What is considered the best type of investment property?
With the U.S. real estate market on the rise, investors are sifting through every available property type to discover which will help them profit. So which sectors and properties are the best move for investors today? Keep reading to learn more about the best type of real estate investment for you.
There are several types of real estate properties investors should be familiar with: commercial, residential, raw land and new construction. Each of these types will come with unique advantages and disadvantages that investors should evaluate:
The best commercial properties to invest in include industrial, office, retail, hospitality and multifamily projects. For investors with a strong focus on improving their local communities, commercial real estate investing can support that focus.
One reason commercial properties are considered to be one of the best types of real estate investments is because of the potential for higher cash flow. Investors who opt for commercial properties may find they represent higher income potential, longer leases and lower vacancy rates when compared to other forms of real estate. Investors may also enjoy less competition in commercial real estate because purchasing these properties can be a larger undertaking than working with residential homes.
There are numerous types of rental property in residential real estate, though the most common is thought to be single-family homes. Other residential properties include duplexes, multifamily properties and vacation homes. Residential real estate is ideal for many investors because it can be easier to turn profits consistently. Of course, there are many residential real estate investing strategies to deploy and different levels of competition across markets — what may be right for one investor may not be best for the next. For this reason, choosing the right exit strategy and market is key when it comes to residential real estate.
The most common exit strategies used in residential real estate include wholesaling, rehabbing, and buy and hold properties, which can be used to generate rental income. Investors should be careful to consider which strategies would work best in their market area by conducting a thorough market analysis.
When managed correctly, a residential real estate investment can yield attractive profits. This is because, in addition to earning steady cash flow, residential real estate benefits from a number of tax breaks.
Raw land investing and new construction represent two different types of real estate investments that can help diversify an investor’s portfolio. Raw land refers to any vacant land available for purchase and is most attractive in markets with high projected growth. New construction is not much different; however, properties have already been built on the land. Investing in new construction is also popular in rapidly growing markets.
While many investors may be unfamiliar with raw land and new construction investing, these investment types can represent attractive profits for investors. Whether you are interested in developing a property from start to finish, or profiting from a long-term buy and hold, raw land and new construction provide a unique opportunity to real estate investors.
In order to maximize profits when investing in raw land and new construction, investors should be prepared to complete extensive market research. This will ensure you choose a desirable area and will also prevent the investment from being hampered by market factors.
The best type of real estate investment will depend on your individual circumstances, goals, market area and preferred investing strategy. While many investors want a more straightforward answer, determining the best type of investment property is a subjective process. Choosing the right property type comes down to weighing the pros and cons of each option, though there are a few key factors investors should keep in mind as they seek the best choice.
When it comes to choosing the best type of investment property, the importance of location can not be understated. Investors operating in “up-and-coming” markets may find success with vacant land or new construction, while investors working in more “mature” markets may be interested in residential properties.
Aside from location, investors should also be aware of their own preferences when it comes to investing. Assess your preferred level of involvement, risk tolerance and profitability as you decide which property type to invest in. Investors wishing to take on a more passive role may opt for buy and hold commercial or residential properties and employ a property manager. Those hoping to take on a more active role, on the other hand, may find developing vacant land or rehabbing residential homes to be more fulfilling.
As you choose the best type of investment property for you, it is also important to keep in mind that many investors find success investing in a variety of property types. It is not uncommon for investors to familiarize themselves with residential real estate before moving on to commercial properties, for example. That being said, there is no reason investors cannot achieve success investing in multiple property types.