Real estate is one of the most popular investments in the world. Even though it has allowed millions of people to find financial freedom, the average investor can still get a bit turned off by real estate due to its simple, yet extremely hands-on, approach. This article will help you learn how real estate works and what it means for your portfolio, so you can find financial freedom faster!
What is Real Estate?
Real estate, also known as property, is a general term for any land or physical structure that you can own. This includes buildings and other structures, such as farms or businesses. There are multiple types of real estate, ranging from residential to commercial, industrial, land, special-use, and mixed-use real estate.
Real estate can be used as an investment vehicle because it provides steady returns over time and doesn’t rely on market conditions as stocks do.
How Real Estate Works
Real estate is an investment vehicle that allows you to make money by renting out a property or increasing its value. You can buy a piece of property and collect rent, which provides you with a passive income stream each month. Or, you can invest in real estate by purchasing properties that increase in value over time. This strategy is known as appreciation investing and is commonly used by investors who want to make more money on their money than they would from putting it into traditional investments (such as stocks).
The Real Estate Industry Today
It shouldn’t surprise you that residential real estate is the largest asset class on the planet and the largest financial investment generally. Almost anyone from any part of the globe can invest in real estate, or buy a home for themselves or their family. This low barrier to entry makes real estate investing one of the most attractive investment vehicles out there.
But, even as the largest asset class on earth, real estate still can stutter. The housing market-imposed 2008 real estate and stock market crash halved home values across the United States, as well as many parts of the world. Now, in the post-2020 world, real estate has become one of the hottest commodities, despite split speculation of another housing market crash on the horizon. Historically low-interest rates, rising wages, and a flourishing work-from-home culture is causing everyday Americans to reevaluate their living choices, and invest not only for profit, but for their own shelter, by buying real estate.
7 Types of Real Estate
In this article, we’re going to talk about the seven main types of real estate:
- Residential
- Commercial
- Industrial
- Land
- Special-Purpose
- Mixed-Use
- Digital real estate
Enough listing, let’s get started!
Residential Real Estate
Residential real estate is any property that’s meant to be lived in. This includes single-family homes, multi-unit apartment buildings, condos, townhouses, and more. If you’re looking for a place to call home and settle down, residential real estate is probably your first choice.
Commercial Real Estate
Commercial real estate is any property that’s meant to be used for business. This includes office buildings, warehouses, stores, and more. If you want to open your own business and need space to do it, commercial real estate is probably one of the first things you should think about buying.
Industrial Real Estate
Industrial real estate is any property that’s meant to be used for manufacturing. This includes warehouses, factories, distribution centers, and more. If you own a business that needs space to make its products, industrial real estate can help you save money by providing it for your company. Or, you can buy industrial real estate and rent it out to local businesses.
Land
Land is a type of real estate that’s generally considered to be the least valuable. It’s often used as an investment, however, because it can increase in price over time thanks to inflation. Many individuals buy land intending to build a home on it later. This is called “developing” or “subdividing” land and can be quite profitable if done correctly.
Special-Purpose Real Estate
Special-purpose real estate is a type of property that’s used for a specific purpose. Examples include hospitals, churches, office buildings, and shopping centers. These properties are generally considered to be less valuable than other types of real estate because they have fewer uses than homes or businesses do.
Mixed-Use Real Estate
Mixed-use real estate is a type of property that has both residential and commercial uses, such as apartments located above retail stores. This type of property can be quite lucrative because it provides an opportunity for additional income streams.
Digital Real Estate
When most people think about digital real estate, their mind thinks of the metaverse. Metaverse real estate is a subset or type of digital real estate. Digital real estate is much more than just the metaverse, it’s anything online that makes money. Although digital real estate is relatively new, it’s a great way to diversify your investments and the potential rewards can be huge. If you’re still not sure about digital real estate, check out our article that answers every investor’s top question; is digital real estate legit?
Investing in Real Estate
Investing in real estate can be a great way to build wealth. You don’t have to be an expert on the market or have an unlimited amount of money to invest; with a little knowledge and some hard work, you can build yourself a solid investment portfolio.
How to Invest in Real Estate
Asking how to invest in real estate is a bit like asking “how to cook an egg?” There are more than a dozen different answers. The two most important concepts you can learn when investing in real estate as a beginner are cash flow and appreciation.
Cash flow is the “profit” you take from renting out a piece of property. This can be thought of as the “passive” part of real estate investing because as long as you keep the property in good shape, your tenants will (most of the time) pay you market rent. For most investors chasing financial freedom, cash flow is the most important metric to pay attention to.
The other part of calculating cash flow is appreciation. Appreciation is the profit from the value of the property going up over time. If you bought an investment property for $200,000 in 2017 and sold it for $350,000 in 2022, you will have successfully made $150,000 in appreciation!
The two types of appreciation are commonly referred to as market appreciation and forced appreciation. Market appreciation is what happens when the entire market sees an increase in value, usually through demand. This market appreciation pushes the price of all the local properties up.
Forced appreciation is the appreciation that you, as the investor, can force. This means you can either renovate or add on to an existing property, making it worth more, and “forcing” the price to go higher.
But before you invest, you’ll need to know the different types of real estate investments.
The Different Types of Real Estate Investments
Real estate investments come in different shapes and sizes and they vary greatly depending on the type of real estate you’re talking about. But, for the most part, real estate investors are looking at the following types of real estate investments:
- Single-Family Rentals: This is the most common form of real estate investment and it’s also one of the safest. If you’re looking to make money from real estate, single-family rentals are a great way to go. You buy a house (or two or three), rent them out, and collect your monthly rent checks each month. One appealing aspect of rentals is that you can buy out of state, you just need to know the best states to buy a rental property.
- Multifamily Rentals: This is similar to single-family rentals, but instead of renting out a single house or apartment, you’re renting out multiple units. With multifamily rentals, there are more tenants to deal with and more work involved in maintaining your properties. But they can also provide higher returns than single-family rentals.
- Short-Term Rentals (Airbnb Investments): If you’re looking to make money from real estate, short-term rentals can be a great option. You purchase a property and rent it out for short-term stays (generally 30 days or less). The income is often higher than long-term rentals because the units are usually rented out more frequently.
- Apartments: You can also invest in apartment buildings. In this case, you’re not just the landlord but also a property manager. You’ll have to deal with more tenant issues and repairs, but the profits tend to be higher because there are more units to rent out.
- Condos: You can also invest in condos. Most people wonder if condos are a good investment and generally speaking, they can be. The profit margins are generally lower than single-family homes, but the units are easier to manage and maintain. You’ll also have fewer tenant issues and repairs since most condo associations take care of those things themselves.
- Storage Facilities: If you’re looking for a low-maintenance investment that’s easy to manage, storage facilities can be a good option. You’ll have to deal with fewer tenant issues and repairs since the units are self-contained and don’t require much maintenance. You can also get higher revenue by renting out more units than other types of real estate investments.
- Mobile-Home Parks: Mobile-home parks are another type of low-maintenance investment. The units come with their own utilities and only need minor repairs, so they’re easier to manage than other types of real estate. You’ll also have less maintenance since trailer-owned homes must be maintained by their owners.
Key Takeaways of What is Real Estate
Real estate is a long-term investment that can help you build wealth and provide a steady source of income. It’s also one of the safest investments available today thanks to its lack of correlation between stock market prices. If you’re looking for an investment with passive income and multiple exit strategies, then real estate could be right for you!
Real Estate FAQs
Still figuring out your next financial-freedom move in the realm of real estate? These quick FAQs may help:
Real estate is a general term used to describe a piece of land or property that has value. Property can be anything from a house to an apartment building, office building, or even vacant land.
Real estate is a general term that refers to land, property, or buildings. Real estate is often used as an investment vehicle because it provides passive income and capital appreciation.
Real estate is a significant asset class and an important component of many investors’ portfolios. It can be an effective way to diversify your portfolio and help reduce risk by adding more stable investments.
Real estate can be anything from an apartment building, office building, or even vacant land. Real estate also refers to a home that you live in. For example, your home or the apartment unit you rent is a type of real estate.
Real estate can be a great way to diversify your portfolio and help reduce risk by adding more stable investments. Investing in real estate also offers tax benefits, including depreciation and capital gains deductions.
