Real estate is arguably one of the oldest yet most common asset classes. A majority of new investors in real estate are already aware of that, but what they do not seem to understand is the types of investments that exist. It is evident that every real estate investment has its potential pitfalls and benefits, including some unique quirks in the cash flow cycle, the lending traditions, and standards of what is viewed as appropriate or reasonable, so you must take time to study them before including them in your portfolio.
As you unearth the various kinds of investments for real estate investors and seek more knowledge about them, both through research and consulting with expert property developers like Lincoln Frost, it is no surprise to witness people building fortunes by learning to specialize in a particular field. If you think that real estate is an area that you would like to devote time, effort, and resources to in your search for passive income and financial independence, here are some of the best investments you can venture in.
Before Exploring The Various Real Estate Investments
Before we can explore the various investments for real estate investors, it is important to note that you should almost never purchase investment real estate directly in your name. There are numerous reasons, some having to do with protection of personal assets. If things go wrong and you find yourself tied by a lawsuit settlement which exceeds your current insurance coverage, you as well as your attorneys might have to place the entity holding your real estate into bankruptcy and so you might walk away freely and live to fight again.
A significant aspect in structuring your affairs appropriately often involves the choice of your legal entity. Most real estate investor use a particular legal structure referred to as a Limited Liability Company. This can go a long way in saving you from the agony of unspeakable financial hardship in future.
With that now out of our way, let us get into the meat of the article and look at the best investments for real estate investors.
- Land Investments
Raw land investments could be extremely lucrative ventures for investors who are well-versed with the ins and outs of the real estate market. There are many ways through which you can make money with raw land. If you have a farmland, you could let local farmers use it to raise livestock or grow crops on a lease basis. You could also purchase a piece of land and hold it with the intention of reselling it later when its value appreciates. With the first option, there is the benefit of immediate financial payoff. However, if you get a good developer, you could end up pocketing some huge profits from the second option.
- Residential Real Estate Investments
These are usually properties like apartment buildings, houses, vacation houses, and townhouses where an individual or a family will pay you to live in this property. In most cases, the length of stay is based on a rental agreement arrived between the owner and the tenant. And when it comes to the residential real estate, there are various options one could consider. The first option is usually the single familyhomes which are the typical American houses. Single-family homes are found almost everywhere and could have various price points. And due to the volume of their prospects, these could be a good investment for a new real estate investor.
The second option for residential investment is multi-family housing which usually includes duplexes and triplexes. Such homes typically have two or three units in a single building thus allowing multiple families to live on one piece of land. Each unit presents a unique rental opportunity although the multi-family market is quite smaller than that of single-family homes. If you’re unsure of what to do, contact someone like Michael Teys to get a better idea.
- Commercial Real Estate
This kind of investment consists of skyscrapers, large apartment complexes, industrial buildings, or office buildings. If an investor would take up their savings and construct a building with office units, it would be possible to lease them out to small business owners and companies that would pay rent to use the unit. Since Commercial Real Estate Listings often involves multi-year leases, there is greater stability regarding cash flow.
- Airbnb Rentals
Another excellent investment for real estate investors is short-term rentals, which are popularly known as Airbnb rentals. While this is a fairly new concept in the world of real estate investing, Airbnb income properties have a high potential to make good money for the investor. Before settling on these types of rentals, it is advisable to check with your local legislation regarding short-term rentals. With this kind of real estate investment, location is critical since rentals located in prime areas often provide a higher return on the initial investment.
- Real Estate Investment Trusts
If you do not want the agony of dealing with the actual property yourself, then there are other investment options for you. Investing in real estate investment trusts simply means that you will be merely purchasing shares of a company that owns numerous real estate properties and disburses all the income in the form of dividends. While you will most probably have to deal with tax complexities, this will obviously be an excellent addition to your investor’s portfolio if bought with the appropriate valuation and a reasonable margin of safety. You could also find real estate investment trusts to match your industry of choice; for instance, if you are looking to own hotels, you could consider hotel Real Estate Investment Trusts.
- Real Estate Wholesaling
Another choice among the best investments for real estate investors is real estate wholesaling since it can be applied to commercial as well as residential properties. The idea behind this is relatively simple; an investor gets into a contract with a property seller then reissues the contact to a real estate buyer. The trick with this kind of investment is to have the selling price higher than the buying price because that is what an investor will make money from. The beauty of real estate wholesaling is that minimal financing is needed since a real estate investor doesn’t have to purchase the property.