When looking at real estate investing, one of the important criteria (other than location, location, and location!) is the kind of property you want to invest in. When considering any purchase, you should ask yourself whether properties, for example, are residential homes, office towers, warehouses, shopping malls, or a blend of any of them. Each kind of property has a different kind of drivers that influence its performance. You simply can’t assume one kind of property will do well in the market where a diverse kind is performing well. Below are different kinds of real estate you can invest in other than residential property:
Non-Income-Producing and Income-Producing Investments
Non-income-producing investment, such as houses, vacant commercial buildings or vacation properties, are as good as income-producing investment. Just keep in your mind that in case you invest your equity in non-income producing properties, you’ll not get any rent, thus all of your returns should be via capital appreciation.
There are four kinds of income-producing property: offices, retail, leased residential and industrial. There are some other less popular types as well, including mini-storage, hotels, seniors care housing and parking lots.
Offices are “flagship” investment for lots of real estate owners. Offices, on average, tend to be the highest and largest profile property type due to their location in downtown core and extensive suburban office park.
At its most basic level, the demands for office space are tied to companies’ need for office employees, and the standard space per office workers. The typical office employee is involved in the things like finance, insurance, accounting, real estate, services, administration and management. As the “white-collar” jobs develop, there is more demand for office space.
Returns from such properties can be extremely variable as the market is quite sensitive to economic presentation. One disadvantage is that office spaces have high operating cost, so if you drop a tenant, then it can have great impact on the return for the property. But, in times of affluence, offices tend to do extremely well, as demands for space causes the rental rates to rise and an extensive time period is needed to build a full office tower to ease the pressure on rents and market.
Nowadays, there is a broad variety of Retail real estate, ranging from single tenant building in pedestrian zones to big enclosed shopping malls. Lots of retail properties have anchor, which is an extremely large, famous retailer who acts as a center draw. Often, retail centers have one or more auxiliary multi-bay buildings having smaller tenants. One among these small units tends to be termed the commercial retail unit.
The retail space demand for has lots of drivers. Amongst them are: location, population density, visibility, relative income levels and population growth. From an economic viewpoint, retails tend to do best in rising economies and when the retail sales development is higher. Returns from Retails is more stable than the offices, in part since retail leases are normally longer and retailers tend to be less inclined to shuffle in comparison to the office tenant.
Often, industrials are considered as “staple” of the standard real estate investors. Usually, they require smaller standard investments, are lesser management intensive and they have lower operating cost than their offices and retail counterpart.
There are varying kinds of industrials based on the uses of the building. Buildings could be, for example, used for warehousing, research and development, manufacturing, or distribution. A few industrials even can have full or partial office build-out.
A few imperative factors to mull over in industrial properties would be their functionality (for instance, ceiling height), location in relation to main transport routes (including sea or rail), building configuration, and the level of specialization in space (like whether it has freezers or cranes). For a few uses, the existence of covered or outdoor yard space is vital.
Multi-family Residential Properties
Multi-family residential properties usually delivers the steadiest returns, because regardless of what economic cycle, people need a space to live always. The outcome is that in usual markets, residential occupancy is quite high. Another feature contributing to the constancy of residential properties is that loss of a tenant has a smallest impact on bottom line, while if you lose any tenant in other kind of property then the negative effects may be much more noteworthy.
For most of the commercial property types, the tenant leases either are partially net or net, means that most of the operating expenses may be passed to tenants. But, residential properties don’t have this attribute typically, meaning that the risks of increase in building operating cost are borne by property owners for the lease duration. A positive feature of residential properties tends to be that, government-insured finance is available. At expense of a smaller premium, insured finance lowers the rate of interest on mortgages, thus enhancing possible returns from the investments.