October 4, 2023

Apartment rentals REITs Land and crowdfunding platforms are all examples of real estate investment.

The investing information provided on this site is intended for education purposes only. Our website is not a source of the services of a broker or advisor, nor does it recommend or suggest investors buy or sell specific stocks, securities or other investments.

There are different kinds of real estate investment, but most fall into the two main categories of physical real estate investments such as land, commercial and residential properties, and other ways of investing that don’t require physical property, for example crowdfunding platforms and REITs.

The traditional investment in physical real estate can offer the highest return, but it is also more expensive upfront and it can have significant ongoing costs. The crowdfunding and REIT platforms have a lower financial barrier to entry. That means you have the ability to invest in several types of real estate for far lesser than it would to invest in even one traditional property. These alternative investments in real estate have the additional benefit of not having to leave your home or even put on a pair of pants for investing.

If you’re thinking of investing in real estate you can look at five different types to take into consideration:

1. REITs

Publicly traded REITs or real estate investment trusts, are businesses that manage commercial real property (think hotels, offices along with malls). You can purchase shares of these businesses on the stock exchange. If you invest in REITs you are investing in the real estate that these companies own and do not have the risks involved with owning real estate directly.

REITs must pay at 90 percent of their taxable income to shareholders every year. This means investors are entitled to attractive dividends as well as diversifying their portfolios via real estate. REITs that are publicly traded also provide more liquidity than other real investment options: If you find yourself suddenly needing money, you could sell your shares through the exchange. If you want to invest in REITs that are publicly traded, you can do so through a brokerage account.

2. Platforms for crowdfunding

Real estate crowdfunding platforms offer investors access to property investments that could yield high returns, but carry significant risk. Some crowdfunding platforms are available to only accredited investors being those with an estimated net worth, or jointly owned net worth with the spouse, of more than $1 million exempting the worth of their houseor an annual income over the past two years that is greater than $200,000 ($300,000 with an additional spouse).

“Keep your eyes on the prize, as many crowdfunding platforms have an insufficient experience, and are yet to experience an economic slump.”

Others, such as Fundrise and RealtyMogul are able to provide investors who do not meet these minimums — known as”nonnaccredited” investors access to investments they wouldn’t otherwise be able to invest in. They typically come in the form of REITs that are not traded, or REITs that don’t sell on stock exchanges. Because they’re not traded on the stock exchange REITs that are not traded may be highly illiquid, meaning your funds are invested for a minimum of several years in the event that you don’t be able to get your funds from the investment if you need it. Remember that many crowdfunding platforms are relatively new with a short time-line, and have not yet been able to survive the economic recession.

3. Residential real estate

Real estate in the residential sector is anywhere people reside or are able to stay, such as single-family condominiums, homes, and vacation homes. Residential real estate investors make money by collecting rent (or regular payments for rentals for short periods) from tenants who live in the property, via the appreciation value their property will gain between when they purchase it and when they sell itor sell it.

Affording residential real estate can take a variety of varieties. It could be as easy as renting out spare rooms or as complicated as buying and flipping houses to earn profits.

4. Commercial real estate

Commercial real estate is a space that is either leased or hired by a business. An office building rented by a single entity such as a gasoline station, an open-air mall that has several distinct restaurants, and leased ones are just a few cases of commercial property. As long as the company does not own the property itself in which case each business has to pay rent to the property owner.

Industrial and retail real estate can fall under the umbrella of commercial. Industrial real estate usually describes properties in which products are created or stored rather than sold. This includes factories and warehouses. Retail space is where people can purchase a product or service, for example, the clothes store. Commercial properties are typically able to offer longer leases as well as command higher rents than residential properties, which could result in higher and longer-lasting annual income for the property owner. However, they also may require more down payments and higher property management expenses.

5. Raw land

If you build it, can they move in? Investors usually purchase land for either residential or commercial development.

But buying land to develop requires some market research, especially for those who plan to develop the property yourself. This type of investment is best advised for someone with the capital to invest and a comprehensive comprehension of everything that is real estate – building codes, flood plains, zoning rules as well as an understanding of the local residential and commercial rental markets.

Which real estate investment is most suitable on The Colony?

If you’re thinking about purchasing traditional propertythat is, commercial or residential properties — conducting your due diligence shouldn’t necessarily mean you’ll have to come up with a the down payment. Understanding the local market is vital. If there’s not much demand for residential or commercial space in your area or property values begin dropping, the investment can quickly turn into an expense.

If you’d rather take a more relaxed approach to investing, REITs as well as crowdfunding platforms are great ways to add real estate to your portfolio, without having physical property.

Some brokerages provide REITs that are publicly traded and mutual funds.

Real Estate