Different Types of Real Estate Investments
Real estate is one of the greatest ways to build wealth, no secret there. Now there are hundreds of different ways to invest in real estate...maybe even thousands! I will share with you the four types of real estate: residential, commercial, industrial and land. Let’s get going:
Residential - Residential properties include: single-family homes, multi-family homes (2-4 apartments), mobile homes, townhouses, and condos. Each type can generate investment returns in different ways like, capital gains from a fix & flip, appreciation, rentals, and Airbnb to name a few. Residential real estate is a great way for new investors to get in the game! A great way to do this is called “house-hacking”. House hacking is where you buy a property, then rent out the other rooms or units to cover your expenses as the home owner! This genre of real estate is relatively well known and I’ll dive into more specific points in further posts.
Commercial – This is property used for retail purposes, office space, and apartment buildings containing 5 or more units. Investors buy these properties and rent them to business owners who need space to run their companies, buy and sell goods and services, and large apartment complexes. You’ll see these spaces all around the city or town you live in, you’re favorite restaurant, morning coffee stop, the local fashion store, that brewery on the corner and that new apartment complex your best friend just moved into. Commercial properties are a great way for investors to spread out their portfolio and offer favorable leasing options for the owner along with some great returns. Now commercial real estate can be more complicated and difficult to get into...but that’s why you’re here investing in your education!
Industrial - Industrial properties typically include buildings used by companies for the manufacturing, warehousing, and distribution of their product. Savvy real estate investors know that industrial space can generate some amazing returns with very few expenses. They often yield higher returns with longer leases, turnover rates are much lower, and favorable lease options where the tenant/company pays for a majority/all the monthly expenses. However, on the flip side, the building could sit vacant for a long while in between tenants due to the uniqueness of this real estate class. Now I would say industrial real estate investing is one step higher than commercial, with regards to difficulty entering the market and overall understanding of the investment. This is a great next step to take to get to that next level of real estate investing that you’re striving for!
Land - Buying land is a proven investment strategy that can produce healthy returns. Generally buying raw land won’t net you any passive income unless you get creative (leave a comment for creative uses of land below!!) Land in a popular location or spot that could be the site for future development can pay off handsomely in the future. There is generally less competition with vacant land as well, individuals don’t see the potential, can’t see possibilities of passive income, impatient, and land’s just “too boring.” All this can be more lucrative to a knowledgeable land investor!
Now this is a very quick, simple, and shallow over view of each category aiming to get the new investor’s feet wet or a quick re-fresher read to a seasoned investor. All this well I work on improving my skills and goals to become more active blogger! I’ll be looking to dive in deeper on these categories along with some other methods to invest in real estate soon! Please let me know what you think along with any constructive feedback, questions, etc and just reach out with a follow or connection here on BP!
Thanks for reading, great job continuing your education, and don’t forget to comment your thoughts!
We earned a Homelight Achievement for 2019! Real Estate Agents earn this award when they rank in the top 5% of agents in their area based on historical real estate transaction data. Each year, Homelight awards agents at both the local and national levels for excellence in 3 distinct categories. As winners of Homelight Achievements we're proud to represent some of the top-performing agents working in America today.
Still on the fence and dragging your feet about making a real estate investment?
Just try it.
Imagine the Wright brothers never attempted flight. Imagine Benjamin Franklin never tried to invent electricity. Imagine Columbus never set sail. The world would be a lot different right now.
They didn’t have it all figured out when they started, but it worked out pretty well. The same can be said for the efforts of Elon Musk, Bill Gates, Warren Buffett, Sam Zell, and many others.
Real estate is a proven investment. It’s benefits have been proven for thousands of years longer than the stock market or cryptocurrencies. 90% of millionaires have made their money in real estate. There aren’t any billionaires who don’t own any or a lot.
Whether you just want to improve your financial position now, grow your wealth, future proof your income, optimize your finances for fewer taxes, or secure passive income streams for when you can’t work, or ensure your family is provided for when you can’t be there, real estate stands out as the best solution.
You may never have mastered every one of the finer points of real estate and investing. There is a lot to know, and things are constantly changing. Yet, you’ll never get any of the benefits unless you try it. You can always improve and tweak as you go and make your next investment better than the last.
It’s virtually always the things we don’t try that we regret, not those we do. The best day to have gotten started may have been yesterday, but there won’t be another day as great to get going like today.
You can take the DIY approach and buy your own rentals or try to flip houses yourself. You can take little baby steps and de-risk it as you go. Or you can partner with experts who have mastered it already, and have teams of people to make sure everything runs well, and just get the benefits while they do all the hard work.
Learn from them as you go. Make on investment. Watch how it performs. Then improve or simply repeat.
Whether it is for wealth preservation or growth, the tax-saving benefits, passive income or the returns, real estate investing is hard to beat. There’s nothing that offers this level and balance of stability and upside potential.
Start with a small investment today if you don’t have any real estate in your portfolio. Or expand and try something new, or upgrade to apartment building investing if you haven’t tried it yet.
You are the only thing holding your finances back. You are the only one who can make the breakthrough by taking small and easy actions to change that.
Make a new investment today...
My job is to help you get top dollar when selling your home, here are 6 tips to maximizing your profit!
Maximize the light in your home. After location, good light is the one thing that every buyer cites that they want in a home. Take down the drapes, clean the windows, change the lampshades, increase the wattage of your light bulbs and cut the bushes outside to let in sunshine. Do what you have to do make your house bright and cheery – it will make it more sellable.
#5: Don’t over-upgrade just update!
Do updates that will pay off and get you top dollar. Get a new fresh coat of paint on the walls. Clean the curtains or go buy some inexpensive new ones. Replace door handles, cabinet hardware, make sure closet doors are on track, fix leaky faucets and clean the grout.
#4: Take the home out of your house
One of the most important things to do when selling your house is to de-personalize it. The more personal stuff in your house, the less potential buyers can imagine themselves living there. Get rid of a third of your stuff – put it in storage. This includes family photos, memorabilia collections and personal keepsakes. Consider hiring a home stager to maximize the full potential of your home. Staging simply means arranging your furniture to best showcase the floor plan and maximize the use of space.
#3: The kitchen comes first
You’re not actually selling your house, you’re selling your kitchen – that’s how important it is. The benefits of remodeling your kitchen are endless, and the best part of it is that you’ll probably get 85% of your money back. It may be a few thousand dollars to replace countertops where a buyer may knock $10,000 off the asking price if your kitchen looks dated. The fastest, most inexpensive kitchen updates include painting and new cabinet hardware. Use a neutral-color paint so you can present buyers with a blank canvas where they can start envisioning their own style. If you have a little money to spend, buy one fancy stainless steel appliance. Why one? Because when people see one high-end appliance they think all the rest are expensive too and it updates the kitchen.
#2: Always be ready to show
Your house needs to be "show-ready" at all times – you never know when your buyer is going to walk through the door. You have to be available whenever they want to come see the place and it has to be in tip-top shape. Don’t leave dishes in the sink, keep the dishwasher cleaned out, the bathrooms sparkling and make sure there are no dust bunnies in the corners. It’s a little inconvenient, but it will get your house sold.
#1: The first impression is the only impression
No matter how good the interior of your home looks, buyers have already judged your home before they walk through the door. You never have a second chance to make a first impression. It’s important to make people feel warm, welcome and safe as they approach the house. Spruce up your home’s exterior with inexpensive shrubs and brightly colored flowers. You can typically get a 100-percent return on the money you put into your home’s curb appeal. Entryways are also important. You use it as a utility space for your coat and keys. But, when you’re selling, make it welcoming by putting in a small bench, a vase of fresh-cut flowers or even some cookies.
Quite a few people have asked me, “Where are we in the real estate cycle?”
I’ve never known anyone who can regularly predict when the real estate market will peak, but that doesn’t mean we shouldn’t try to gauge where we are in the cycle.
Real estate regularly goes through multiyear cycles of boom and bust periods. These cycles can be broken into four periods: peak, contraction, trough, and expansion. The following is a mental model I use to understand how my property ties into the greater real estate market and when I need to become greedy or conservative in my real estate activities.
During a peak, everyone wants to buy real estate. The fear of missing out leads to panic buying. Home equity loans become all the rage and banks begin loosening their lending requirements. Real estate prices reach record highs and appreciation begins to decelerate. Properties start taking a little bit longer than usual to sell. Housing becomes unaffordable in normal markets (i.e., not Silicon Valley or New York).
The panic selling begins. You begin to see rapid price reductions for homes on the MLS. Unemployment increases. Houses are taking even longer to sell on the MLS, and housing affordability begins to increase. New home construction freezes. The federal reserve starts lowering interest rates. The CAR index for 2008 was 33 percent, 2009 was 50.75 percent, and 2010 was 48 percent.
Housing prices begin to stabilize. Few people are willing to invest in real estate. Investors with experience, capital, and track records are able to raise funds for investing. Think when the CAR affordability index was 52.75 percent in 2011 and 51 percent in 2012.
Housing prices start to rise. Home builders return to the market, and we see a surge in construction of new homes. Unemployment decreases. Real estate becomes popular again. Inflation increases and the federal reserve begins raising interest rates. Think when the CAR affordability index was 36 percent in 2013 and 30.75 percent in 2014.
Real estate cycles can last decades or more. Sometimes it sends us false signals that the market is going to continue expanding or doom is right around the corner. Unfortunately, it only becomes perfectly clear years later. So if we can’t predict where we are in the cycle, why should we care about it?
We should care so we can anchor ourselves to some semblance of sanity when the market becomes overly optimistic or pessimistic. If we think in probabilities of the likelihood of where we are in the cycle, it can inform us of how aggressive or defensive we should be when we price our deals. Furthermore, the wisdom of the crowd can influence even the most sophisticated investors. The only way we can lessen its hold is to recognize what’s transpiring in the market. This provides us with a physiological distance from the world around us.
When the market becomes overheated, you’ll start hearing, “Well, this market is different because X won’t happen again, and interest rates are low, so I better pull the trigger before the Fed takes action.”
The specific property you are looking at should drive your investment decision—not macroeconomic forces. You shouldn’t pull money out of your house to buy any piece of property because interest rates are low. And if interest rates are high, you aren’t going to pass on an investment that makes financial sense.
Macroeconomic indicators are great for cocktail parties and useless debates. But if you want to be successful in real estate, you need to know what your financial goals are. What makes a potential deal good for your financial goals? What’s going on in the neighborhood you invest in? And how can you make an offer that takes into consideration the potential risk of being too pessimistic or optimistic regarding the real estate market?
By Jordan Thibodeau
I think it's just the humility to get around people that are doing it better than you are. Learning from those people and not trying to reinvent the wheel and asking for help. I think that's a thing that's a big one. For the first five years of our business, we were on an island, we didn't have anybody around us and we were just trying to figure it out on our own because we're smart guys. That's not the right way to do it. Getting around people that are actually doing it and can show you some tips and tricks that'll save you millions of man hours and millions of dollars over the life of your business.
That's probably a pretty smart move, right? So I love when I am around people that have mastermind groups and meetup groups and things like that because they think that they can do it themselves. Those are typically the people that aren't doing anything. The most successful people that I'm around are buying planes and things of that nature. Those are the guys that I'm in masterminds with. So, that's number one is just being humble enough to say that you're not the smartest guy in the room and go find that smart guy and try to attach yourself to them. And then perseverance. I mean you just can't give up, we never had a plan B, there is no backup plan. I was always looking forward, not ever looking backward unless it was to analyze what went wrong and learn from it.
And the first couple of years I'll be honest, I was looking for sales jobs, I was good at sales. I could go make $150,000 a year and my wife is a very process oriented, she's a security driven and I mean God grew her a lot through giving her me because I don't need security. She wanted a paycheck and I was like, no, I won't do it. But as I started looking around for these other jobs to go back into because it was hard in the beginning. My wife was like, please don't just don't go get a job, you're going to be miserable. She said, just go, you can make this work and you know, I'm going to support you through it. And that really motivated me and having the persistence to continue on and not have a plan B was, was huge.
Not too many people do that, but that's a really big idea. And I really hope you guys will execute that and put that place in your life. You need to be all in on the things that you're doing. If you're not all in, then you're all out because you can't just put a little bit here and a little bit there and hope that everything turns out. It takes a lot of effort, energy, and more important focus to succeed.
When looking for a property manager, you may be interested in knowing the status of their interest in the realm of property investment. Ultimately, when you entrust your unit to a property manager, you are hoping that they will have your best interest at heart--that they will know what is best for you and your property. For this reason, you may be tempted to ask them if they have properties of their own. That is, are they an investor as well?
There are a few ways to think about property managers as investors. To begin, you might have some doubt about their focus on your property. You may wonder to yourself, “will they be fully focused on helping me and managing my property if they have properties of their own to think about?” This is a completely valid doubt to have, as you have money in the game! Of course you want to ensure that you are the focus of the company you have hired. It makes perfect sense that you would worry about a potential conflict of interest. However, there is another way entirely to look at the issue.
That is, their status as an investor may be a boon to you after all. To be an investor is to know an investor. It’s possible that, given their experience with property investments, they are better equipped to maintain your property in ways that benefit you most. This is because they know what would matter most to the property owner--all because they’ve been on that end before. Given their knowledge, they may be able to help and guide you, especially if you are new to property investment.
In spite of all this, however, it’s also very possible that a property manager’s experience, or lack-there-of, in terms of owning and renting out their own properties, could have no effect at all on their treatment of your investments. As all things in life go, this is a very individualized issue. The most important thing is to keep in mind, as you search for a property manager, is whether or not you trust them as a person. More so than as an investor, a person is who you want working on your side--a well informed, well-intentioned person. So, yes, do your research, but also trust your gut! If your property manager has your best interest in mind, their personal investment experience will matter little-to-none.
Curious about local real estate? So are we! Every month we review trends in our real estate market and consider the number of homes on the market in each price tier, the amount of time particular homes have been listed for sale, specific neighborhood trends, the median price and square footage of each home sold and so much more. We’d love to invite you to do the same!
You can sign up here to receive your own market report, delivered as often as you like! It contains current information on pending, active and just sold properties so you can see actual homes in your neighborhood. You can review your area on a larger scale, as well, by refining your search to include properties across the city or county. As you notice price and size trends, please contact us for clarification or to have any questions answered.
We can definitely fill you in on details that are not listed on the report and help you determine the best home for you. If you are wondering if now is the time to sell, please try out our INSTANT home value tool. You’ll get an estimate on the value of your property in today’s market. Either way, we hope to hear from you soon as you get to know our neighborhoods and local real estate market better.