The real estate market has been a big one for decades, and it gets better every year because land consistently appreciates in value, enabling the investment niche to produce many millionaires.
Many people are interested in investing in real estate, however, little or no capital make many shy away from real estate investing. This guide is a detailed explanation of the types of real estate investments and also how to make real estate a real investment with a little starting capital.
Types of Real Estate Investments
Real estate investments are broadly classified into two categories: Direct real estate investments and indirect real estate investments like real estate investment trusts (REITs). There are several types of direct real estate investments, and we’ll explain a few of them.
Residential Real Estate
Residential real estate investments are a common type of investment in the real estate sector because people always need personal residences. The greater the population, the greater the demand for homes. Hence, such an increase in demand needs a corresponding hike in supply.
Single family home purchasers often have lots of people competing for rent. Residential real estate investment is one real estate investment which blooms all year round. Thus, buying a home below the median price means increased selling profit for you, if you decide to sell.
The various residential real estate investments types include vacation rentals, long term rentals, accessory dwelling units, flipping and micro-flipping. As a matter of fact, residential real estate is often the starting point of real estate.
Investing in residential real estate is profitable because it appreciates in value over time. You can make lots of money off your initial investment if you know what you’re doing. There are also tax benefits associated with investing in residential real estate.
Commercial Real Estate (CRE)
CRE is another popular form of direct real estate investments. Commercial real estate investing is basically the business part of real estate. An example is a rental property which can house 500 or 1000 occupants, like a hall or convention center built with the purpose of holding meetings, conventions or any other related event. Hotels, offices and warehouses are also classic examples.
Commercial real estate investments favor professionals better than beginners. For instance, in an area, there may be lots of people looking for a residential apartment but just few businesses looking to occupy a commercial space.
Commercial real estate is lucrative. Since you’re dealing with businesses rather than families, it also creates a more professional relationship and easier maintenance. However, there’s risk involved as the owner could have worries over someone damaging the property.
Industrial Real Estate
Industrial real estate is a specialized form and involves spaces for factories, warehouses etcetera. It involves using the space for business or related activities. A worthy example is McDonald’s.
Retail Real Estate
This real estate investing type involves renting out spaces to businesses that are available to sell stuff and provide services, such as shopping malls and entertainment spots.
The benefits of retail real estate are longer leases and lower maintenance. Their maintenance cost is lower because the tenants (owners of the individual shops) pay for utilities and other pre-discussed expenses.
Mixed use entails having special zoning rights on a property to do multiple things. For example, a high rise building with a residential part above and shops below.
How You Can Invest In Real Estate With Little Money
One problem in real estate investing is the huge cost involved in purchasing properties, making it difficult for investors to buy many properties at the same time. Worse still, lack of capital locks many people who might be interested back out of investing.
There’s hardly a billionaire who doesn’t have real estate investments, however, the majority of the populace can’t afford such.
There are few ways you can start investing in real estate without the traditional costs . We have documented and analyzed 3 ways by which you can get started and invest in real estate with little or no money down. They are:
A lease option is a contract between the tenant and the owner of the property to pay an additional amount on top of the rent. This extra amount goes towards the purchase of the house.
The property owner gives the buyer a monthly or yearly premium, which comes in the form of higher rental payments.
FHA Loan Program
This special loan program is targeted at helping people purchase their first home. However, you can use it to start your real estate investment journey. The advantage of FHA loans is accessibility to anyone as long as they’re qualified.
A classic example of the application of FHA loans in real estate is house hacking. This method involves you getting a rental property with an FHA loan and then renting out a few rooms while staying in one yourself. The house hacking method makes it easier to get into real estate faster, without having to jump straight into single family housing.
REITs allow anyone to own or finance properties in the same way shareholders benefit by holding stocks. The REITs stockholders own real estate investments without having to buy and finance the property.
It’s easier to diversify your holdings by investing into various REITs. Depending on your financial capability, you can own a specific percentage of an apartment building like a nursing home, industrial park and medical buildings.
There are a few other cheap investments to make in real estate. Real estate investors with lower capital can also try out SBA loans, trade houses, home equity loans, micro loans and even hard money lenders.
Real estate is making millionaires daily, and you shouldn’t be left behind. The best time to start investing in real estate is years ago, and the second-best time is now.
Ensure you take your time to understand all the different avenues of investing and take advantage of the various cost-effective methods of getting started we’ve explained to make real estate a real investment.
If you’re interested in getting a loan to start up your short or long term rental in real estate, then consider checking out the Mortgage shop.