Types of Investment Property: Learn About 9 Popular Options
Previously, we compared commercial property and residential property, outlining the benefits and risks with each category. But to fully understand the investment properties, you need to understand that there are different types of properties in each category.
Let’s explore the most popular types of investment properties so you can make a fully informed decision on where to place your money…
9 Most Popular Types of Investment Property
For numerous investors, office space represents the foundation of their portfolio. While the initial costs can be high, especially in hot-market cities, the returns can be impressive. The demand for office property is generally tied to the overall economy; in good times, you can turn a large profit from office tenants, but if the economy slows and the need for office space shrinks, your profits can shrink as well.
One downside to this type of property is the higher maintenance costs, which means you could be hemorrhaging money if the space sits unoccupied. When times are prosperous and the space is filled, however, office real estate creates some of the best returns possible.
Retail property can come in many forms, including strip malls, single-unit facilities, and enclosed shopping malls. One of the more popular formats for real estate (at least currently) is the “anchor” system, which is a group of smaller retail stores highlighted by a single anchor store, such as a big-box store or large grocery store.
Demand for the space is often heavily dependent on the location, as tenants need a place that is visible and offers easy access to customers. Retail generally has tenants that stay in place for longer periods, as they are less likely to move compared to office-space tenants.
Compared to retail and office space, industrial property often has a lower entry price, at least for cost-per-square-foot. They also tend to be less demanding from ownership, with lower operating costs and less maintenance.
Industrial property can itself include many types of facilities, including warehouses, manufacturing sites, research facilities, and distribution centers. Some even have sections that can be designated as office space, either for the industrial tenant or a separate tenant.
Functionality is crucial to the demand and use of industrial property. A lot will depend on factors such as the ceiling height or square footage, or the location to major transportation routes. Building configuration can also play a factor, as well as the presence or absence of loading docks.
Hotels, Motels, and Resorts
Among all types of investment properties, this is possibly the toughest to begin your portfolio, as the cost of entry is high and the return on investment can be slim. That said, many people simply love owning hospitality property, as it gives you an attachment and interest level to the property that doesn’t come from, say, a dusty warehouse. Despite the risks, some people simply love the process and social aspect of owning a resort or hotel.
Residential investment property means rentals. But rentals, as we’ll see, can take many different forms.
Probably the most common, these are properties meant to hold one family, with no separate units and no divides in the property. Single-family homes are in high-demand, so you can often charge more for monthly rent than other properties, and you will rarely have trouble finding tenants, assuming the property is in a decent location.
Single-family homes often provide a steady growth and rarely erode in value, even in economic downturns. However, if you lose a tenant, 100% of the property sits unoccupied, reducing profitability.
Some investors feel that multiunit properties are the best investment option. This is because the properties tend to have a high return on investment, appreciate well, and bring fewer risks.
They tend to have a high vacancy rate. This is because multiple people occupy the investment property at once; if one tenant leaves, your income from the property is not completely eliminated. With the other units occupied, you can maintain at least a portion of your income while searching for a new tenant. This smooths the risks involved in rental properties.
As a sort of hybrid between apartments and a house, condos have their own distinct advantages and disadvantages as an investment. They are affordable, as you can purchase a condo at a lower price than many other properties, and they are often found in desirable locations, such as close to commercial centers, increasing the chances of finding a tenant. However, some properties have restrictions on renting, and the financing on these properties can be more complicated. Also, they rarely have the real-estate appreciation that you get from other locations.
Although more expensive than a condo unit, townhouses allow you to invest in a single-family residence that is often in or near a larger city, which is desirable among many tenants. They are usually narrow and thin, taking up a small space, but the living space is larger because townhouses include many floors.
Like condos, some townhouses have homeowner’s associations, which means there could be restrictions to how you rent or remodel the property.
Short-Term Rentals (Vacation Homes)
Skirting the line between commercial and residential property, short-term rentals (think AirBnB), are popular right now, and many people are considering them as an addition to their property portfolio. Not only do you get a vacation home that you can use as you please, you also get a property that can bring a consistent income . However, there is a lot of work involved in week or month-long leases, so this is one of the more labor-intense investment properties.
Short-term rentals are also dependent on location, as you need a spot that will attract people to your destination. If you find the right property, however, you may be amazed at the demand for your vacation house, as well as the accompanying profits.
Providing Affordable Financing for Many Types of Investment Property
If you want to enhance your portfolio, our no-income investment-property loans can help. Contact our staff for information on these excellent loans, as well as other borrowing options for your investment needs.