. For those wondering how to make connections with real estate agents in their respective areas, it is a good idea to attend local networking or real estate event.

Investors searching for FSBOs will also find it beneficial to work with a real estate agent. Real estate agents are often aware of the FSBO properties in a given area and may be willing to pass that information along to their investor partners. Investors can also drive through their target areas looking for signs to find these properties. Remember, identifying properties can take time, and investors should be ready to employ multiple angles in order to secure their next deal.

Off-Market Properties

For investors living in oversaturated markets, off-market properties can represent an opportunity to get ahead of the competition. Though they are not listed on the MLS, off-market properties are not impossible to find; investors simply need to know how to search.

When it comes to looking for off-market properties, there are a few resources investors should check first. These include public records, real estate auctions, wholesalers, networking events, and contractors. Each of these sources represent a unique chance to find properties in a given area. For example, wholesalers are often aware of freshly rehabbed properties available at good prices. Many of these are already leased — and may even come with an existing property management company.

Then there are foreclosures. Despite numerous proclamations in the news that foreclosures are vanishing, data from RealtyTrac continues to show spikes in activity around the country. Years of backlogged foreclosures and increased motivation for banks to repossess could leave even more foreclosures up for grabs in the coming months. Investors searching for foreclosures should pay careful attention to newspaper listings and public records to find potential properties. Overall, off-market properties are not difficult to find, though they may require a little extra work.

Summary

There are a number of property types that can yield high-profit margins for investors willing to put in the work. However, due to the wide variety of options available, many investors likely find themselves wondering what really is the best type of real estate investment. While this is a simple question, it does not have a simple answer. The best type of investment property will depend on a number of factors, and investors should be careful not to rule out any options when searching for potential deals.

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Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies