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When a person says they are a real estate investor it can mean any number of things. There are many different types of real estate, and many different ways to invest. Which way is best is for you, really depends are your particular needs.
Here is a checklist of 15 different types of real estate investments to consider, along with key advantages and disadvantages.
1. Rental Properties
- Advantages: One of the easier ways to get started, and good long-term return-on-investment.
- Disadvantages: Being a landlord isn’t much fun, and you typically wait a long time for the big pay-off.
2. Rent or Lease-to-Own Homes
- Advantages: When you buy, then sell on a rent- or lease-to-own arrangement, you get higher rent, large non-refundable deposit upfront and the buyer is usually responsible for maintenance.
- Disadvantages: The bookkeeping is tricky, and most tenants don’t complete the purchase (this can be an advantage too, but it does mean more work for you).
3. Fix and Flip.
- Advantages: A large quick return on your investment, and it can be more creative work.
- Disadvantages: Higher risk (many unpredictables), work-intensive and you get taxed heavily on the gain.
4. Buy for cash, sell for terms.
- Advantages: You get a high rate of return by paying cash to get a good price, and selling on easy terms to get a high price AND high interest.
- Disadvantages: You tie up your capital for a long time.
5. Wholesaling
- Advantages: Great way for beginners to get started in real estate investing with no money and can produce cash quickly.
- Disadvantages: Requires a lot of work, you must keep constant deal flow to generate steady cash and you get taxed heavily on the gains.
6. Raw Land
- Advantages: It is simpler than most real estate investments, with the possibility of great profits.
- Disadvantages: It can take a long time, and you have expenses, high risk and no cash flow while you wait.
7. AirBNB/Vacation Rentals
- Advantages: You generate a lot more cash flow very quickly, with little upfront effort. You can even have a vacation rental without purchasing it.
- Disadvantages: You can get a lot more headaches dealing with multiple tenants, regular expenses, house cleaning and turning it over quickly.
8. Commercial Real Estate
- Advantages: Many different types to choose. Long term triple-net leases mean little management and higher returns.
- Disadvantages: Tough market to break into, complicated to learn and you can lose income on vacant storefronts for a year at a time.
9. House Hacking
- Advantages: Great way to get started in real estate investing and live rent free. If you can get an FHA loan, fix it up while you live there a year, move out in a year, rent your unit out, then start the process again.
- Disadvantages: You have to live in the same property as the tenants you manage and properties are often hard to find.
10. Speculation
- Advantages: Buying in the path of growth and holding until values rise can yield large profits, especially if you buy low to start.
- Disadvantages: Prices aren’t that predictable, you have expenses with no income while you’re waiting, and transaction costs can eat much of the profits.
11. Tax Liens
- Advantages: Inexpensive way to obtain high equity property. Low maintenance, many properties don’t have a loan on them, and owners don’t want them.
- Disadvantages: You’re going to need a lot of money to get started. Getting clear title can be a challenge.
12. Trust Deeds
- Advantages: Good for investors with bad credit to invest in high end real estate. Can obtain mortgage without qualifying for loan.
- Disadvantages: Large loans with larger degree of risk to investor. Pay more for properties and risk of bankruptcy.
13. Hard Money Lender
- Advantages: Receive high interest and money secured my the real estate at a deep discount.
- Disadvantages: Borrower defaulting.
14. Real Estate Syndication Passive Investor
- Advantages: You generally get higher yields than most other available investments. Backed by real estate.
- Disadvantages: Need to carefully vet sponsor. Preferred rate is not guaranteed and depends on the cash flow of the apartment community, but also it is at the discretion of the sponsor.
14. Self-Storage
- Advantages: Get higher returns, and better cap rates than apartment buildings. Don’t have the traditional tenant problems that goes along with an apartment complex.
- Disadvantages: Need full-time on-site manager. You need fences, security systems that allow and control access, cameras and video systems to watch over the place.
Even though there are many types of real estate to invest in, one thing is a constant – no matter which type you select, there is much money to made! But don’t let “shiny object syndrome” cause you to spread out into too many areas. The trick is to select one, learn it well and prosper. Then, over time, you can expand into other types of real estate investing — but first master the one area first!
Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter, and podcast for seniors and retirees, that teaches the art of real estate investing. His personal real estate investing goal, which is being chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to launching the Old Dawg’s REI Network, Bill and his family lived in Haiti for 11 years as missionaries serving orphaned, abandoned and at-risk children.
