This week, we will be focusing on breaking down some of the most common types of real estate investments that can provide income. The ones that we are going to cover today are:
- Multi-Family Residential and
So let us begin with commercial. Commercial real estate investments usually consist of sky scrappers or office buildings. They lease out the buildings to companies and small business owners. It makes sense that commercial real estate investments are, on average, the highest profile property type considering the fact that they are usually found in bustling city centers or in suburban office parks. The JLL, a services and investment management company that specializes in real estate, reported that US commercial real estate sales were $435 billion in the year 2015. A few reasons to invest in commercial real estate are attractive returns and steady cash flow. Let’s take a quick look at some of the upsides and downsides to commercial real estate. A positive aspect is that is it not uncommon for commercial real estate to have multi-year leases, which in itself has its pros and cons. A pro with a multi-year lease is the secured time frame but on the other hand, if rental rates increase during the lease, you can not adjust the rent. Another downside is that office buildings have high operating costs. Overtime, commercial real estate investments have proven to appreciate in value and tend to exceed other investment types.
Moving right along to industrial real estate. Under the umbrella of industrial real estate, we find warehouses, manufacturing, research and development group, or companies working with distribution. Some of these industrial industries might require access to work along the outdoor of the space. These industrial warehouses are leased out to firms as distribution centers and are usually done over long-term agreements. There are some industrial leases that generate sales from customers, however, the costumers use the facilitates temporarily, such as a car wash or a storage unit. It is not uncommon to see an industrial site using fee and service revenue streams. For example, a car wash might offer vacuum cleaners that are coin operated to increase their transactional based revenue stream. (A quick tangent on revenue streams here. There are four models of revenue which are: recurring revenue, transaction based revenue, project revenue and service revenue. Recurring, transaction, and project are the models that have to do with selling goods, while service revenue sells “time” or the service time of the worker.) Ok where were we? Right industrial real estate. When comparing industrial to office or retail, industrial real estate investments are usually less management intensive and have lowering operating costs. And there ain’t nothing wrong with that.
Multi-family residential is pretty self explanatory based off of its name. The most common example would be an apartment building. Though it is one building, there are various tenants and multiple units inside. This type of real estate investment can deliver stable returns because people will always be in need of a place to live.
The final type that we will be look at today is mixed-use real estate. This is an investment that combines any of the types of real estate investments we just discussed and those we didn’t.
This post just goes to show the variety of real estate investments that one could be making. It would be important to further explore the differences and similarities in these investments as we have merely scratched the surface.