To Invest or Not to Invest:
What are the various investment property types available?
- Residential Home is classified as investment properties in today’s world.
- Condominium Developments are apartment-like units. Includes new homes such as townhomes and single family detached homes depending on how the deed is written.
- Town Homes and Single Family Detached Homes can also be great investment. Both require careful evaluation before purchase such as maintenance, upfront acquisition cost, rental market history, etc.
- Multi-Units is two to five unit rental that can be either mini commercial or a shopping center
- Real Estate Investment Trust (REIT) is a corporation or trust that uses the pooled capital of many investors to purchase and manage income property. Many hotels are funded through REITs. One can invest as little as $250 dividends that are issued at the end of each year. An advantage to investing in a REIT is that you can get in at any time and get out at any time just like the stock market. However, your return on investment is at the mercy of the management /holding company. Usually the return on investment is between 5.0% and 11.5% annually. Proper research should be done before investing in one of the REITs.
- Timeshares are not classified as a true real estate investment mechanism, but purely for leisure purposes only. Most likely when you acquire one, you will be selling for less than the acquisition cost. However, some do say comfort and convenience makes it priceless; that is subjective.
- Land Acquisition is very risky in nature and is suggested only to savvy investors.
- Commercial Properties are classified as office buildings from Class A type to Class C, and strip shopping centers, gas stations, and multi-unit apartments more than five units among others.
What factors should I consider in real estate acquisition before taking the plunge?
Some factors include:
- Intended purpose of investment must be defined upfront – educate yourself, your spouse or children on the various types, retirement, or leverage for business opportunities such as developing projects or local franchise acquisition.
- Expected duration - long-term or short-term investment
- Initial out-of-pocket capital outlay
- Individual/partnership – this may depend on the type of investment needed
- Location! Location! Location! – Will it be local, state, national or international
- Acquisition cost or price limits on investment
- How will it be financed – FHA, Conventional/SBA loan types
- Real Estate is considered as part of the wealth portfolio
- Investment advantages and returns – especially as a last bastion of entrepreneurship.