What Are The Types Of Real Estate Investments

Real Estate Investments: Century 21 President

As the market is transforming with  the changing trends in real estate there is a hike in new investors. Some of the most important aspects these investors are looking to attribute  maximum profits on an ongoing basis. It is important to understand how different types of real estate investments work and what are the available options; 

Before we dive into the different types of real estate investments  to give you an overview of the available options; I need to take a moment to explain that you should never buy investment real estate directly in your own name. This may help to safeguard your name if anything goes above and beyond also helps prevent raise any personal bankruptcy or related issues. All the pro real estate investors use a special legal structure known as a Limited Liability Company, or LLC for short, or a Limited Partnership, or LP for short.

These special legal structures can be setup for only a few hundred dollars, or if you use a good attorney, a few thousand dollars. The paperwork filing requirements aren't overwhelming and you could use a different LLC for each real estate investment you owned. This technique is called "asset separation" because if one of your properties got in trouble, you may be able to put it into bankruptcy without hurting the others (as long as you didn't sign an agreement to the contrary).

There are several ways investors can earn passive income from real estate investments:

  • Residential real estate investments are properties such as houses, apartment buildings, townhouses, and vacation houses where a person or family pays you to live in the property. The length of their stay is based upon the rental agreement, or lease agreement.

  • Commercial real estate investments consist mostly of office buildings. If you were to take some of your savings and construct a small building with individual offices, you could lease them out to companies and small business owners, who would pay you rent to use the property.

  • Industrial real estate investments consist of storage units, car washes and other special purpose real estate that generates sales from customers who temporarily use the facility. Industrial real estate investments often have significant "fee" and "service" revenue streams, such as adding coin-operated vacuum cleaners at a car wash, to increase the return on investment for the owner.

  • Retail real estate investments consist of shopping malls, strip malls, and other retail storefronts. In some cases, the landlord also receives a percentage of sales generated by the tenant store in addition to a base rent to incentivize them to keep the property in top-notch condition.

  • Mixed-use real estate investments are those that combine any of the above categories into a single project. I know of an investors who invest in a town. Take assistance from bank  for financing and built a mixed-use three-story office building surrounded by retail shops. The bank, which lent him the money, took out a lease on the ground floor, generating significant rental income for the owner. The the other floors were leased to a health insurance company and other businesses. Mixed-use real estate investments are popular for those with significant assets because they have a degree of built-in diversification, which is important for controlling risk.

  • Real Estate Investment Trusts or REITs trade like stocks and own a portfolio of underlying real estate or real estate mortgages. Understanding the differences, advantages, and drawbacks of REITs is so important that I wrote a five page article, Real Estate Investing through REITs to hep you understand them.

Technically, lending money for real estate is also considered real estate investing but I think it is more appropriate to consider this as a fixed income investment, just like a bond, because you are lending money with property securing the debt. You have no underlying interest in the appreciation or profitability of a property beyond the interest income to which you are entitled.

Likewise, buying a piece of real estate or a building and then leasing it back to a tenant, such as a restaurant, is more akin to fixed income investing rather than a true real estate investment. You are essentially financing a property, although this somewhat straddles the fence of the two because you will eventually get the property back and presumably the appreciation belongs to you. I specialize in assisting clients to invest in all the above mentioned real estate scenarios feel free to contact here  

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