Real estate is one of the most rewarding sectors for many investors. Whether you are starting out with few thousands, hundreds, even millions of dollars; there will be a ton of options for you. The beauty of the real estate is that they tend to appreciate or generate revenues faster than many other sectors. Real estate includes but not limited to land, buildings, farmed crops and livestock, water, etc. One can choose any of these options depending on their level of interest, experience, initial capital, market, location.
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This investment sector has three basic categories: Residential real estate which includes condos (condominiums for long), townhouses, houses (single-family and multi-family[1-x units], and lands. Commercial includes retail buildings, office buildings, and warehouses, etc. Industrial real estate covers manufacturing factories, mines, farms, business parks, and anything related to them. Usually, there are a lot and heavy machinery associated with industrial properties and they mainly have access to transportation hubs and harbors. This is the reason why it could be difficult to transform properties of this type into other forms of real estate.
An investor will decide which sector to invest in based on many factors. For example, if you have a small business and you are looking for a place for your office, you will be searching in the commercial real estate class.
Residential properties
Many of us hear big companies or corporations when someone mentions real estate investment. However, many of us are investors already without even knowing it. Owner-occupancy or homeownership is a common type of real estate investment everywhere in the world. This is because many people buy houses not necessarily with the intention of making money to live in them. So, these houses’ values tend to increase or decrease (appreciation and depreciation) depending on the market and location. When it comes to residential properties, the most common among them are single-family homes. Many people prefer single-family homes over condos, town-homes, and multi-family because of privacy, freedom, and flexibility. Usually, multi-family homes, condos, and town-homes are more Regulated compared to single-family homes. Mortgage rates vary depending on the type of property an individual is pursuing.
Real estate investment: Commercial properties
These properties are mainly professional buildings, skyscrapers, shopping retails, restaurants, etc. These types of properties have longer lease terms compared to residential properties and it is sometimes difficult to get mortgages from creditors and the interest rate in this class is much higher than residential properties. Tenants in commercial properties are small companies or big corporations looking for office space or a place to operate. For this reason, the number of tenants you can have in a commercial property tends to be small compared to residential. The vacancy rate can be much higher or lower depending on the situation. For example, let us say that you have a building that can accommodate one restaurant. Your building will be 100% occupied if you have 1 tenant. On the other hand, your building will be 100% vacant if that tenant leaves.
Industrial Properties
Industrial properties come in different sizes. They could be as small as a warehouse or as big as a heavy manufacturing building. Manufacturing buildings come with specialized machines used by tenants and they usually have docking options. Investing in industrial properties can be a little challenging as the investor will only have one tenant at a time or multiple if the property is large enough and meets tenants’ needs. For this reason, this class can be a bad investment to some investors as they tend to have a high vacancy rate and it is hard to found tenants. However, in areas where tenants are available (or the vacancy rate for this class is not high), industrial properties can provide a very good return on investment (ROI).
Real estate investment: Land
The land is an asset that never depreciates. The land is classified this way because it cannot be used up and, therefore, it will always be there! This is a good thing for someone who wants to invest in a land somewhere. However, like other investments, investing in land does not equate to making money and it does not mean that you will never lose money on the land you have bought. Land tends to keep its value or appreciate if conditions of the location stay the same or improve. let us look at a few scenarios. Let’s say that John buys 200 acres of farmland 10 miles from the city for $50,000 and he uses it for farming activities or leases it to someone to do the same thing. Fast forward, 20 years later the city has expanded and there are properties being developed in 100 m from his land. Within 20 years, the land went from countryside land suited for farming to land in suburbs suited for property development which increase his land in value. Because of this scenario, his $50,000 investment turned into $800,000 (if he sells it to this value).
What if John bought his land in the same area under the same conditions and situations turned the other way around? Well, let us say that he paid the same amount for the same land and 20 years later, there are some chemical spills in the area. Or the unemployment rate in the city has increased which forced many people to free the area looking for job opportunities elsewhere. The outflow of people from the city will lead to a lot of vacancies which will cause less commercial property development activities and less city expansion in the general. Because there is almost nothing going on in the area and people are freeing, there is a high chance that John will receive less money if he decides to sell his land.
From these two scenarios, we can see that in order to make money on land, investors have to treat it as an investment. Many investors tend to favor land that is in the area of future development like city expansion for commercial property development, etc.
Whether you are an experienced investor or starting out, property investments are some of the best options to consider. You can invest in residential, commercial, or industrial properties. However, like any other investments, there are risks and rewards associated with real estate investments. It is up to the investor to choose the right investment suitable for the conditions and do a thorough analysis before making their final decision.
