If you are still beginning to invest in Springfield rental real estate, you may have seen that there are quite a few options out there. Rental property investors, in particular, have many choices when it comes to property type, size, and function. If you are unsure which type of rental property is right for you, start by understanding the four main types of real estate and what their purposes are. Then narrow down your options until you find the type of rental real estate that suits your needs and goals.
Residential
Most new real estate investors considering a purchase, go for a residential rental property. Obviously, there may be a good reason for this: the residential real estate market is gigantic! In 2020, it was valued at $33.6 trillion and still growing. By definition, residential real estate is procured and occupied as a dwelling by owners or tenants.
Within this broad category of real estate, there are different types of residential properties: townhomes, duplexes, multi-family buildings, single-family residences, and more. Thanks to lifestyle and renter demographic changes, single-family rental properties have had a high demand for many years. This makes investing in single-family properties one of the most popular options for new investors.
Commercial
As an alternative, there is commercial real estate. This type of real estate property is used only as a workspace or to conduct a business or trade. As with residential properties, there are numerous diverse kinds of commercial properties. Office space, retailers, restaurants, hotels and resorts, and even healthcare facilities all fall under the category of commercial real estate.
There are lots of benefits of investing in commercial real estate, as it can be a very profitable option for some investors. Nevertheless, the initial cost of a commercial property could be a problem, as they are likely to be much higher than a residential property. This trait can be a reason why a new investor would back out.
Industrial
Even though it’s technically part of the commercial real estate category, industrial real estate is a unique kind of real estate often designated for use in very specific ways. Examples of industrial real estate include car manufacturers, storage and distribution centers, food processing centers, power plants, and research and development parks.
There are also three different classes of industrial real estate – A, B, and C – so you really need to do your research before you think about investing. Leases on industrial properties can be very lucrative and tend to be extremely long-term holdings. And, like commercial real estate, it can be quite expensive to purchase industrial property, especially if such properties are in high demand.
Land
The fourth and final type of investment property you should be aware of is land investment. In most cases, raw or vacant land is purchased with the objective to develop it in some way or to use the natural resources on or under the land for profit.
For most investors who own land, this would include negotiating leases that allow tenants to harvest minerals or water, oil or mining, timberland, orchards, or to use as farms, ranches, and recreational activities. Purchasing raw land, in particular, is a highly speculative investment that carries an equally high amount of risk. But in the right circumstances, leasing land can be a profitable venture for a real estate investor.
With so many different options to choose from, most real estate investors will specialize in one type or sub-category of real estate. This may be especially helpful when you are just beginning since it takes time to learn everything you need to know about investing in each type of real estate.
If you are eager to start investing in residential rental properties, we can help! Our local Springfield property management experts work with investors like you to help find, prep, and lease quality residential rental homes. Contact us today to learn more.
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