Rental Houses, Apartments, Land, Commercial Real Estate, REITs, and Crowdfunding platforms are all the best real estate investments for beginners.
Real estate investments generally fall into two categories: Physical real estate investments like land, residential and commercial properties, and other modes of investing that don’t require owning physical property, such as REITs and crowdfunding platforms.
Real estate investing can be considered one of the most popular & lucrative means of investing as it gives higher ROIs if you play your cards rights. You might be tempted to get started investing in real estate, however, it can be a little overwhelming learning about all the different types of investments available to you.
Understanding & learning the basic types of real estate investments and how they work is the first step. Before you get started deciding where to put your money, here’s what you need to know.
Understanding the Best Real Estate Investments for you
The first thing that comes to your mind when you think of real estate investing is buying an investment property, and either flipping it out to a higher buyer or renting it for a certain charge (rent) on a monthly basis. But let me tell you, it’s just a small part of a whole real estate investment’s viable options available at your disposal.
Most real estate investments fall under two general categories: Active and Passive.
Active investments cost you not only your money but also your active time and efforts, potentially physical labor.
Flipping houses and managing residential rental properties are examples of active investing. Active investments tend to be a little more lucrative than passive ones, and they require more cash flow and are typically riskier.
Passive Real Estate Investments are opportunities that don’t require you to personally own or manage a property, nor it require your active direct involvement in it.
Investing in real estate investment trusts (REITs), real estate funds, and real estate crowdfunding is considered passive. These methods allow you to invest in real estate without having to commit a lot of money upfront or manage any properties.
Whether you have the time and money to spend on an investment property or not, there are many ways to get involved in real estate investing. Let’s explore a few of the options available to you.
Read More: How to Buy Your First Real Estate Investment Property?
Best Real Estate Investments for Beginners
1. Residential Real Estate
Residential Real Estate is almost everywhere and the most widely known real estate investment that people live or stay in, such as single-family homes, duplexes, condos, and vacation homes.
Residential real estate investors make money by collecting rent (or regular payments for short-term rentals) from property tenants. Also, they make money/profit through the appreciated value their property accrues during the time interval when they buy and sell it, or both.
Real estate appreciates in value over time. If you buy a property, especially at a discount, make repairs, and then sell it later, odds are, you’ll make a decent return on your initial investment.
Investing in residential real estate can take many forms. It can be as simple as renting out a spare room or as complicated as buying and flipping a house for a profit.
There are tax benefits to investing in residential real estate, including tax deductions, depending on your income level.
Learn How to Buy a House Using a Mortgage.
2. Commercial Real Estate
Commercial real estate refers to real estate investments that are typically non-residential or/and leased or rented by a business or individuals. Hotels, leased restaurants, warehouses, offices, and retail stores/malls are all examples of commercial real estate investments.
These types of investments are owned and rented out to a business. Just like residential real estate, you can earn extra cash flow by collecting rent or selling the property at an appreciated price.
Commercial real estate is known for its yield at higher returns than residential real estate. If you can afford to manage a commercial space, it can prove lucrative over time, depending on your area.
The value of commercial real estate is determined by how much revenue it generates. If your property is housing successful business areas, it may appreciate in value much faster than a residential property.
The rentals from these types of real estate investments are comparatively higher than the other types and are also due to the regular occupancy and profitability they are the most profitable investment in real estate.
Learn More About How to Use Leverage in Real Estate?
3. Raw Land
Raw land refers to a property (a piece of the area on earth) with absolutely nothing on it – no buildings, no paths, no crops, or otherwise. Raw land is easy to acquire, compared to many other investments. It’s much lower in cost than developed land or commercial or residential properties.
Many raw land investors lease their properties to farmers for agricultural purposes or seek out properties with the potential for future development to sell later at an appreciated value.
Unlike managing commercial or residential properties, raw lands are cheaper to maintain, and you won’t have to worry constantly about maintenance and repairments.
You have multiple options at your disposal with raw land. You could buy and hold, lease, or even build something on the land you acquire.
4. Real Estate Trust Investments (REITs)
Real estate investment trusts, or REITs, are companies that operate as trusts and oversee a number of real estate investments. REITs are considered passive investments. Rather than owning properties yourself, you can invest in a REIT and generate income from the properties managed by the company.
Investing in REITs is quite similar to investing in other companies’ stock—you buy shares in the company, and then enjoy the perks of being a partial/passive owner.
Some REITs are listed on the New York Stock Exchange (NYSE) and are publicly traded. These companies typically specialize in commercial properties, such as offices, shopping malls, and hospitals, so if you’re interested in commercial real estate but lack the capital to invest in a property yourself, a REIT can be a great option.
You can make extra income without ever having to see, manage, or own the property personally. The workload of active real estate investments is not your responsibility when investing in a REIT.
Unlike stocks & shares, you have little control over your investments with a REIT, since you don’t own or manage any of the properties or loans yourself.
5. Real Estate Crowdfunding
Real estate crowdfunding is a new method in which new investors come together, typically online, to pool and finance their funds and invest in a particular property or project rather than buying their own property which they would be unable to finance on their own.
Just like REITs, this method of investing involves much less money upfront and is also considered passive income.
Crowdfunding is a great way to diversify your investment portfolio without having to invest a large amount of money. There’s very little effort involved, and the entire process can typically be done online.
Some online crowdfunding platforms for real estate are open to general investors, but there are many that require users to prove a certain level of income before investing.
These platforms usually charge users fees for using their services.
It offers access to unique opportunities that investors may not have had access to without the help of other online investors.
Related: What is Real Estate Financing?
Which Type of Real Estate Investment Is Right for You?
Real estate investments offer a big opportunity for gains but can also carry a fair amount of risk.
Unlike some other kinds of investments, active real estate investments like residential, commercial real estate or house flipping need a fair amount of financial stability and cash flow to potentially turn a profit.
They can also take up a fair amount of time, so if you’re considering these types of real estate investments as a side hustle, balancing your time could be difficult. Another factor to consider is how well you know the real estate market where you are investing. Make sure to do your due diligence and really know the neighborhood before making an investment.
Types of Real Estate Investments for Beginners
For a newbie and beginners, passive investments are simpler to get into and are of lower maintenance cost. If your time, market knowledge and cash flow are limited, investments like public or private REITs or investing through crowdfunding platforms might be a better option.
Regardless of whatever you choose, keep in mind that, as with any investment, there is always the potential risk of losing money. So, make sure that your risk tolerance is high in line with the type of real estate investment you choose.
FAQs – Real Estate Investments for Beginners
Which type of real estate makes the most money?
Commercial real estate makes the most money. The rentals from these types of real estate investments are higher comparatively than the other types. Also due to their regular occupancy and profitability, they are the most profitable investment in real estate.
What type of real estate is the best investment?
One reason commercial real estate properties are considered one of the best types of real estate investments is their potential for higher cash flow. Investors who opt for commercial properties may find they represent higher income potential, longer leases, and lower vacancy rates than other forms of real estate.
What is the most common form of real estate investment?
Residential Real Estate is almost common, available anywhere, and the most widely known real estate investment that people live or stay in, such as single-family homes, duplexes, condos, and vacation homes.
What is the best type of real estate to invest in for beginners?
Real Estate Investment Trust (REITs) is one of the best to get started with as they are considered passive investments. Rather than owning properties yourself, you can invest in and generate income from the properties managed by the company.
The Bottom Line
No matter what type of real estate investment you choose, each type has risks and benefits. Real estate can be one of the most lucrative and profitable, but also the most high-risk investments for your money, depending on how you choose to be involved. So choose your best types of real estate investments wisely.
