What Is the Best Type of Investment Property?
If you want to enter the real estate market, there are a few strategies you can employ. In this article, you'll learn about the different types of investment properties and the type that's best for you.
But the one we are going to talk about now, and the one that is quite common for first-time investors is the investment property. Investing in property is a good way to create a passive income, and if done correctly can build wealth. But it can be hard to choose exactly which type of investment property is best.
What is considered to be an investment property?
If you are not sure whether a property is considered to be an investment property, you can simply ask yourself one key question. ‘Is it creating an income?’ If the answer is yes, then it is likely to be an investment. Your Investment Property Mag defines an investment property as being a real estate property that is purchased with the intention of earning a return. There are two main ways of earning this return. Through rental income or through capital gain from the resale.
If you own a house or any type of property that is leased out to an individual or a business, this would be an investment. And the rental income you receive is your return. If you purchase a property with the intention of fixing it up and reselling it at a profit, then this is also an investment.
What are different types of investment properties?
There are a number of different types of investment properties that you can purchase. Each one will have its different pros and cons. The main types of investment properties are detailed by Fortune Builders as being the following.
- Residential real estate.
- Commercial real estate.
- New construction and land
If you are wanting to invest in property, chances are it will be one of those three options. Residential and commercial are the most common investments, as these have a clear source of income (through rental returns) and can be easily managed. The main difference between residential and commercial is that residential will be most often single-family homes. While commercial will usually be leased to businesses and corporate entities.
How do I know whether an investment property is for me?
When it comes to choosing an investment property, there is no hard and fast rule as to what the best is. What type of investment property that is best for one person might not be suitable for another. If you are considering a particular investment property, there are some key tips that you can follow to ensure that the strategy you choose is best for you. Source: Student Loan Hero
Consider your budget
- Your budget will be a major decider as to whether a particular investment property is suitable for you. Commercial properties may bring about larger returns. But they require more startup capital to purchase. So, in this case, residential property or even a piece of land might be better.
Envision your ideal renter
- The best way to earn income from your investment property is through long term renting. Different types of investment properties have different renters. Residential properties will tend to be single families or individuals renting. Commercial properties might be leased by an entire organization. Or even an individual operating a business. So, depending on what you feel most comfortable with, this could help you decide which investment is best.
Consider the appreciation of your investment property
- There are two ways that your investment property can go up in value. By you doing work to it and creating higher value. Or by something happening out of your control, such as having the neighborhood improve. Different types of investment properties in different areas will have differing appreciation potential. Most of the time, forced appreciation will be found in residential properties. This is when you do work on the property and raise the value. And commercial properties will tend to go up when the surrounding areas appreciate. So, think about more than what property you choose, but where it is and what potential exists.
What is the best investment property to buy?
Unfortunately, there is no set answer as to what the best type of investment property is. The best thing you can do is consider your personal circumstances, and consider the areas that you are wanting to invest in. This should give you some guidance as to what investment will be most likely to be a success, whether in the short term or long term.
If you were to speak to different real estate experts, chances are they will all tell you different things. One might have had great success investing purely in commercial properties. The pro for commercial could be that the tenants are often lower maintenance. And the leases are longer-term. Another expert may only invest in residential and will enjoy having multiple family homes as part of their portfolio. They could invest money to do these houses up, and therefore be able to charge more rent. Which brings in more rental income.
And a third expert might rave about investing in land and new construction, promising that this is where the big money is. Mashvisor states that vacant land is typically cheap to purchase, and there are almost no running costs. However, it can be harder to get income – you may need to be more creative with strategies such as renting it out to farmers or even renting it out to hunters.
If you were looking for an answer as to what the best type of investment property is, then you will be disappointed. Hopefully, now that you understand more about each of the main types of investments, you will be better suited to making the best decision for you. Each type of investment property will require work and management, and each has the potential to be profitable and create success in real estate. No matter what you invest in, the important part is starting.