Real Estate Is a vast subject and there are various opportunities. This article lets you have a glimpse of various types of investment types and their few aspects. Let’s see where how and why one can invest money in real estate.
- 1 Buy For Renting
- 2 Flipping
- 3 Real Estate Investment Groups
- 4 Real Estate Investment Trusts
- 5 Real Estate Mutual Funds
- 6 ETFs Exchange Traded Funds
- 7 Real Estate Service Companies
- 8 Renting First And Then Owning
- 9 Single Family House
- 10 Advantages
- 11 Challenges
- 12 Multifamily House
- 13 Advantages
- 14 Challenges
- 15 Apartments
- 16 Advantages
- 17 Challenges
- 18 Office
- 19 Advantages
- 20 Challenges
- 21 Retail Stores/Malls
- 22 Advantages
- 23 Challenges
- 24 Industrial
- 25 Advantages
- 26 Challenges
Buy For RentingAny home, shop, warehouse or any building which can be given on rent can be bought and given on rent. This type of investment is considered to be good to get a passive income for long time.
FlippingInvestors buy the properties and then hold it for some time, so that the value of the property increases. They make some repairs and changes to make the property look better and this also enhances the price. Then they sell it taking some profit. They keep doing this again and again and this process is known as flipping or real estate trading. This way the traders make good money.
The only problem with this is: they always need to be actively searching for the properties and grab the opportunities before anyone else. This requires good knowledge of the market and the luck factor as well.
Real Estate Investment GroupsThere are groups who buy and build the apartments. Then they invite the investors to buy. One can buy one or more units and rest everything which includes advertising, finding the tenants; maintenance etc will be maintained by the company. They take some part of the rent from you every month but this makes your investment hassle free.
Real Estate Investment TrustsIn order to use investor’s money to buy and operate the income properties, a corporation or trust creates a real estate investment trust. Now, this becomes a stock and sold and bought on major stock exchanges. A corporation needs to pay 90% value of the taxable value as dividends to remain as REIT. This way, these REITs don’t have to pay the taxes when other companies have to pay the taxes on the profits.
Real Estate Mutual FundsYou can also invest in real estate mutual funds. This is real estate and also mutual fund.
ETFs Exchange Traded FundsThis option is a less risky option than investing in REIT. REIT invests in real estate and exchange trust funds invest in REITs. Exchange traded funds include some other REITs with its funds and this way you can avoid the risk of direct investment in a REIT and buying a property and the getting the returns also is certain. If you are afraid of the risk in real estate then ETFs is an answer to your problem.
Real Estate Service CompaniesThere are many companies which are involved in real estate business. They buy and sell properties via real estate agents. Rather than investing in real estate, you can invest in those companies.
Renting First And Then OwningThis is one technique where if you not being able to pay to total amount at ones, just keep paying the rent for a period of time, post which, you can own the home. This gives you chance to get some time to maintain the buying expenses with other expenses you have if you have insufficient money.
Now let’s see how different kinds of properties have different type of advantages and challenges:
Single Family HouseYou can buy or build single family homes and chose to either rent it or sell to make more money. You can get these houses in less money in compare to the large properties.
AdvantagesValue exceeds after small repairs in few cases. If you can manage to get lease amount for longer time, it can return you big interest. If the home is in a really growing location, the resale value also will be good. In comparison to other house categories, taxes for single family houses are lower. If the tenants are responsible to keep the property well, there will be very low maintenance charges. These homes are easy to sell in a short time and dealing with one tenant is easier than many.
ChallengesThe cash flow is dependent on just one tenant and sometimes the potential renters want more space than what is available. The cost goes how due to HOA fee and sometimes the repair charges may go high to not give you less than expected benefit when you rent or sell it.
Multifamily HouseThe multifamily house includes two or more units.
AdvantagesHence, due to more than one renters, there is very low risk of no income. When you get it repaired also the cost gets divided among units. Multifamily setup is more convenient to manage than having many single family homes in different locations. If the set up is big, you can have people to manage and just passively get the income.
ChallengesThe repairs can hit your pocket badly as there are many units.
ApartmentsMore than five unit homes come into this category. One can have only one unit and rent or sell.
AdvantagesLess risk, good returns, regular income, always in demand, management cost gets divided among units etc.
ChallengesIn case of more than four units more financing is required, management fee can be painful, in case of low demand, all the units get affected etc.
AdvantagesVery good and regular rents, tenants behave more responsible and keep the office maintenance well.
ChallengesLarge investment requirement, vacancy hits badly, landscaping and other maintenance costs may be high etc.
AdvantagesPossibility of less or more size of investment by choosing the size and number of stores, leases can be for longer period yielding more rate of interest etc.
ChallengesTenants’ bankruptcy makes you lose you past dues, market conditions effect the income directly as you will not get tenants if the market conditions are bad etc.
IndustrialWarehouses, distribution points, depots etc come into this category.
AdvantagesLong-term lease contact, smaller investment than few other property types.
ChallengesSingle tenant means no income if no tenant, difficult to convert for next user.
There are other types also like land which is good for resale purpose. It can be also developed in any way you need, including parking but no appreciation guarantee, zoning rules, compulsion of paying taxes of the unused land are few challenges.