MELT Investment

Types of Property Investment

 

There are several types of property investment to choose from and ensuring you have the right property for your investment strategy is a great challenge enough, particularly if you have the financial capacity but are a neophyte when it comes to investing.

 

There are five major property investments: residential, commercial, retail, industrial, and Real Estate Investment Trusts (or REITs).

 

As you explore these different types of property investments, you will be surprised how easily you can find a reference to someone who has built a fortune by learning to specialise in a particular niche. However, before we delve into the specifics, let us first understand what an investment property is and why is it famous amongst investors and entrepreneurs alike?

What is an Investment Property?

Types of Property Investment, ongoing construction of a residential building

An investment property refers to a real estate property acquired to obtain a return on the investment either through rental income, the future resale of the property, or both. Investment properties are typically purchased by a single investor, a pair or group of investors together, or a corporation.

Why Invest in Property?

Despite the economic turmoil brought about by the virus outbreak, the property industry continues to be resilient. Typically, property is regarded as one of the best forms of investment due to its inherent stability. It is seen as a safer option for the long haul and is known to deliver superior returns and portfolio diversification with lessened volatility.

Types of Property Investment

1 – Residential

Residential property is a common and increasingly popular form of investment. To name a few, residential real estate includes single-family homes, multifamily properties, and vacation homes. This type of investment is ideal for many investors because it is easier to turn profits consistently.

Certainly, there are many investment strategies and aspects to take into account – what may be right for one investor may not be suitable for another. Therefore, choosing the most feasible exit strategy and assessing the market is key. The most common exit strategies used in residential real estate include wholesaling, rehabbing, and buy and hold properties, which can be used to generate rental income.

Investors should be diligent in studying which strategies would work best in their region by conducting an exhaustive analysis. When supervised properly, residential property investment can yield attractive profits.

https://www.knightfrank.com/research/report-library/residential-investment-report-2019-6404.aspx

2 – Commercial

Income-generating properties don’t always have to be residential. Commercial property is an important asset class to consider as a way of diversifying your investment portfolio.

Some of the commercial properties to invest in include industrial, office, retail, hospitality, and multifamily projects. For investors whose drive is to improve their local communities, commercial property investing is the way to go.

Investors who opt for commercial properties may find they represent higher income potential, longer leases, and lower vacancy rates than other forms of real estate. Maintenance and improvements to these properties may be higher, however, these costs can be offset by bigger returns. Investors may also enjoy less competition in commercial real estate because purchasing these properties can be a larger undertaking than working with residential homes.

Understandably, offices, hotels, retail stores, and other commercial property investments have suffered tremendously during the pandemic, as the rest of the country did. However, whilst the pandemic isn’t over yet, commercial real estate is forecasted to follow a broader economic recovery trend in 2021. Many investors are optimistic as COVID vaccines have now been introduced.

3 – Retail

Retail property is a category within the commercial property sector. While the commercial sector encompasses properties, including buildings and land, that are used to generate profits, the retail industry is more specific. Investment of this nature comprises other types of property, including retail shops and shop premises, which more investors are now seeking out due to its substantial returns.

However, before venturing into this business, investors should be prudent to weigh the pros and cons. Evidently, the coronavirus outbreak has had an immense impact on the property market, and retail, in particular, has been hit hard due to its unique characteristics such as its sensitivity to the economic cycle.

Property investors must conduct due diligence and time their investment. Shops and retail premises often have very high yields because of their susceptibility to the ups and downs of the economy, so it is well worth biding your time to get your acquisition timing just right.

4 – Industrial

Investing in industrial property can be a good business for savvy investors. It comes in many guises and makes up for a broad scope of business types. It usually offers functional and retail space in factories and warehouses, mainly used to manufacture goods, storage, and logistics.

There are many factors to consider when investing in industrial property. They often have significant fee and service revenue streams to increase the return on investment for the owner. You need to understand what to look for to give your investment the best chance of success. Nonetheless, it’s a very niche market and requires specialised professionals’ help to maintain and manage it, as well as a bigger upfront capital investment.

Ironically, despite the unprecedented events brought by the pandemic, this has caused a surge in demand for industrial properties. This performance is driven by several factors including demand for flexible, multi-use warehouses, the rise of tradespeople seeking formal premises, and the rise of online retailing.

https://www.knightfrank.com/research/article/2020-10-07-how-will-rising-online-sales-volumes-impact-on-demand-for-distribution-and-logistics-space

5 – Real Estate Investment Trusts (REITs)

https://moneyfacts.co.uk/investments-how-to-invest-your-money/guides/how-to-invest-with-a-real-estate-investment-trust-reit/

Real estate investment trusts, or REITs, are particularly popular in the investment community with their key attractiveness of affordability and ease of entry. These were introduced in the UK in 2007 to provide an easier way for people to invest in property. REITs are companies that own different commercial real estate types, such as hotels, shops, offices, malls, or restaurants. Investing through REITs means you invest in the properties these companies own without the added risk of owning the property yourself.

The main reason why REITs are attractive is that there is tax relief on rental income and gains from property investment. REITs must payout at least 90 percent of their income as dividends. This offers investors to receive dividends while diversifying their portfolios at the same time.

Unfortunately, there are some pitfalls and risks to REITs that investors need to know before making any investment decisions. For most investors, the benefits of incorporating REITs into a well-diversified investment portfolio outweigh the risks. Nonetheless, it’s important to know what you’re getting into before adding any type of investment to your portfolio.

Summary

There are a variety of factors to consider when taking that first step into property investment. The best type of property investment will depend on your personal circumstances, financial capacity, goals, and desired investing strategy. While some investors, the rookie, in particular, want a forthright answer, establishing the best type of property investment is a subjective process. Determining the suitable type of property investment boils down to assessing the advantages and disadvantages. Evaluate your preferred level of involvement, risk tolerance, and profitability as you decide which types of property investment suits you best.