As one of the oldest and most popular assets, real estate investing can be a sound strategy for building your wealth, if you play your cards right. Jumping into the world of real estate can be intimidating, especially for those who are new to investing. However, what most new investors don’t know is that there are many different types of real estate investments available.
Investment Strategies: Active vs. Passive
Before deciding on the types of real estate investments you desire to add to your portfolio, you should first decide how involved you would like to be in the management of your properties. There are two types of investment strategies: active and passive. As the name suggests, an active strategy involves more of a hands-on approach involving more time, effort, and resources. Whereas a passive investment strategy is a less involved approach with the ability to have someone else manage the properties on your behalf. The passive strategy will yield more passive income meaning that you will lose out on some of the returns to pay the others who are managing the properties on your behalf. Overall, both investment strategies are great opportunities, but the right one depends on the amount of time, effort, and resources at your disposal.
Types of Real Estate Investments
There are numerous types of real estate investments available, each of which offer their own advantages and disadvantages for investors to consider.
Residential Real Estate
One of the first types of real estate investments that aspiring investors consider is residential real estate. These types of properties can yield profit more consistently depending on the level of competition in a particular market. Here are just a few examples of residential real estate investment properties:
Fix and Flip
Flips are one of the more active investments that you can add to your portfolio as you will be responsible for repairing the home to sell. This can be a risky strategy since you will be putting your own money into the repairs, so there is a chance that it could result in a loss of profit or be a homerun if all goes well.
Apartments, single-family homes, and multi-family homes that you purchase and rent out to tenants fall under the long-term rental category. As the investor, you earn money through these types of rentals by collecting monthly rental payments and/or through appreciated property value if you decide to sell in the future. This is an immensely popular approach for investors as it is a long-term wealth-building strategy.
Vacation rentals are short-term rentals that work great in areas that are popular with tourists. Vacation rentals can be a more time-consuming management property since you or someone you hire will have to upkeep the property between visitors.
Purchasing a property in popular tourist destinations can generate income by renting out the property to visitors.
Commercial Real Estate
From hotels and office space to retail stores and warehouses, commercial real estate is a space that is rented or leased by a business. Unless the property is owned by the business itself, the tenants will pay rent to the property owner, a.k.a. you. Investing in commercial real estate is a sound strategy as it presents the opportunity for higher cash flow and less competition than residential due to the capital required to purchase commercial real estate.
Unimproved Property (Raw Land)
Purchasing unimproved property presents a unique opportunity for investors to diversify their portfolios. Unimproved property refers to land with nothing on it including buildings, paths, and crops. Many investors choose to purchase land for development for either commercial or residential purposes. Unimproved property tends to be cheaper to invest in than developed land and like other types of real estate investments, it will appreciate over time.
Real Estate Investment Trusts (REITs)
Real Estate investment trusts, or REITs, are companies that oversee real estate investments and operate as trusts. This is a type of passive investment as they will own the properties and you invest in a REIT to generate income from what they manage. This is a great long-term strategy for investors looking to get started in commercial real estate but are lacking the capital to invest in a property directly.
Using a REIT to invest will generate income while not being directly involved in ownership duties. | Photo: Reits Market
Crowdfunding and Online Platforms
Similar to REITs, crowdfunding is a passive investment strategy that involves fewer resources upfront to begin. Real estate crowdfunding is a newer type of real estate investing where investors will band together, typically online, and pool their funds to invest in opportunities. Some platforms are open to the general public, but there are others that are only open to accredited investors that possess a significant income of $200,000+. This is one of the riskier investments since it is newer and has yet to experience an economic downturn.
Ready to Start Investing?
There are many unique types of real estate investments available, each with advantages and disadvantages. Entering the world of real estate investing is an exciting opportunity, but only if you have the right partners. At Metropolitan Title, we understand that each type of real estate property carries its own risks and rewards, but regardless it is important to choose wisely, beginning with the property title search. As Indiana’s Title Company, Metropolitan Title has been helping investors make the right financial decisions and keep their investments safe and sound from title defects. To learn more about Metropolitan Title’s residential and commercial title and escrow services, contact our team today.