A Layman’s Guide on the Different Real Estate Property Types to Invest In

A Layman's Guide on the Different Real Estate Property Types to Invest In

Real estate is known as one of the best long-term and solid investments anyone can make. Many successful real estate investors can attest to the remarkable returns of this industry. There is a consistently growing demand because when populations increase, more people will need roofs over their heads.

Real estate assets can provide reliable cash flow. You can earn passive income while maintaining your job or other businesses. It can also be a supplemental source of retirement funds.

This type of investment allows you to build equity and grow your portfolio. When the value of a property rises, you can sell it for a sizable amount and use the proceeds to purchase another property. Unlike bonds or stocks, it offers protection against inflation—for example, when prices increase, rent and home prices go up, too.

Another great thing about investing in real estate is it’s for everyone. There’s no age limit or required career background. You just need proper guidance to make the best decisions.

Real estate has its share of risks, but with proper knowledge, you can reap its benefits. The first step is to know the types of real estate properties, and there are currently five major categories. Each one has pros and cons, so the key is to find the best one that will fit your lifestyle, budget, and financial goals.

[1] Residential Real Estate. Structures that house people fall under the residential real estate category. These can either be sold to potential homeowners or rented out within an agreed period. Houses, townhouses, condominiums, apartment buildings, and vacation homes are all considered residential properties.

This common type of real estate asset will usually require active participation from you. It will involve regular maintenance that often leads to additional expenses. However, with the right location and amenities, it can rake in substantial and steady profits.

There are also properties, such as condos, which sell at low, pre-selling prices. Some investors grab this opportunity to purchase a unit or more and sell them when the market value increases.

[2] Commercial Real Estate. Commercial properties are where businesses operate, like retail stores, office buildings, mixed-use complexes, hotels, and parking facilities. Like some residential properties, the profit from this investment comes from renting out spaces or selling them when the market value appreciates.

Commercial properties usually involve longer lease periods that can lead to a more stable cash flow. Its value may significantly increase faster than residential properties if the tenants generate high revenues.

They do require more professional upkeep. Aside from managing several tenants and leases, you are also responsible for keeping the public safe in these premises. Working with a property manager can help you with these.

[3] Raw Land. Agricultural land or properties with absolutely no structures on them are classified as raw land. Ranches, timberland, and farms belong to this category. These undeveloped properties are a cheaper investment than others, but their value can also increase over time.

Usually, investors of raw land lease their property for agricultural use. Some also see its economic potential and sell it to developers at a higher value.

Raw land doesn’t require much time and effort to maintain since there are no structures to update or renovate. It also offers the flexibility that residential and commercial properties do not have. Since you can choose whether to lease or sell, buy and hold, or eventually build a structure here, its value can further rise.

A disadvantage, however, is that it cannot be a moneymaker right away. If you choose the buy and hold route, you need to wait for the value to appreciate before selling.

[4] Industrial Real Estate. These are properties that generate income from industrial-sized enterprises. These include storage units, warehouses, distribution centers, and manufacturing plants.

Industrial properties command a higher rental yield due to their size and purpose. Terms of the lease also tend to be longer since it would be difficult for businesses of this scale to move from one place to another. If they remain in your property for many years, it will mean a steady revenue stream for you. The downside is that this can be an “all-or-nothing” endeavor, and most of the time, it can only accommodate one tenant.

[5] REIT. Real Estate Investment Trust or REIT (pronounced as “reet”) to seasoned investors are trust companies that manage real estate properties. Instead of owning physical structures, you can invest in a REIT. You can earn from the income generated from the properties that were managed for you by the company.

This passive form of investment works like mutual funds, but instead of investing in listed companies, you’ll invest in real estate assets. You can also choose from a wide range of income-generating properties such as malls, offices, hospitals, or retail areas.

REITs let you invest in commercial properties without the need to shell out millions, but just like other real estate investments, they also come with risks. Their share prices can fall based on supply and demand, just like stocks. Also, dwindling occupancy rates can significantly affect the revenues of REITs.

Choosing the Best Type of Real Estate Investment

There is no cookie-cutter approach to choosing the best real estate investment. It will all depend on your financial and personal goals, desired location, and preferred level of involvement. If you are willing to take on a more active role, residential or commercial real estate may be the right path.

It would be best to look into current real estate trends to help you decide what your market needs. For example, residential properties, especially condos, are in high demand due to the shift to remote work and a healthier lifestyle. The latest luxury real estate trends also show that current property owners will want a second home. This desire will open doors for more investment opportunities.

Whatever real estate asset you choose, it would be best to arm yourself with the proper information before you dip into your hard-earned money. Make sure to do your research, talk to experts, and work only with established and reputable real estate companies.

Above all else, acknowledge that success in real estate is a slow process, but any real estate millionaire would know that the results are truly rewarding.

Geri Pacleb is the head of Public Relations for Federal Land Inc. She graduated from De La Salle University – Dasmarinas with a degree in Communication, and specialized in public relations.