There are several types of real estate investments, but most fall into two categories: physical real estate investments such as land, residential and commercial properties, and other modes of investment that do not require owning physical property. , such as REITs and crowdfunding platforms.
Investing in traditional physical real estate can offer a high return, but it also requires more money upfront and can lead to high ongoing costs. REITs and crowdfunding platforms have a lower financial barrier to entry, meaning you can invest in multiple types of real estate for far less than it would cost to invest in a single traditional property. These alternative real estate investments also offer the undeniable advantage of not having to leave your house or put on pants to start investing.
If you’re looking to invest in real estate, here are five types to consider:
Listed on the stock exchange REITs, or real estate investment trusts, are corporations that own commercial real estate (think hotels, offices, and shopping malls). You can invest in shares of these companies on the stock exchange. By investing in REITs, you are investing in the real estate these companies own, without as much of the risk associated with owning real estate directly.
REITs are required to return at least 90% of their taxable income to shareholders each year. This means investors can receive attractive dividends in addition to diversifying their portfolios with real estate. Publicly traded REITs also offer more liquidity than other real estate investments: if you suddenly need cash, you can sell your shares on the stock exchange. If you wish to invest in publicly traded REITs, you can do so through a brokerage account.
2. Crowdfunding platforms
Real estate crowdfunding platforms offer investors access to real estate investments that can bring high returns but also carry significant risks. Some crowdfunding platforms are only open to accredited investors, defined as individuals with a net worth, or joint net worth with a spouse, of more than $1 million – excluding the value of their home – or an income annual in each of the last two years that exceeds $200,000 ($300,000 with a spouse).
“Keep in mind that many crowdfunding platforms have a short track record and have yet to weather an economic downturn.”
But others, like Fund raising and Realty Mogul, offer investors who do not meet these minimums – known as non-accredited investors – access to investments in which they otherwise could not invest. These investments often come in the form of non-traded REITs or REITs that do not trade on the stock exchange. As they are not listed on an exchange, unlisted REITs can be very illiquid, which means that your funds will be invested for at least several years and you may not be able to withdraw your money from the investment if you you need. Keep in mind that many crowdfunding platforms have a short track record and have yet to weather an economic downturn.
per trade for online US stocks and ETFs
per share; as low as $0.0005 with volume discounts
3. Residential real estate
Residential real estate is virtually anywhere people live or stay, such as single family homes, condos, and vacation homes. Residential real estate investors make money by collecting rent (or regular payments for short-term rentals) from tenants, thanks to the appreciated value of their property between the time they buy it and the time they sell it, or both.
Investing in residential real estate can take many forms. It can be as simple as renting out a spare room or as complicated as buying and flipping a house for profit.
4. Commercial real estate
Commercial real estate is space that is leased or leased by a business. An office building leased by a single company, a gas station, a strip mall with multiple single businesses, and leased restaurants are all examples of commercial real estate. Unless the business owns the property itself, each business would pay rent to the landlord.
Industrial and commercial real estate can fall under the commercial umbrella. Industrial real estate generally refers to properties where products are manufactured or housed rather than sold, such as warehouses and factories. Retail space is where a customer can purchase a product or service, such as a clothing store. Commercial properties tend to have longer leases and may command more rent than residential properties, which can mean larger and more stable long-term income for a landlord. But they may also require higher down payments and property management expenses.
5. Virgin Land
If you build it, will they come? Investors generally buy land for commercial or residential development.
But buying land to develop involves a fair amount of market research, especially if you plan to develop the property yourself. This type of investment is best suited to someone with significant capital to invest and a thorough knowledge of all things real estate – building codes, zoning regulations, flood plains – in addition to an understanding local residential and commercial rental markets.
Which real estate investment is right for you?
If you’re considering investing in traditional real estate, such as residential or commercial properties, doing your due diligence doesn’t just mean putting down a down payment. Knowing your local market is important. If there isn’t a lot of demand for homes or commercial space in your area, or if property values start to drop, this investment could quickly become a burden.
If you prefer to be more self-reliant with your investments, REITs and crowdfunding platforms are easier ways to add real estate to your portfolio without owning physical property.
Some brokerages offer REITs and publicly traded REIT mutual funds.