Financial experts recommend real estate as a worthy investment—and it’s easy to see why. Real estate generates long-term passive income and a steady cash flow since it appreciates over time. There’s also stable demand for real estate buying and selling as more and more investors recognize business opportunities in this industry.
If you plan to enter real estate, there are several investment options where you can put your money. Check out our visual guide on the different real estate property investments.
What is Real Estate Property Investing?
Real estate property investing involves purchasing an immovable but transferable property to generate income. Real estate investors buy properties using their capital or with a network using a shared fund. These investors generate revenue in many ways, such as renting out their properties, facilitating exchanges between buyers and sellers, and making ancillary investments.
Real estate investing has the following characteristics:
- It’s tangible
Since real estate properties are physical assets, they are ideal leverage or collateral for loans.
- It’s immune to inflation
Inflation causes a property’s value to rise, allowing real estate investors to earn more from their rental properties. So while renters frown at rent increases, real estate investors feel the opposite because they can use their properties or assets to hedge against inflation.
- It has no maturity period
Unlike deposits, foreign exchange spot trades, forward transactions, and bonds, real estate assets don’t have a maturity period. Once you finish paying your mortgage, you can keep your property for as long as you want.
- It’s non-liquid
Real estate investments are non-liquid assets, meaning you can’t buy or sell them as quickly as stocks and equity. If you’re a property owner, you may have to wait months to find buyers and sell your investments.
- It requires maintenance
Whether you’re purchasing bare land or a furnished unit, you need to maintain your real estate property over time. Regular maintenance increases your property’s value and attracts buyers or renters. The more well-maintained your property is, the more income it can generate.
7 Types of Real Estate Property Investments
There are two main types of real estate property investments: physical and non-physical. The former includes physical assets such as land, residential, and commercial properties. The latter doesn’t require owning physical properties.
No one type is better than the other. Here are the different real estate properties to get you started if you are considering investing.
1. Residential real estate
Residential real estate is any property that people live in, such as single-family homes, condominiums, cooperatives, duplexes, townhouses, multi-family residences, and vacation homes.
Owning rental properties is ideal if you have the creativity for renovations and patience for managing renters. Consider hiring a property manager to handle the job if you have neither.
2. Commercial real estate
Commercial real estate covers any property a business rents or leases. It also includes properties the owner builds to make money. Some examples of commercial real estate properties are offices, gas stations, grocery stores, hospitals and healthcare facilities, hotels, parking facilities, restaurants, shopping centers, movie theaters, warehouses, and factories.
Typically, commercial properties have long lease periods and higher rents, giving owners higher and more stable long-term income. However, these properties also require higher down payments and management expenses.
3. Raw land
Raw land includes undeveloped properties, farms or croplands, orchards, recreational lands, and mineral production lands. These properties are usually later developed into residential or commercial properties.
Before purchasing raw land, it’s essential to conduct thorough market research to evaluate the property’s profitability. Also, verify the land’s ownership, check for tax declarations, and secure a notarized and signed Deed of Sale to ensure the property is free from encumbrances.
4. Real estate investment groups (REIGs)
REIGs are business organizations that purchase multi-unit properties and then resell or lease these units to investors who become part of the group. REIG members may own one or multiple units. The REIG’s lead company takes care of the management and maintenance of the units, then receives a percentage of the monthly rent to cover maintenance costs.
This type of real estate property investment is ideal if you want to rent out properties without taking on the role of a landlord. However, the success of an REIG relies on the real estate skills, experience, and expertise of the companies involved. As such, you should thoroughly research the REIGs you’re interested in joining to ensure you’ll get the most out of your investment.
5. Real estate investment trusts (REITs)
REITs are similar to REIGs. Both groups comprise companies that own and operate properties to generate income. The only difference is that you can’t join a REIT; instead, you can only invest in the shares of REIT members on a stock exchange. This setup saves you from the risks of directly owning a real estate property.
REITs return at least 90% of their taxable income as dividends to shareholders every year. Aside from high earning potential, REITs offer minimal obligations, portfolio diversification opportunities, and high liquidity.
However, like stocks, the value of REIT shares could drop due to market crashes and company performance. As such, be sure to invest only in well-established REIT companies.
Real estate crowdfunding enables businesses to raise capital, become shareholders in a company or property, and access high-return property investments. This investment type typically uses online platforms such as social media channels to connect investors to properties.
One of the perks of real estate crowdfunding is that investors can shell out a minimal amount as property shareholders. They may also receive high investment gains if the company they invest in goes public.
However, as with other investment types, this method comes with many risks. The key is conducting extensive research before putting your eggs in a basket.
7. House flipping
House flipping is one of the most lucrative strategies real estate investors employ. However, this investment requires money, time, skills, knowledge, and patience as you will renovate and resell properties.
If you plan to flip houses, you could take one of two or both methods:
- Repair and update
Here, you purchase, renovate, and resell a property for a price that exceeds your initial investment. This approach allows you to renovate properties based on your preference. The challenge lies in having enough capital to purchase a property and the time to repair it. As such, you’d need a trusted network of lenders and contractors to flip a property successfully.
- Hold and resell
In this method, you purchase, repair, and hold a property for a few months and then resell it during an ideal time. Holding a property allows you to earn ongoing income, benefit from inflation, and enjoy tax benefits.
However, one downside is that you need to cover the property’s mortgage while it’s vacant. You also need to handle property management and potential legal issues as a landlord, which require time, effort, and patience.
Make Smart Real Estate Investments Today
Real estate is one of the most lucrative investments today, offering significant returns and appreciating over time. There’s also a stable demand for real estate purchases.
However, like any other investment, real estate investing comes with risks and challenges. As such, it’s important to understand what each real estate property investment entails to help you make profitable investment decisions.
When you’re ready to invest in real estate, look no further than RE/MAX Gold for a reputable real estate broker in the Philippines. We will assist you every step of the way, whether you are buying, selling, or investing in real estate. Contact us today for a free consultation!