Best Real Estate Investment Options
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Introduction
Are you wondering what the best real estate investment options are for your next venture?
Choosing the right kind of real estate investment for your portfolio is the first step in making a successful real estate investment. There are various types to take into account, and each one has advantages and a different rate of return.
The advantages of real estate investing alone can make this endeavor worthwhile, regardless of whether you favor investment properties or choices that enable you to own stocks in a real estate company.
We outlined the various real estate investment options currently available to assist you in making your choice.
Why Should You Invest In Real Estate?
After learning about the many advantages that investing in real estate has to offer, you should think about doing so.
As an asset class, real estate has historically performed well. It has a positive relationship with GDP, which means that as the economy expands, so does the demand for real estate. Real estate generally has lower volatility than other investment types thanks to the steady demand.
A great way to diversify an existing portfolio of investments is through real estate. Real estate has a low correlation to other investment types, which provides some protection to investors with other asset classes.
The risk involved in various real estate investing strategies varies, so be sure to choose the one that best suits your objectives.
It’s also interesting to think about the potential leverage connected to real estate investment. Making a down payment and financing the remaining balance of the purchase price are necessary steps in the purchasing process. As a result, even though you only purchase a small portion of the property up front, you have complete control over your investment. Other investment types do not offer this kind of leverage, which you can use to expand your portfolio of investments.
Best Real Estate Investment Options
1. Raw Land
For investors who want total control over how their assets are developed, raw land investments can be useful additions to their portfolios. Raw land is one of the best real estate investment options.
Other types of real estate can be built on, held, or subdivided from land. However, owning land can offer more than just a means of generating a steady stream of income.
Having a piece of land whose value increases on the market can be profitable for some investors.
A premium is charged when other investors divide up sizable lots into smaller pieces. Investments in undeveloped land can be converted into rental spaces for businesses or homes with the appropriate licenses.
Do you envision building your own home or business from the ground up? You can find out what you can construct on your new plot of land by familiarizing yourself with the local zoning regulations.
Prepare yourself to learn about a new set of tax responsibilities as well as the geological history of the region.
2. Real Estate Investment Trusts (REITs)
Companies that own and manage investments in real estate that generate income are known as real estate investment trusts, or REITs. This is surely one of the best real estate investment options.
Given how closely they resemble the stock market, REITs are prevalent across a variety of real estate sectors.
Investors in REITs can anticipate regular payouts as well as the possibility of long-term gains and value appreciation.
3. Crowdfunding Platforms
The average investor’s investment options have increased thanks to real estate crowdfunding, one of the best real estate investment options.
When compared to traditional real estate, this kind of real estate investment platform has a lower entry barrier and offers a low-maintenance form of passive investing.
The ability to conduct the entire transaction online is one of the best features of investing through crowdfunding. You can diversify your holdings and gain access to specialized real estate markets by engaging in remote real estate investing.
Although significant market crashes have yet to affect crowdfunding platforms, the majority of them have over ten years of experience managing illiquid assets for real estate investors like you.
4. Real Estate Investment Groups (REIGs)
Real estate investment groups, or REIGs, are companies that put the majority of their funds into real estate. This is one of the best real estate investment options.
These organizations are typically made up of a number of investment partners who combine their resources to take advantage of prime real estate opportunities like commercial multifamily properties.
For the most part, existing real estate investments are maintained and managed by investment partners. Shared tax responsibilities and regular reporting of business income are made by the group.
5. Residential Real Estate
From a single-family home to a condo in a multi-unit building, residential real estate can take many different forms.
Residential properties, is one of the best real estate investment options, can be used for a variety of purposes, including renting them out, hosting guests through services like Airbnb or VRBO, or even flipping them to raise the property’s value.
Residential properties can help you generate passive income and expand your investment portfolio, even though owning one comes with responsibilities.
Rent payments, move-in fees, security deposits, and pet fees can all be used to generate income from renting out your property.
A. Single-family homes
One of the most common long-term real estate investment options is single-family homes. These standalone homes can bring in a steady stream of renters and provide a practical method of real estate investing.
Those who own a home or business will find it relatively simple to comprehend single-family rental income taxes. Every year, you must report the rental unit’s profit and pay taxes in accordance with your income level.
This asset is a mainstay in residential real estate investment portfolios due to rising demand. A single-family rental house situated in an urbanized area can produce a significant return on investment when homeownership rates are low.
In spite of this, managing even a single-family home requires a lot of work, and your income potential may be somewhat constrained in comparison to other options on this list.
B. Holiday Rentals
By making an investment in a short-term rental option like a vacation home, you can profit from a desirable location.
A single-family home or multifamily unit used as a vacation rental welcomes short-term guests in well-known locales like popular tourist destinations like beaches or large cities.
If you want to make money while entering gateway markets, you must strategically source your investment in vacation rentals. Apps like Airbnb have made it simpler than ever to draw tenants to your vacation rental once you’ve secured your rental property.
High-quality vacation rentals can assist you in converting a long-term hold into your future dream home, benefiting from exchange rates, and paying off a mortgage with rental income.
C. Multifamily Units
Investors who can afford a larger initial investment than they can for single-family homes may find that multifamily properties are a great addition to their portfolio.
Consider investing in the following multifamily properties:
- Condominium buildings
- A duplex or triplex
- Apartment buildings
- Townhomes
Keep in mind that any complex with more than five multifamily units is classified as commercial real estate and will be subject to different tax obligations.
Because multifamily units appeal to a wide range of tenants, they provide you with the option of maintaining both short-term and long-term leases.
Multifamily properties that are underperforming can be turned around by value-add investors by installing opulent amenities like hardwood floors, laundry facilities, or dog parks. The updated unit can then generate more cash flow or command a higher price on the market.
D. House Flipping
When looking into alternative investment strategies, investors with limited start-up funds may discover house flipping. An increasing number of people are using this high-risk, high-reward strategy.
Restoration work is done on a property that is undervalued before it is profitably sold. Typically, there are no guarantees that this process will produce a profit and it can be expensive and labour-intensive.
Investors don’t have to go to the property in person when they micro flip it, more specifically. Because of this, ibuying tactics like microflipping are viewed as risky investment methods and should be used with caution.
E. House Hacking
A mortgage could possibly be paid off using the alternative investment strategy known as “house hacking.” This investment strategy typically involves a residential property that is owner-occupied and has been altered to accommodate the requirements of multiple tenants.
For tenants, renting a room in a big suburban house is less expensive than renting a single-family home or renting a multifamily building in a nice neighbourhood.
For investors who already own homes and want to start receiving rental income from their property, it is a profitable option to take into account.
ADUs and attached apartments have a high potential for revenue, as shown by house hacking. Because both owners and tenants can enjoy their privacy, converted garages and basements with their own entrances are among the most popular types of house hacking.
F. Hotels
The real estate class of hotels, which is frequently undervalued, has the potential to create a network of opportunities. Successful hotel chains can take over an area, spread across the nation, and even go global.
Hotels may be able to generate a ROI similar to pre-pandemic levels as post-pandemic occupancy rates rise. Naturally, this varies greatly depending on where you are, as some markets have done better than others.
This kind of commercial real estate is divided into several hotel tiers:
- Full-service: This category of hotel offers extra-cost amenities. To draw in the intended audience, they must be kept up well.
- Limited service: For the enjoyment of the guests, basic amenities like a pool and a fitness center are offered. There are hotels in this tier that are business express and economy.
- Budget: For a reasonable price, this tier may only provide its visitors with the amenities that are already included in their room or parking space.
- Extended stay: This category is for visitors who are staying for an extended period of time and need access to regular amenities like a full kitchen and on-site laundry.
Each hotel tier can be managed by an outside company, as is the case with many active real estate investing strategies, if you aren’t interested in keeping up the appearance of your business property.
For a precise estimate of the hotel ROI, include property management costs in your investment strategy.
6. Commercial Real Estate
Instead of having tenants, a business either leases or rents out commercial real estate. This is one of the best real estate investment options.
An office building, a unit in a strip mall, or a restaurant are examples of commercial structures. For a fixed monthly rent for a lease term typically longer than 12 months, the company would pay the property owner directly (unless the business owns the property).
Commercial rentals may require larger initial deposits and ongoing rent payments than do residential rentals, but it may take longer to find tenants for open spaces.
Given that some leases can last up to five years, they can also contribute to the generation of passive income over extended periods.
A. Retail Spaces
Retail spaces can be speciality boutiques, big-box stores, or anything in between. Markets for retail real estate also include necessities like supermarkets and gas stations, which serve as anchor investments when the economy is unstable.
Retail spaces and other commercial real estate options have the potential to outperform residential properties and produce more stable cash flows.
Commercial real estate tenants who meet the requirements typically sign multi-year leases and can manage scalable businesses.
Some examples are as follows:
- Indoor shopping centres
- Outdoor strip malls
- Stand-alone storefronts
- Restaurants and food truck lots
In the commercial real estate market, retail properties offer some of the most varied opportunities.
When they are home to well-liked retail establishments like fast food restaurants and daycare facilities, strip malls made up of several venues have the potential to produce high returns on investment.
B. Health Care Facilities
Medical office buildings (MOBs) are equally important as supermarkets, gas stations, and other basic assets in our rapidly transforming world.
The value of healthcare facilities is expected to continue increasing, and this asset class of commercial offices has recently seen exponential growth.
MOB owners can anticipate attracting tenants who are willing to sign long-term lease agreements.
C. Office Buildings
Beyond Silicon Valley, into key markets across the nation, startup culture has successfully spread. Office buildings are a less volatile asset class because, like retail stores, office tenants frequently sign multi-year leases.
The use of offices may temporarily decline due to the unstable economy, but coworking spaces that prioritize upscale amenities and a variety of accessibility features have emerged in response to remote work culture’s challenge to conventional office practices.
A single tenant can rent out the entire office space to grow their own business, or multiple companies can each operate their headquarters out of the same office building.
D. Industrial Properties
Warehouses and manufacturing facilities that can be located in pre-designated industrial parks make up the majority of industrial real estate. It is crucial to emphasize the logistical benefits of industrial lots because they serve as supply chain hubs.
The erratic nature of the supply chain benefits owners of industrial properties whose tenants must wait for delayed shipments before they can resume production. Investors may be encouraged to increase their holdings of industrial lots by tax credits and stimulus plans.
Tech startups expand their manufacturing capacities and take advantage of the market’s growing supply of mixed-use industrial lots because of the increase in e-commerce sales. Labs in industrial buildings can also be used by niche markets such as cannabis real estate.
E. Mixed-use Spaces
For tenants who require a space for research and development (R&D)t, mixed-use lots provide vibrant working environments. These types of adaptable spaces are frequently found near industrial parks or sparsely developed suburban areas.
Flex spaces are accommodating by design and provide lots of parking for shipping trucks and commuter cars. Multiple businesses that tailor each unit to best meet the needs of their organization can be housed in large complexes.
Flex spaces can be tailored to a specific niche’s requirements or furnished with typical office amenities to draw scalable businesses. For tenants looking for large offices, warehouses, or manufacturing space, they may be a less expensive option.
Which Real Estate Investment Type Is Best?
Depending on your unique situation, objectives, market area, and preferred investing methodology, real estate investment may not be the best choice for you.
The best kind of investment property is a matter of opinion, despite the fact that many investors would prefer a clearer answer.
In order to make the best decision, investors must weigh the advantages and disadvantages of each property type, but there are some important considerations they should keep in mind.
Location is a crucial factor to consider when deciding on the best kind of investment property. Vacant land or new construction may be lucrative investments for investors in “up-and-coming” markets, while residential real estate may be appealing to investors in more “mature” markets.
Investors should be conscious of their own preferences in addition to location. When deciding which kind of property to invest in, consider your preferred level of involvement, risk tolerance, and profitability.
In order to play a more passive role as an investor, some investors choose to purchase and hold commercial or residential properties while appointing a property manager.
On the other hand, those looking for a more fulfilling role may find renovating residential properties or developing vacant land to be more rewarding.
It’s crucial to keep in mind that many investors succeed in a variety of property types as you select the best type of investment property for you. Before focusing on commercial properties, it’s common for investors to become familiar with residential real estate.
Having said that, there is no reason why investors cannot succeed by making investments in various property types.
Investment Styles: Active vs. Passive
The difference between active and passive investments should be taken into consideration when selecting an investment strategy.
As their name suggests, active strategies call for a more active management style. For instance, remodeling a home is regarded as an active investment tactic.
You will be responsible for organizing remodeling projects, managing contractors, and ultimately seeing that the property sells. Although they require more time and effort, active strategies have high profit margins.
On the other hand, investors who prefer a less involved approach will benefit greatly from passive real estate investing. REITs, buy and holds, and rental property ownership are a few examples of passive real estate investing.
By using these methods, you can generate passive income over time while letting another party, such as a property management firm, take care of managing your investments.
Only keep in mind that if you hire someone else to manage the investment, you might lose out on some of your returns. The best investment strategy will ultimately depend on your schedule, skill level, and financial situation.
Investing: Direct vs. Indirect
The choice between direct and indirect real estate investing strategies should be taken into account. Direct vs. indirect investing refers to the required level of involvement, much like active vs. passive investing.
While indirect strategies require less active participation, direct investments actually involve buying or managing real estate.
Indirect real estate investments include, for instance, REIT investing and crowdfunded homes. Purchasing or renovating real estate are examples of direct investments.
Final Thoughts
For investors prepared to put in the effort, a variety of property types can produce high-profit margins.
However, a lot of investors may wonder what the best real estate investment is because there are so many options available. Although this is a straightforward query, there is not straightforward response.
The best kind of investment property will depend on a variety of factors, so when looking for potential deals, investors should be cautious not to rule out any options.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.
