Apartment rentals, REITs, raw lands land, crowdfunding platforms and are all forms of real estate investments.
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There are many kinds of real estate investments, however, the majority fall into two categories: Physical real estate investments such as land, residential and commercial properties, and other types of investment that don’t require owning physical properties, like REITs and crowdfunding platforms.
The traditional investment in physical real property may provide an impressive return on investment, however it requires more cash upfront and comes with the potential for high costs over time. REITs and crowdfunding platforms come with less of a financial barrier to entry. That means you can invest in many different kinds of real estate for lesser than it would for investing in one traditional property. Alternative investments in real estate are also a great option because they offer the benefit of not having to leave your home or change into a suit before you can invest.
If you’re considering investing in real estate there are five types you should consider:
1. REITs
Publicly traded REITs also known as real property investment trusts are companies which manage commercial real estate (think offices, hotels, and malls). You can purchase the shares of these companies via the stock exchange. When you invest in REITs, you’re investing in real estate that these companies own without having to take on the risks that come with owning real property directly.
REITs have to pay at the minimum of 90% of their tax-deductible earnings to shareholders each year. That means investors can earn attractive dividends , in addition to diversifying their portfolios using real estate. Publicly traded REITs also offer more liquidity than other real estate investments. If you suddenly require cash, you are able to sell your shares to the stock exchange. If you’d like to purchase REITs that are traded publicly, you can do so via an broker account.
2. Platforms for crowdfunding
Real estate crowdfunding platforms offer investors access to real estate investments that could bring high returns but also come with a high risk. Some crowdfunding platforms are available only to accredited investors, identified as individuals who have a net worth, also known as a joint net worth , with the spouse, of more than $1 million — not including the value of their residenceor an annual revenue in each of the last two years that exceeds $200,000 ($300,000 with an additional spouse).
“Keep in mindthat a lot of crowdfunding platforms are relatively new with a short track record and have yet to weather an economic downturn.”
But others, like Fundrise or RealtyMogul that offer investors who don’t satisfy those minimums — known as non-accredited investors access to investments that they wouldn’t otherwise be qualified to invest in. These investments often come in the form of non-traded REITs, or REITs that don’t make use of the market for stock. Because they’re not publicly traded, nontraded REITs can be extremely in liquid. This means that your money will be invested over a long period of time and you might not be able to take your cash out of the investment in the event that you need it. Be aware that most crowdfunding platforms have a very short experience, and are yet to experience an economic slump.
3. Residential real estate
Residential real estate can be found virtually anywhere where people live or reside, such as single family condominiums, homes, and vacation homes. Real estate investors who invest in residential properties earn profit by collecting rent (or regular payments for short-term rentals) from tenants in their properties, due to the appreciation the property gains between the time they buy it and when they are able to sell it or both.
An investment in residential real property can take a variety of varieties. It could be as easy as renting out a spare space or as intricate as buying and flipping a property to earn gain.
4. Commercial real estate
Commercial real estate is a space that is leased or rent by a company. A commercial building that is rented by a single business, a gas station, one-stop mall with many distinct restaurants, and leased ones are all types of commercial property. If the business does not own the property in which case each business has to pay rent to the property owner.
Retail and industrial real estate may fall under the umbrella of commercial. Industrial real estate generally is a property where goods are manufactured or stored rather than sold, for example, warehouses and factories. Retail space is the place where a customer can buy a product or service, for example, clothing stores. Commercial properties are typically able to offer longer leases and may command more rent than residential properties. This could translate into a more steady and stable future income for a property owner. But they may also require higher down-payments and management costs.
5. Raw land
If you construct it, will people move in? Investors typically purchase land for either residential or commercial development.
But buying land to develop requires a lot of market research, especially when you intend to develop the land yourself. This kind of investment is best recommended for people with a large amount of capital to invest and a deep expertise in all things related to real estate – building codes, flood plains, zoning rules along with knowledge of local commercial and residential rental market.
Which investment in real estate is the best?
If you’re thinking of the investment of traditional real estate -either commercial or residential properties — performing your due diligence does not necessarily mean you’ll have to come up with a an initial down payment. Knowing your local market is essential. If there isn’t much demand for commercial or residential space in your local area or the value of your property starts declining, your investment could quickly turn into one of the biggest burdens.
If you’d rather not be involved in an investment, REITs and crowdfunding platforms can be a good way to add real estate your portfolio, but without the need to own physical property.
Some brokerages also offer REITs that are publicly traded and mutual funds.