• Tue. Jun 21st, 2022

3 types of real estate investments for new investors

There are 3 main types of real estate investing; Commercial real estate, Residential real estateand Earth. Each type has several subcategories.

Commercial real estate

  • Retail
  • Office
  • Industrial
  • Several families

Residential real estate

  • Single family rental property
  • Article 8 Rentals
  • Holiday rents
  • Small multifamily
  • Fix and return

Land real estate

  • Land for commercial development
  • Land for residential development
  • land for agriculture
  • Land for mining

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Definition of commercial real estate investment:

Commercial real estate is a general term used to describe the ownership of buildings used to conduct business or generate cash flow, or the acquisition of land for a long-term return on investment.

  1. It may be a building purchased for the purpose of carrying out its own activity.
  2. It could be a building that an investor buys to generate rental income from someone else’s use.
  3. It can be a plot of land acquired to develop the above.

Below is a deeper dive into the types and subtypes of commercial real estate investing, along with a brief description of the associated risks and rewards.

Retail Trade – Business Investment Categories

Type Example Tenants Cut typical investor Risk
Regional mall Major mall development national

Regional and local tenants

190k – 400k square feet REITs Shopping online
Community Center Developments that include a Walmart or similar, usually have 3 main boxes national

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Regional

Tenants

125k-

190k square feet

Reits,

Private

Equity

Demographic and online shifts
band center Typical neighborhood center housing a ups, hair salon, restaurant etc. Local, mom and pop, franchise operators 2,000-

15,000 square feet

Private

Investors,

Funds

Road construction, demographic changes,
Autonomous Gas station, bank or supermarket National tenants, local brands 1500 –

25,000 square feet

Private investors, Funds Rental income dependent on the health of a single tenant

Office – Commercial Investment Categories

  • Class A – Very high-end trim levels, usually in a city’s technology and finance areas. Rents are higher than the industry average because these buildings have an element of prestige associated with occupancy.
  • Class B – Most common trim level in good and stable areas. Have the highest level of demand in most marketplaces. Class A properties are not considered competitors for class B properties.
  • Class C- Projects that are usually in the older neighborhoods of the city. Buildings have become dated in both form and function. Rents are below market rate and tenants can be difficult to find and retain.
  • Doctor’s office is also a specialized subcategory. This is a space specifically designed for medical tenants and is often part of a development that attracts a variety of medical professionals.

Industrial

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  • Heavy manufacturing: These facilities are designed for a large production of products and must be equipped with industrial size tools such as cranes, specialized welding equipment, areas for chemical treatment and painting. They are heavily customized for the needs of individual users.
  • Light assembly: These facilities do not manufacture components, but rather assemble and package them for shipping/storage. The zoning process for these is generally less restrictive than for heavy industry and can be found in a wider area of ​​a city.
  • Warehouse: These projects are usually located near major transportation corridors and are designed for product storage. They include shipping documents for tractor-trailer access, have high ceilings, concrete floors, and consist mostly of open space. They may include refrigeration for cold storage.
  • Industrial Flex: This product is as described. It usually offers a combination of warehouse-style space with an office facade. It is usually smaller – 1,500 to 6,000 square feet; 20′ roll-up doors at the rear and 8′ drop ceilings at the front are typical features.

Several families

  • High-rise building: A building usually consisting of more than 9 stories. Built exclusively in major metropolitan areas.
  • Mid rise: A multi-storey building usually 5 to 9 stories accessible by elevator. These projects are high density and normally built in urban areas.
  • Garden look: These are ordinary apartment style projects found in suburban and urban areas. Generally do not exceed 3 floors and are built with green belt areas in the center of the complex.
  • Rise: These buildings are mostly smaller and have fewer amenities than Garden-style projects. They are usually 1-2 floors with stairs accessing the top floor. 4plex concepts are often called “walk ups”.
  • Prefab Housing Community: Also called mobile home communities. Residents of these projects typically rent either the space only or both the space and the manufactured home.
  • Housing for specific use/project: A wide variety of housing for families and individuals, including: student, government subsidized, retirement, recovery and special needs.

Residential real estate investment

  • Single family rental: These may be single-family condominiums, townhouses or typical single-family homes. Single-family rental homes are the most common form of real estate investment. They can be either self-managed or professionally managed by a property management company. Lease terms are generally at least 12 months.
  • Article 8 Rental: These properties are typical of single family rentals with one exception. The landlord specifically requested and received special designation as an approved home under Section 8. The tenants have little or no income and the government pays all or part of the monthly rent. It can be a form of guaranteed income, but it can also come with a unique set of challenges.
  • Holiday rents: Can be any single family home, but is fully furnished and available for short term rentals. These types of projects work best in high-demand areas like near beaches, lakes, or major entertainment districts. More often than not, these units require professional property management companies.
  • Small multi-family: These properties are also referred to as small apartments or walk-up complexes; they are configured in duplex, 3 plex or Quad. These units often offer a high cap rate and return if properly managed. However, this type of product is often found in older, less popular areas, where tenant problems are more prevalent. Month-to-month leases are common, so turnover is higher than with a single family
  • Fix and return: The subject of a million TV shows that make this form of investing seem rewarding, simple and profitable. The concept is simple, but the reality is much more complicated. All you have to do is buy a property below its real value, add additional value through upgrades and repairs, and sell the property for a profit in a short period of time. The risks are unexpected repair costs, a misunderstanding of post-rehab value, or a rapid and unexpected change in the overall health of the market.

Land real estate investment

  • Land for commercial development: Land acquired for the purpose of developing a shopping center. This usually involves working with architects to design plans and local governments to ensure the proper zoning is in place.
  • Land for Residential Development: Very similar in process to commercial but with a residential end user in mind. Residential development is common in infill areas or made possible by the conversion and rezoning of large tracts of farmland or other undeveloped land.
  • Land for agriculture: Buying farmland is often a great way to buy large tracts of land while receiving income informed from the farmer’s ground rent and huge tax breaks from the government based on usage. agricultural. It is common for developers to buy farmland, lease it back to the farmer until he receives the zoning approvals he needs to move the project forward, or until the market returns the development. financially viable.
  • Land for mining: Leasing mineral rights on a property can provide exceptional long-term cash flow depending on the nature of the minerals available. It’s often a big, multi-generational game, allowing for cash flow, appreciation and, when the minerals run out, development.

Conclusion

Each type of real estate investment has its own advantages and challenges. Success and access are highly dependent on the skill level, experience and financial resources of the investor. In any case, a successful investment requires a team. It takes excellent lending strategy, agent representation, property management, and short-term and long-term strategy. As a new investor, your main goal should be to find a team and start with something that is well within your price range and comfort level.

Authors biography

John Crow was appointed CEO of Centurion Investments in 2010. In his current role John leads a range of property-related companies. Century 21 Northwest, a full-service real estate company, The Location Pro, a commercial real estate sales and investment division, and Century 21 Property Managementa residential rental management center.