The Three Types of Real Estate Explained
There are many different types of real estate, and people may not be aware of the right type of property to invest in. Researching the different types of real estate can help potential investors find a property to suit their lifestyle and their pocket.
The benefits of understanding the world of real estate also include taking advantage of the available property that can yield the greatest investment. Investing is not an easy choice because people often don't understand the distinction between different types of real estate.
Since each property has its features, we've compiled a simple guide to help you make the most informed decision about investing in property.
Why Should People Invest in Real Estate?
The obvious answer is that houses, homes, and buildings are regarded as assets. Unlike cars that depreciate the second that you drive them, real estate is a financial investment that allows people to make a passive and sometimes notable income.
Real estate can sell itself because having shelter over your head or a place to work from is a need not a want. However, landlords often face the threat of late or no rental payments. Fortunately, there is always a binding legal document that imposes limitations upon the lessee.
Different Ways to Invest in Real Estate
Potential real estate buyers should always be aware of different ways to invest before sinking their funds into property. Most people who are looking to make fast cash will invest in a house and try to flip it. Often people buy a house and renovate it so that it can be sold quickly.
The most common type of investment is buying and holding. Investors often buy a property or multiple properties and rent them out to tenants. They don’t have an intention to sell the property because they will rather generate constant small streams of income through rentals.
Commercial property investing is similar to buying and holding but buyers often hold on to commercial properties and make a profit out of businesses.
Investment also includes vacation homes; think of the perfect lake house that you can use when you desire and rent during other times in the year. Still, some holiday homeowners will often rent out a property throughout the entire year.
Types of Real Estate
Residential real estate is probably the most common to people. This is where someone resides and can be a beautiful family home with white picket fences. It can also mean an apartment building in a cosmopolitan suburb.
Residential properties are real estate that people live in. People who buy these properties are often called homeowners. Sometimes, these homeowners choose to use the property to generate a source of income.
To generate a source of income, the owner of the property will often become a landlord and advertise for a tenant to lease the property. The tenants are charged a rental fee over a lease term. Usually, the rental payments are more than the mortgage payments so that the owner can make a profit.
Family homes are often a common type of residential property and can accommodate a single-family. The property is not shared so it allows families to have privacy.
Apartment buildings are often attractive living arrangements and investors can own multiple units in the building and lease them out to tenants.
Duplexes and townhouses are also considered residential real estate and are often one large home divided into two. Therefore, a landlord can lease the property out to multiple people to make an income.
Commercial Real Estate
The simple way to define commercial real estate is any type of property that is used to conduct business activities or commerce. Think of skyscrapers, office buildings, hotels, or stores in commercial or business districts.
Overall, the commercial property is leased to business owners to provide office space to run their business. Unlike residential properties, commercial property leases are slightly more complex.
Some leases stipulate that businesses pay property rental and taxes while others make provisions for both and include insurance payments. Still, triple-net leases can include handling maintenance as part of the lease agreement.
The face of commercial real estate has changed significantly over the years and investors have now come to recognize less common properties that fall within this category. These properties include student housing.
While student housing may seem like residential properties it can fall within the commercial domain. Nowadays, young people are looking to buy a lifestyle experience and not just a home. Investors can capitalize on this by providing futuristic housing.
Medical buildings are also part of commercial real estate and now more investors are looking at small medical facilities to capitalize on due to the lucrative medical industry.
Technological advances have also caused investors to look at data centers in an attempt to stay ahead of the game with technology.
Industrial Real Estate
Industrial real estate is often in the form of large warehouses, distribution hubs, research and development centers, and manufacturing plants. They also have offices so they can be used in a commercial sense to conduct business.
Distribution centers and warehouses are like giant storerooms. Retailers and other players in the commerce sector use them to stock large quantities of goods that can be re-dispatched.
Industrial properties often have manufacturing equipment since they also serve as production plants and cold storage facilities.
Yet, this type of real estate requires potential investors to have deep pockets. They often come with high rental rates and generate large amounts of revenue. The most attractive feature is the long-term lease agreements that this property type comes with. This lengthy agreement can ensure financial security for investors.
It is not easy for investors to decide which type of real estate to invest in. Regardless, understanding the three common types of real estate can help investors make more informed decisions.
Residential real estate is a simple way to earn an income without minimal effort. This type of investment doesn't always require large sums of money, but it can be leased out for a small profit.
Commercial property offers efficient premises for businesses to conduct their commercial trade without disturbing their neighbor. The temptation to invest in commercial real estate is due to the versatility of new properties that are considered commercial.
Lastly, an industrial property might be the most lucrative investment due to long-term profits. Often, successful businesses that are involved in mass production function in the industrial property space. Yet, despite the prospect of a stable income, there are significant losses if the investor is not well-informed.
Ultimately, any good investment decision in research requires studying the real estate market. If you want to learn more, make sure to contact GoKapital today!