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What’s Your Real Estate Investment?

June 25, 2019
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Real estate is a traditional yet popular asset. Almost everyone who has an interest in real estate knows this. What they do not know, however, is that there are various types of real estate investment out there.

Each real estate investment type has its fair share of advantages and disadvantages, not to mention specific quirks and standards. It pays to do your research and carefully study each type of investment prior before deciding on anything.

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As you develop a deeper understanding of real estate investment, you will realise that you can actually grow your money by focusing on a single type.

If you have exhausted all possibilities and are convinced this is an undertaking you want to pursue and risk for, then it’s about time to get to know the different types of real estate investing for your enlightenment.

Some Clarifications About Real Estate Investment

A major tool in straightening out your real estate affairs is your choice of legal counsel. Virtually all experienced real estate investors use a special legal structure known as a Limited Liability Company, or LLC for short, or a Limited Partnership, or LP for short. You should seriously speak with your attorney and accountant about doing the same. It can spare you the unnecessary financial worries down the road. Those who fail to plan, plan to fail.

These special legal entities can be established at affordable rates. Unless you opt for a reputable firm, which may cost a few thousand dollars. The paperwork and requirements are somewhat manageable, and it is possible to have different LLCs for different real estate investments.

Choose a Real Estate Investment that Reflects Your Personal Preferences

Should you be considering real estate development, acquisition, or ownership, or go into the buy-and-sell business, you can better understand the nitty-gritty through this overview of different real estate properties:

(1) Residential Properties
These are properties such as detached/duplex/row houses, apartment buildings, villas, townhouses, and a rental home where you pay an individual or a family to live in the property for a specific duration. The details of your stay are outlined in a rental or lease agreement. Several lease contracts run for 6 months to a year in many countries.

(2) Commercial Properties
This property type comes in the form of office buildings, office spaces, and skyscrapers. If you were to pour some of your savings into constructing a building, lease out spaces or units to companies and enterprises of any scale. You could earn a decent passive income from the monthly rental fees. In many cases, commercial property owners forge multi-year lease agreements with their tenants. This means you will have a steady cash flow for as long as your tenants continue to operate in your building.
Should rental rates decline, even if your income simultaneously drops, it will take more to leave you bankrupt. Once the market re-ignite and rental rates surge, your tenants will still be bound by the lock-in period in their lease agreements. They will still pay the same rate despite market changes.

(3) Industrial
Industrial property investments may involve warehouses rented out to manufacturing or distribution centres, facilitated by long-term contracts. Agreements may also include storing and other specific real estate purposes. The warehouse owner profits from tenants who use the facility on a temporary basis. Industrial real estate investments can be a lucrative source of revenue. You even have the option to expand your business through a coin-operated car wash or laundry machines to get more return on investment from the property.

(4) Retail Property
Shopping malls, strip malls, markets and stores, in general, all fall under the retail property category. At times, in addition to collecting base rent every month, the property owner gets a cut from the income of their tenant stores. Some landlords prefer this kind of setup to ensure they have enough revenue to sustain their retail property.

(5) Mixed-Use Properties
These properties are a combination of two or more types of real estate investment (e.g. condo buildings with food courts, restaurants and convenience stores on certain floors). Quite popular in Thailand, individuals or companies with bigger assets are usually the ones that pursue this investment. Investment diversity, though unique and trend-setting, requires property owners to adopt diverse solutions to every investment type covered.

Can You Invest in a Hotel?

You can also invest in real estate without having to deal with the properties yourself. Real estate investment trusts, or REITs, are particularly popular in the investment community. REIT investments include buying shares from a real estate corporation that allocates its income as dividends. But taxation will be a cause for concern – dividends tend to have higher tax rates than ordinary stocks. On the whole, if bought at the appropriate valuation under a safe margin, REITs can boost your investment portfolio. 

A REIT can also be matched with an industry you prefer. For instance, if you have an affinity for luxury hotels, hotel REITs would be worth investing in. Technically, lending money for real estate purposes is a hybrid type of real estate investing.  Much like a bond, it may lean towards fixed income investment. You generate returns by lending money while also profiting from the interest. You have no direct stake in the appreciation or profitability of the property other than the interest income and principal returns.

Should you buy an investment property in Thailand? 

Grey Areas of Real Estate Investment

When you buy a property and then lease it back to a tenant (i.e. restaurant), this approach is similar to fixed income investing. Some investors do not consider it as a “true real estate investment” because you are simply lending money to fund a property. But more like a grey area in real estate investing, once you get the property back, you still have jurisdiction over any appreciation incurred.

 


Photo credits: Nattanan23 c/o Pixabay

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