The first order of business for a new player in the real estate market is to familiarize yourself with the different categories of real property available to investors. So, with that in mind. Let’s get down to that first order of business.
Types of Real Estate Investment
Residential real estate includes detached and attached single-family homes, condominium units and townhouses, as well as multi-family dwellings with two or three units. In most instances, an investor in residential real estate purchases an individual property with the plan of renting the property to qualified tenants under lease terms of at least one year. In a perfect scenario, the monthly rental payments will provide sufficient funds to cover the landlord’s mortgage payments, taxes, insurance and maintenance costs. The long-term goal is to realize increased income over time and long term appreciation in the value of the asset. An investment in an individual residential property is a great place to start, but in a highly-inflated market, a large down payment will be required to get started.
Commercial property refers to buildings or land intended to generate a profit, either from rental income or capital gains upon sale of the property. There are a few different sub-categories of commercial property:
- Office Buildings – Office properties can be anything from a building with a single occupant to a high rise tower with multiple tenants.
- Retail/Restaurant – Retail properties include single pad sites with highway frontage, single tenant buildings, small neighbourhood shopping centers, larger centers with grocery store anchor tenants, “power centers” with large anchor tenants such as Best Buy, PetSmart, OfficeMax, and so on up to and including outlet centers and large regional malls.
- Multifamily – Residential apartment buildings are considered commercial properties when they have more than 3 units and are owned as a single asset, but each unit is rented out individually.
- Vacant Land – In investment circles, vacant land refers to undeveloped, raw land (often rural) located in the path of future development.
Commercial property leases are most often triple net – meaning that the tenant is responsible for most, if not all of its pro rata share of the operating costs at the property. Commercial properties can be an extremely lucrative asset, but are probably better suited to more experienced investors with a good feel for the current state of retail business in a particular area.
Industrial property refers to warehouses, storage units, distribution centers and manufacturing facilities. These properties are often built near transportation hubs and major highways and are designed to accommodate the needs of specific types of tenants. Most industrial properties are leased to one or more tenants under long-term, triple net leases.
As the name suggests, mixed-use properties combine residential dwellings with some combination of office, retail and restaurant uses in a single development project. More and more homebuyers (including millennials and baby boomers) strongly prefer this type of development to old-fashioned suburban sprawl. Mixed-use development is all the rage right now and probably will continue to be for quite some time.
Online Platforms and Crowdfunding
If the dizzying array of choices in real estate investment leaves you uncertain and confused, you may wish to consider online real estate platforms or “virtual marketplaces” that take a lot of the guesswork out of choosing properties. These modern investment vehicles, such as IMBY are very easy to use and a great place to start on the road to accumulating wealth through real estate investment.