Real estate is a wide industry that comprises many market players like investors, real estate brokers, and real estate agents.
In a bid to better understand the options that are available in real estate, we will dive deeper to look at each option with its features, cons and pros, and then we draw a conclusion based on those presented options.
Oftentimes, what works for me in real estate might not work for you. This is because of the experience involved, the amount of capital that you and the market you are exposed to varies with mine.
Ideally, real estate investment aims at generating cash flow income, capital gain, or a mix of both.
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Types of investment options.
Rental Properties
Typically, real estate properties are rental properties as it is purchased or built to generate some cash flow after a given period.
Rental properties umbrella other properties which include:
- Residential Property: As the name suggests, these properties are purchased for renting out to tenants. It is one of the basic real investment options that investors can do without seeking a professional assistant.
It is leased out for short periods and this kind of tenancy has little or no positive cash flow. This is because the maintenance cost for tenants is high and the occupancy level tends to fluctuate very much.
If you are looking to make money out of cash flow, this is not the kind of investment you should consider. For capital gain, in the long run, this is the best investment.
Bank loans for these kinds of properties are often less expensive and can be easily accessed if you have a good credit report.
To ensure a high occupancy rate is to ensure that the property you buy is in a strategic location.
- Commercial property: These are properties often rented out to tenants who run businesses in those properties. Its bank loan is expensive and banks are very strict when it comes to them.
The property is leased out for long-term ranging from 8 to 15 years. The rent can be constant or fluctuate depending on market assessments.
For investors looking for cash flow, this is the most ideal investment option as it has positive cash flow.
You will need a professional person to help you identify the best deal to enter.
- Mix of Commercial and Residential properties: These are properties that have a mix of residential units behind the property and commercial properties at the basement or ground floor.
Banks tend to treat this kind of mix as commercial and this makes the rates and fees to be a bit expensive. If you want this kind of investment, then you need to seek a loan from a mortgage firm that better understands and can tailor make a loan that best suits your needs.
Unit development
In this option, you buy vacant land and start building residential, commercial, or a mix of both. It needs a big amount of capital investment. Often banks discourage loaning this kind of investment. If at all you need a bank’s loan, the bank will demand that you sell some of the units before they fund the project.
The key factors that will determine the success of this development are the time spent and cost. If well done on time, the cost reduces and you will be able to make money faster out of the projects.
Land Development
This involves buying a large piece of land and then starting to turn it into residential or commercial plots. Sometimes it involves rezoning of the piece of land to meet the intended purpose.
This kind of investment requires a large sum of capital and it is often done by syndicate investors. Since the risk involved is diversified, the return is usually diluted.
When dealing with this investment, the timeframe of the project affects the return you will make in the long run.
Land Banking
This is a no-brainer kind of investment where an investor buys a large parcel of land then holds it for years before selling it.
Banks discourage this kind of investment as their funds will be locked if they grant you a loan on the land that is neither generating cash flows nor have certainty of gaining value in the long run.
Though there are some success stories related to this kind of investment, the same might or might not replicate to you.
Conclusion
Like any other investment strategies, having a blend of different options is the best approach to having a healthier and well-balanced investment portfolio.
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