Different Types of Investments In Real Estate

The 11 different types of investments in real estate are:

1. Residential Real Estate
2. Fix and Flip
3. Commercial Real Estate
4. Industrial Real Estate
5. Retail Real Estate
6. Hospitality Real Estate
7. Real Estate Investment Trusts (REITs)
8. Real Estate Crowdfunding
9. Real Estate Mutual Funds
10. Real Estate Wholesaling
11. Multifamily Real Estate Syndication

One of the best things about real estate investing is that there are many different strategies available that can suit different financial goals, risk tolerance levels, and investor preferences.

Real estate offers a diverse array of investment opportunities, allowing for portfolio diversification. From traditional residential properties to more complex commercial ventures, the real estate industry offers plenty of avenues for investors to explore.

Each investment type brings its unique set of challenges, risk levels, market dynamics, and potential returns. Therefore it is essential for investors to understand how each investment works and how it could help them build wealth and craft a diversified portfolio.

Your choice will ultimately depend on your preferred level of involvement, how much risk you are willing to take on, and how much money you have to start investing. Regardless of the strategy, buying and owning real estate can be a lucrative endeavor. It’s all a matter of choosing the right investment for you. [1]

Because of the availability of various investment options, real estate can attract a wide spectrum of investors and help them fulfill their investment objectives. Here are some of the most common investment types in real estate.

Residential Real Estate

Residential real estate is property that is used for housing. Examples include single-family homes, multi-family residences, condominiums, and townhouses. [2]

Residential real estate investing is all about the acquisition, ownership, and management of residential properties. The main goal is to generate a return on investment (ROI) by renting out units to tenants for monthly rental income. Some investors also aim to sell for a profit after the property appreciates in value.

The value of a residential real estate property is determined by factors such as size and location. These properties are also subject to shifts in the market. [2]

While residential real estate is a good source of regular income, there are also certain short-term strategies that can be used such as “flipping” properties for quick gains.

Regardless of your approach, it is important to have a keen understanding of local housing markets if you wish to succeed in residential real estate investing.

Fix and Flip

The “fix and flip” strategy involves purchasing distressed properties, renovating or improving them, and then selling for a profit. It is a popular investment approach in residential real estate, particularly among those who have the knowledge and experience to capitalize on these opportunities.

House flipping is an ideal investment strategy for investors who have significant experience when it comes to real estate valuation, marketing, and renovation. It is a challenging approach because you also need the capital and the ability to oversee or do repairs as needed. [1]

Someone who uses a fix and flip strategy can identify properties that are distressed or in need of renovation—but still have the potential for improvement. By improving its condition and adding significant value through cost-effective methods, they can resell the property at a higher price.

Adding value can be done through renovations, repairs, and aesthetic enhancements. You need to have a certain eye for real estate in order to make the most out of the house flipping strategy.

Market fluctuations and unexpected renovation costs are among its biggest risks. If a flipper cannot resell the property right away, they may find themselves in trouble as losses may snowball over time.

Most real estate investors who take this approach aim to sell the undervalued properties they buy in less than six months. This is why it is considered the “wild side” of real estate investing. It requires the ability to accurately estimate the property’s after-repair value. But done correctly, it can be a lucrative strategy that generates strong ROI quickly. [1]

Commercial Real Estate

Commercial real estate investing is like residential real estate investing, except it focuses on income-generating properties that are used for business purposes, such as office buildings, retail spaces, and warehouses. Anything that can make money from leasing it out or holding and reselling it can be classified as a commercial property. [3]

Unlike residential real estate, commercial real estate investing comprises a diverse range of property types. However, the goal of generating rental income and achieving capital appreciation is similar.

The main difference is the purpose of the establishment. Commercial properties function as a place of business, not a residence. Other significant differences include their price and the type of occupants. Commercial properties tend to be more expensive since they are larger and located in highly-trafficked commercial areas. As for the occupants, these properties are occupied by business tenants rather than homeowners. [3]

Just like residential real estate investing, this form of investment requires a thorough understanding of market trends. Commercial real estate investing can be appealing to investors due to its potential for higher returns and the opportunity to diversify their investment portfolio.

Industrial Real Estate

Generally considered a subcategory of commercial real estate, industrial real estate investing involves properties that are used for manufacturing, production, distribution, and storage, such as factories and industrial parks.

One important distinction is that industrial real estate is all about providing properties for non-public commercial use. Industrial properties are rarely open to clients. However, the specific uses for these properties are incredibly varied. They may be used for anything from scientific research, to parcel deliveries, to mechanical engineering. [4]

Investors in industrial real estate seek to capitalize on the growing demand for spaces that support the supply chain and distribution needs of businesses.

Industrial real estate properties tend to be enormous, and so they require a huge capital and plenty of investment knowledge in order to create a profit.

Factors such as location and transportation infrastructure play crucial roles in determining the success of industrial real estate investments. Investors are attracted to the potential for stable income streams and long-term lease agreements.

Retail Real Estate

Another sub-category of commercial real estate that is worth discussing is retail real estate. This includes properties that are used for retail purposes, such as shopping malls, strip malls, standalone retail buildings, and even individual storefronts.

Simply put, retail real estate investing is all about acquiring and managing properties that are used exclusively to market and sell consumer goods and services. This includes supermarkets, dry-cleaners, florists, pharmacies, cafés, bike shops, fashion stores, etc. [5]

Investors in retail real estate aim to generate income through rental payments from retail tenants. The success of retail real estate investments is often closely tied to the economic health of the surrounding area. The more consumers spend, the greater the ROI. Location, foot traffic, and consumer spending patterns all play a role in the success of retail real estate investment properties.

Hospitality Real Estate

Hospitality real estate investing is for investors who are interested in purchasing properties within the hospitality industry like hotels, resorts, and other properties used for accommodation and entertainment.

Investors in hospitality real estate aim to generate income and achieve capital appreciation by catering to the growing demand for lodging and related services.

This sector has its fair share of challenges, but like other real estate investments, its success mostly hinges on factors like location and economic trends. But in the hospitality industry, customer experience is paramount. This ensures that clients keep returning and even spreading positive word of mouth.

The overall health of the travel and tourism industry also affects these investment properties. Real estate investors must know how to manage operational costs and adapt to consumer preferences.

Real Estate Investment Trusts (REITs)

Real estate investment trusts (REITs) are companies that own, operate, or finance income-producing real estate. Much like stocks, investors can buy shares in REITs, meaning they can invest in real estate without directly owning physical properties. This saves investors from the headache of managing properties themselves.

A REIT is a good strategy for investors who want to add real estate to their portfolio without going through the traditional real estate transaction. [1]

Operating much like mutual funds, REITs pool capital from numerous investors. The company then invests in real estate assets like office buildings, hotels, shopping centers, and even residential complexes.

REITs are designed to provide investors with a steady stream of income through dividends, as they are required by law to distribute at least 90% of their taxable income to shareholders. REITs are a solid investment for stock market investors who want regular income. [1]

Additionally, they offer liquidity as their shares are traded on stock exchanges. You won’t need a real estate agent and a title transfer to cash out your investment. The appeal of REITs lies in their potential for consistent returns, diversification benefits, and accessibility to a broad range of real estate opportunities.

One thing to note is that investors do not get to choose which real estate properties to invest in, as they are putting money into the REIT itself. The corporation will choose the properties for the investment. However, there are other passive approaches you can take in real estate, such as real estate syndication, which also lets you choose which real estate property you want to invest in.

Real Estate Crowdfunding

Real estate crowdfunding involves multiple investors pooling their money to invest in a real estate project, typically through online platforms.

This innovative approach allows investors to choose specific projects to fund, ranging from residential developments to commercial properties. The platform typically handles the administrative and legal aspects of the investment. Meanwhile, investors benefit from potential returns through rental income, property appreciation, or a share of the profits upon project completion.

While real estate crowdfunding platforms can potentially give high returns for investors, they also carry significant risk. In fact, some crowdfunding platforms are only open to accredited investors—meaning those who have the net worth and annual income to be considered eligible for unregistered securities. [6]

Real estate crowdfunding provides a more accessible way for investors to engage in the real estate market without the need for substantial capital or direct property ownership.

Real Estate Mutual Funds

Mutual funds are pooled investments that are professionally managed. Real estate mutual funds are investment vehicles that pool funds from multiple investors for the purpose of investing in real estate assets.

Real estate mutual funds mostly invest in REITs and also real estate operating companies. They allow investors to gain diversified exposure to real estate using a relatively small amount of capital. But depending on the strategy, mutual funds can give investors a much broader asset selection than they can get from REIT stocks alone. [7]

These funds are managed by professional fund managers who make strategic decisions on acquiring, managing, and selling real estate properties on behalf of their investors. Aside from REITs, they may also invest in residential and commercial properties.

Investors in these funds benefit from potential capital appreciation, rental income, and portfolio diversification. All of these come with the advantage of not having to manage the properties. It is a convenient way to gain exposure in the real estate market while also enjoying its potential returns.

Real Estate Wholesaling

Real estate wholesaling is a real estate investment strategy that involves finding and securing properties at below-market prices and then selling them to other investors for a profit.

The wholesaler acts as an intermediary in the transaction, identifying distressed or undervalued properties. They then negotiate favorable purchase agreements with the property owners and assign or sell the contract to another buyer.

This strategy requires a keen understanding of the local real estate market. Investors who want to take this approach need to sharpen their negotiation skills as well.

Just like house flippers, real estate wholesalers need to have the ability to identify properties with potential for improvement or appreciation. They have to operate on a quick turnaround and capitalize on price differentials to generate profit.

Multifamily Real Estate Syndication

Although REITs, crowdfunding, and mutual funds can help you acquire real estate properties without directly owning them, there is an even better option available for accredited investors, and that is multifamily syndication.

A real estate syndication deal involves multiple investors pooling their money together in order to buy a single real estate property. Unlike REITs, you actually own a share of the property. The deal is arranged by a syndicator or sponsor who serves as the general partner (GP) in the syndication deal. Therefore, they will take on the most responsibility in this investment. They will put the deal together, locate the investment property, create and execute the business plan, and look for investors who will participate in the syndication. [8]

On the other hand, real estate investors become limited partners (LPs). Their only job is to provide most of the capital needed to acquire the property. They also have to pay certain fees for the syndication deal. They have no other responsibilities or liabilities in the syndication deal beyond that. [8]

In fact, the syndicator will even handle property management, meaning this is a true passive investment in real estate. Accredited investors can just sit back, relax, and enjoy the benefits of owning a real estate property.

For their investment, real estate investors earn a share of the property’s monthly rental income. They may also earn a share of the equity upon resale depending on the deal structure. Keep in mind that every deal is different. Investors still need to do their due diligence before joining a syndication deal. The profit split will be detailed in the private placement memorandum (PPM) or syndication agreement. [8]

While a real estate syndication deal can be done with any type of real estate, multifamily syndication is the most popular version due to the strong and consistent cash flow generated by large multifamily properties such as apartment complexes and condominiums.

Unlike single family properties, they do not suffer as much from vacancies since there are several units generating profit. Even if one or two tenants leave, the cash flow is not significantly affected.

Most real estate investors also prefer multifamily syndication because these larger properties are generally expensive and therefore harder to acquire for a lone investor. Additionally, multifamily properties are more challenging to manage because of their multiple units. If you do not have any experience being a landlord, you may find yourself overwhelmed.

Multifamily syndication solves both of these problems by involving multiple investors and allowing the syndicator to handle property management.

Most syndication deals are exclusive to accredited investors. If you are an accredited investor who wants the benefits of owning a multifamily real estate property without the hassle of managing an entire apartment community yourself, this is the best approach.

Work With BAM Capital for the Best Multifamily Real Estate Syndication Deals

Each type of real estate investment comes with its own set of considerations, risk factors, and potential returns. Investors should carefully evaluate their goals, risk tolerance, and market conditions before choosing a specific real estate investment strategy.

If you are interested in multifamily real estate syndication, you need to work with BAM Capital. Since the syndicator will be the one to make all the decisions moving forward, it’s a good idea to work with a trustworthy syndicator with a track record for excellence.

BAM Capital is an Indianapolis-based syndicator that focuses on Class A, A-, and B++ multifamily real estate properties with proven upside potential and in-place cash flow. Known as an industry leader, BAM Capital is trusted by accredited investors. [9]

BAM Capital is also a vertically-integrated company, meaning they can guide you through every step of the syndication process. From acquiring high-quality real estate properties to renovating and managing their daily operations, BAM Capital has it covered. They even use an award-winning strategy that mitigates investor risk while creating forced appreciation. In fact, BAM Capital now has over $700 million AUM and 5,000+ units. [9]

No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.

For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, schedule a call with BAM Capital and invest today.

Sources:

[1]: https://www.investopedia.com/investing/simple-ways-invest-real-estate/

[2]: https://www.bankrate.com/real-estate/residential-real-estate-definition/#

[3]: https://www.vts.com/blog/the-6-types-of-commercial-real-estate-properties

[4]: https://www.doorloop.com/definitions/industrial-real-estate

[5]: https://www.realcommercial.com.au/news/what-is-retail-real-estate

[6]: https://www.nerdwallet.com/article/investing/types-of-real-estate-investments

[7]: https://www.investopedia.com/articles/investing/040315/reits-versus-real-estate-mutual-funds.asp

[8]: https://multifamilyrefinance.com/apartment-investing-blog/multifamily-syndication#important

[9]: https://capital.thebamcompanies.com/