Posts Tagged ‘Property’

Different Types of Real Estate Investments

Wednesday, July 18th, 2012

There are several different types of real estate investments and it is important to understand what each type of investment is and what the benefits and risks involved are. The types of investments that involve real estate include Real Estate Investment Trusts which are also known as REITs, real estate partnerships, vacation rental property, rental property, and raw land investments. Each of these real estate investment types has its own advantages and disadvantages.

1. Residential Property Investing

Residential real estate can be used as rental properties or placed for sale. Many investors are offering creative finance strategies to attract buyers who cannot qualify for bank financing. Popular financing options include lease purchase option agreements and seller carry back mortgages.

2. Property Trusts

This method requires the least amount of capital to invest. Shares or units in the trusts are usually purchased and this entitles the investor to regular dividends as well as possible capital growth later on. The investor does not actually own the physical property.

3. Commercial Property Investing

Commercial property has the potential to generate substantial profits as long as investors evaluate market conditions. Investors may be entitled to tax incentives when commercial investments bring employment opportunities to the area or when properties are upgraded using energy-efficient technology such as solar panels or other forms of green energy.

4. Repossessed Property

Property (Residential or Commercial) can be purchased through Mortgagee auctions or sales. Usually, the previous owner has come under financial stress or hardship and unable to meet their obligations to repay the debt. Therefore, the lender has repossessed the property from them and is now selling it to recover the outstanding balance.

5. Property Developer

The top of the food chain is the Property Developer. They start with a piece of land and develop it into a Residential or Commercial Property, which they can completely sell or rent out. This is where the most profit can be made out of all the types of investing.

3 Reasons Commercial Real Estate is better than Residential Real Estate

Friday, March 9th, 2012

1.) Commercial Real Estate Gives You More Access to More Capital

If you are unable to raise capital from one of these three avenues, then you are forced to acquire property in more of a creative manner with owner financing, subject to strategies, lease options, etc. This in itself is not a bad thing, but unfortunately you will have to walk away from some good deals that can’t be acquired with creative financing techniques.

2.) Commercial Real Estate is Less Competitive

When you think about it from a marketing perspective, most investors target residential property owners, thus making the residential market more competitive. In many arenas from industry news sources, the World Wide Web, all the “We buy Houses” signs on virtually every city corner, discuss marketing tactics targeting residential property owners. If you take the same marketing strategies discussed and apply them to commercial real estate, you will probably find that you are the ONLY person contacting these commercial property owners in regards to selling their property.

3.) Commercial Real Estate allows for “Forced” Appreciation

Residential real estate is typically valued based on other comparable properties that have sold in the area that are similar in features. If the “comps” for a 3 bedroom/2 bathroom house in a particular neighborhood is roughly $100,000, then your property is probably going to be worth $100,000. It doesn’t matter too much that you have additional features, or that your house is getting $900 a month in rent as opposed to the house down the street that is only renting for $700 a month. All things considered, your property will still be valued pretty close to the “comps” of the area.

However, in commercial real estate, the valuation of a property is based on the revenue that the property generates. Now, commercial real estate is still subject to the “comps” of the area as it pertains to “How” that revenue is valued in terms of capitalization rates. But, the overall premise is that, the more revenue a property generated, the more that property is worth.

So, in order to “force” the appreciation of your commercial property, you need to find additional ways to increase the revenue that the property generates. A small increase in revenue can increase the value of a property significantly depending on the “Cap Rates” in the area for that type of commercial real estate. Unfortunately, with residential real estate this isn’t an option as you really can’t force appreciation; your property will be valued in the general range of the market comps.