When investors start getting serious about their portfolio, it means it’s a good time to start thinking about the benefits of real estate. Contrary to popular belief, people don’t necessarily need tens of thousands saved up to begin diversifying their assets. In fact, most investors can get started right where they are. Now is a good time to learn about many types of property before making this crucial decision.
Official real estate terms may not always be as obvious as they first seem:
- Commercial: A commercial property can include retail spaces, office buildings, or restaurant real estate. However, it can also refer to an apartment complex that contains more than a certain number of units. Each province has its own rules on when a residential rental building converts to commercial space.
- Residential: This term can refer to single-family homes, duplexes, town homes, and some apartment complexes.
- Co-op: This property is owned by a corporation rather than condo owners. Owners will buy shares of the corporation equivalent to the market price of each unit.
This is likely the most recognized form of investing in real estate. The Woodlands homeowners purchase the property and then charge people to use it. However, there’s wiggle room if this is what investors choose. Renting can be done for either a residential or commercial space. Contract terms may last for as little as a day anywhere up to a decade or more.
Every state will have its own ideas on what rules landlords can and can’t enforce, and the restrictions have only grown in the age of technology. Landlords will have to hire property managers or take on the work themselves. Some co-op buildings may impose strict rules for renting (or outlaw it altogether).
A flip is defined as the process of improving a property and selling that space for a profit. Most homebuyers want a move-in ready home if possible given the inconvenience and expense of renovations. Flips can be exceptionally lucrative for some investors, though it’s important to consider the downsides as well. Coding regulations, untrained contractors, and permit laws can all quickly destroy the potential of the property. This strategy is typically only recommended for people with experience in the building industry (regardless of who is doing the work).
Investing in a Trust
A real estate investment trust (REIT) is much like a mutual fund for real estate investors. Investors have more flexibility in how much money they want to put into the venture and the option to invest in multiple properties. In this case, investors aren’t expected to collect the money and manage the property. Instead, they give up a small portion of their profits to the primary owner or manager to take on those responsibilities.
In theory, a REIT is a good way to limit risk while eliminating much of the responsibility. However, some investors would prefer a high-reward situation as opposed to the slower payoff of a REIT. Additionally, some REITs may not give their investors much of a vote over how the building is maintained, which can frustrate investors if they feel the building is being mismanaged.
Purchasing vacant land starts with acquiring undeveloped space and holding it until the right developer comes along. Much like all real estate endeavors, choosing the right vacant land can be difficult because it begins with identifying a place that will become popular in the future.
Additionally, there’s a lot of things that can happen to the land while the developer is holding it. For example, building code regulations or the neighborhood may change. The costs of property taxes and maintenance can also leave owners with a much lower profit margin than they originally expected.
While there’s no guarantee in real estate investment, there are ways for investors to begin capitalizing on the available land and structures around them. Whether the owner has all the skills they need to flip a home or would prefer a more hands-off approach like a REIT, there’s an option for everyone.