Real estate investments are of various types; you can single out any of them according to your requirements. Generally, you should consider following points when choosing one of them.
o How much capital do you have?
o Are you interested in short-term investment or long-term investment?
o A careful review of advantages and disadvantages
Coming back to our topic i.e. different types of real estate investments, following are some basic types of investment.
This is the most basic and probably the most commonly used method, you purchase a property, find some renter and rent it out after agreeing upon a fix amount of monthly rent. All expenses like maintenance, tax, mortgage payments lies on you (the landlord), while you secure a regular cash flow coming from the monthly rent payments. Not only that, but you can also benefit from property prices going up in the meantime. You can rent all types of properties, be it the residential, commercial or vacation rentals.
As mentioned earlier, you will be getting a regular stream of income while keeping the possession of property rights, therefore you can benefit from the increase in property value as well.
In case you are not able to get some reasonable tenants straight away, you are stuck with your investment, which is supposed to be a large one. Also, the irksome chores of maintenance or dealing with troublesome occupants can prove to be a little too much for some landlords.
Property flipping is most common in real estate markets going through significant growth. In these markets (where property prices are soaring), you can purchase a property and put it up for sale straight away, because the prices are rapidly increasing, you should be able to make profit instantaneously. More experienced investors also go through some renovations in the property (known as fix and flip) to secure maximum profits.
This type of property trade (buying and quickly selling) is not recommended for rookies, as it involves quite a number of complications. However, lots of experienced and shrewd investors have managed to make quick money, by just flipping the properties in booming markets.
An unsuccessful attempt at property flipping (where you fail to flip the property to another buyer or the price goes down instead of rising) can prove to be disastrous. Stay away from this type unless you are sure of your foreseeing skills.
Indirect Investment (Investing through REIT):
If you are short of capital (not enough to purchase a property on your own); you must be looking for an alternate that’s easy on your pocket. Investing in “Real Estate Investment Trusts” or real estate investment groups is one such alternative. Real Estate Investment Trusts (REIT) or groups are corporations, they invest in real estate and you can purchase the shares (quite similar to mutual funds).
This is easily the most liquid form of real estate investment as these securities can be sold anytime like stocks. You don’t require substantial funds to invest and the profits are often higher than normal stocks.
Just like mutual fund, you need to have a basic understanding of the market before you invest into REIT. Another negative aspect is that normally the growth rate in share values or dividend is minimal.