Analyzing Real Estate Business: Which Type Is Best for You?
Real estate investing is a broad field with multiple categories and opportunities for profit. There are mainly three types of real estate namely residential, commercial and raw land.
Residential properties include everything from single-family homes to multi-unit properties that can be rented out or sold to potential homeowners. This is also referred to as the more common type of real estate investment.
Commercial properties refer to any space that is used for business purposes. It could be a commercial establishment, a shop, office space or a warehouse among many others.
Some multi-unit apartments can be considered as commercial once they exceeded a certain number of units which usually vary by market or state.
Raw land refers to any unoccupied or non-developed area. There are several exit strategies when buying raw land which is sometimes referred to as new construction.
It is actually a great way to earn a steady cash flow. Examples; working farms, ranches, plantations and vacant land in an urban or commercialized area
What is the Most Suitable Type of Real Estate Investment for You?
The best type of property investment depends on your unique and individual circumstances, personal goals, target market, business objectives and investment strategy.
Although you want a more direct and definitive answer, identifying the best type of property investment for you is very subjective.
When making your choice of property investment, your decision boils down to how you will weigh the pros and cons of each option; and determining the one that’s workable for you.
Location as the Key Determinant
Location is a key factor in real estate. If you want to operate with a specific target market in mind, you have to stick to the aspects that cater to the needs of this market.
The importance of location is therefore crucial because you cannot promote a specific property to the wrong target market in the same way that you cannot force a plumber to invest on a sewing machine.
For instance, if you’re planning to target “up-and-coming” markets in a developing locale, you can benefit from purchasing raw land or new construction within that area.
However, if you’re planning to target a more stable and mature market, you should invest in residential multi-family properties such as multi-home rental units.
Know Your Preferences and Identify Your Role
Aside from location, you should identify your own preferences since you’re the investor which essentially means that you should have the most control in your investment. You should assess a realistic and preferred level of involvement, profitability and risk tolerance while deciding on what type of property to invest in.
If you want to assume a passive role, you can conveniently opt for “buy and hold” residential or commercial properties and employ a property manager to oversee the management aspects of your investment.
However, if you want to have a more active role, you may choose to develop a vacant land for an upcoming market, fix and flip houses or personally manage a multi-family residential unit AirBnB property. Either way, you have to determine how much involvement you can commit to your property investment.