Real estate is tangible property meaning it can be used or consumed. It’s composition is made up of land as well as existing resources on said land; natural resources as well as man-made resources such as buildings. Real estate can also refer to the business of producing, buying, and selling property. Individuals or groups buying or selling a property are engaged in real estate investing. Historically, real estate investing has proven a popular strategy for earning passive income, supporting long-term financial goals, and even contributing in a positive manner to the livelihood of others.
Real estate falls under four primary categories:
Residential Real Estate: Residential properties refer to buildings designed for people to live in. Primary and secondary single-family and multi-family homes such as condominiums, townhouses, and co-ops are all considered residential spaces. Residential properties generally make for more accessible income opportunities for investors as they typically require lower upfront costs than commercial or industrial properties. In other words, if you are looking to make your first foray into real estate investing, residential properties are an excellent starting point. Remove this?
Commercial Real Estate: Commercial real estate refers to property that is zoned for business, such as an office, hotel, warehouse, or retail-store buildings. Commercial real estate refers to any type of building used for the running of a business.
Commercial properties tend to have longer leases, typically reducing the likelihood of vacancy. In commercial ownership, involved actors must abide by zoning laws and regulations. Set guidelines exist which can even extend as so far as limiting the number of business patrons in a zoned building at a given time. You can find more information on zoning laws here (hyperlink).
In the US, there is approximately $6 trillion worth of commercial real estate alone. Commercial property is typically considered stable which in turn drives value. Certainly, the COVID-19 pandemic has shifted these assumptions. Read more about the effects of COVID-19 on commercial real estate here. In commercial real estate, profitability per square foot or meter determines the scope of one’s return on investment (aka ROI). Other metrics that set commercial real estate apart from real estate include differences in magnitude in terms of tenant down payments. The down payment on the space leased for a department store like Kohls will be higher than the down payment on a one-bedroom a mile away. Kohls will also need to commit to a longer-term lease than the renter of the neighboring bedroom. The down payment and longer lease duration are huge wins for the property owner who is constantly in search of stability and increasing value.
Industrial real estate: These are properties used for industrial-related purposes including but not limited to retail, manufacturing, and warehousing.
Vacant Properties: These include lands that are completely empty, vacant, or reclaimed.
Overall, residential and commercial properties can make for strong investment opportunities if the right market conditions are there.
By definition, an investment property is a property with the intent to generate income, profit from long-term capital appreciation, or maximize tax benefits. An investment property is also a really fantastic opportunity to own real estate, and if done right can make you good money for a long time.