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You’ve probably heard real estate is a good investment. You can create a stream of income from a piece of property, and buildings typically appreciate over time. But if you’re brand new to investing, you might not know exactly what types of real estate are out there or which purchase would work best.
According to the National Multifamily Housing Council (NMHC), most rental properties are single-family homes (SFH). Around 42% of rental residents live in SFHs, while only 37% live in buildings with five units or more. However, you certainly don’t have to limit yourself to only housing type investments. There are many different types of real estate, including these five:
1. Single-Family Home
The most popular way to get into investing is buying a single-family home. The price point for entering the market with a small house is much more affordable than a more massive complex or commercial real estate.
First-time buyers can also buy a structure and rent out rooms until they pay off the mortgage. If you choose the right location, you can rent a room or the basement to a college student or professional either by the semester or short-term. Once you pay off the home, you can use it for an investment property and rent it or sell it and pull out the equity.
2. Multifamily Housing Units
Have you heard of house hacking? This type of real estate entails letting other people pay the mortgage and living rent-free for the life of the loan. Multifamily housing complexes offer an ideal way to break into a career as a landlord. You can buy a duplex or a building with a higher number of units and live in one unit while leasing the others. Because you live there, you may be able to secure more loan options and deductions than if the property was for investment only.
3. Commercial Real Estate
When people first think of investing in different types of real estate, they often think of buying a little house and renting it out. However, you can also rent out commercial buildings and make a tidy profit. If you plan to invest in commercial real estate, think about storage units or facilities related to businesses not impacted by economic shifts.
The loan structure for commercial assets is different, but you’ll gain tax breaks you might not get with other types of investments.
4. Industrial Structures
The National Association of Realtors (NAR) releases a regular Commercial Market Insights report. Recent research shows industrial and warehouse assets held steady in a challenging economy. The organization predicts a surge in interest after the pandemic passes. Industrial real estate includes manufacturing facilities and warehouses. Classification matters because of area zoning regulations and the potential to sell the property in the future.
5. Land Leasing
Another way to get into real estate investing is to buy vacant land and lease it. You can set up a trailer park where you lease out lots or allow a company to build to suit. Keep in mind you will have to abide by area zoning. Not every area allows for multiple units on land, especially in residential or rural locations. You may also be limited in the types of buildings you can put up.
Your best bet is to work with a trained commercial real estate agent. Tell them what you plan to do with the land, and let them find options already zoned for your needs.
Investing But Not Buying
If you have a desire to invest, but you’re a little uncertain about jumping in, you can also get in the game without buying property. Real estate investment trusts (REITs) take everyone’s money in a big pool, and the managers invest in property and send out profits from their work. These setups are similar to buying stocks. You don’t need thousands of dollars to start, and you’ll likely see a pretty rapid return on your investment.
Whether you decide to buy a property or participate in buy sharing, real estate is one of the best ways to see a return on your money. Know your local market and its types of real estate. Then look for the best opportunities. With time, you’ll become an experienced real estate mogul.