The world of real estate investments is vast and complicated. There are many types of investments available, from residential to industrial and everything else in between. Most people know that there are two main options for investing in real estate: buying single-family homes and condos/townhomes or investing in commercial/multi-family properties. But it’s hard to understand exactly what type of property you’re looking for without knowing some details about each type first.

Understanding the different types of real estate investments will help you understand them better and make more informed decisions about which type to pursue. We've defined each one for you, covering everything from the asset you'll be investing in to the return on investment that you can expect.

Understanding Real Estate Investments

When you think of real estate investing, buying an investment property and renting it out might be the first thing you think of – and while that is a viable option, it’s just a drop in the ocean in terms of all the real estate investment choices at your disposal.

Generally speaking, there are two types of real estate investments: Active and Passive. Investments that require Active management will cost you not only money but also possibly time and physical work. Flipping houses and managing residential rental properties are examples of active investing because they both require a lot of effort from you as the investor. Generally speaking, active investments are slightly more profitable than passive ones, but at the penalty of being more expensive and frequently riskier.

Passive investments are generally considered to be those that don’t require much effort on your part other than sitting back and letting the money come in. These investments can range from stocks to bonds, but most people are familiar with the concept of real estate investing through rental properties. Rental properties – also known as residential, duplex or triplex investment properties – are typically bought and rented out by investors who have an income stream from them.

Whether you have the time and money to spend on an investment property or not, there are a myriad of ways to get involved in real estate investing. Let’s explore a few of the options available to you.

1. Residential Real Estate 

Perhaps the most well-known and understood type of real estate investment is residential real estate. As a result, it's possible that you're not aware of a number of residential real estate investing techniques, such as micro-flipping and buying Accessory Dwelling Units (ADUs).

Residential real estate investments are investments in residential properties that provide a source of rental income for investors. These types of properties could be single family homes or apartment buildings. They also include second homes, vacation homes and any other type of property used for residential purposes.

Residential real estate investments are frequently active, so you will probably need to make significant financial and labor sacrifices. Nevertheless, they have the ability to provide substantial earnings and steady cash flow.

2. Commercial Real Estate

Commercial property is an investment opportunity that can offer many benefits. It can be used to increase your net worth, and it gives you the opportunity to earn a profit on your investment. Commercial real estate investments are ideal for those who have a desire to earn income and invest in a stable asset. These investments are typically bought and sold multiple times over their lifetime, which means that they can be rented out or sold for a profit as their value rises.

Commercial real estate investments are typically not residential. They include hotels, retail outlets, distribution centers and office buildings.

Commercial real estate is also known as industrial or industrial property because these properties often cater to large companies that require large amounts of space for their operations.

3. Raw Land 

Raw land is a type of property that can be bought and sold. Raw land is undeveloped or unoccupied, which means it has no structures, paths, crops, or anything else on it.

Raw land is also known as vacant land or undeveloped land.

Investing in raw land can be a great way to make money because you don't need to do any work to get started. You only have to purchase the property and wait for it to appreciate in value over time. You can also use a land loan to buy the property as raw land if you plan on developing it later on down the road.

Many owners of raw land lease their land to farmers for agricultural use, or they look for sites with potential for development so they can sell them at a profit in the future.

4. REITs

Real estate investments are one of the best ways to earn passive income.

Real estate investment trusts (REITs) are companies that manage various real estate investments. They're often referred to as "passive" investments, in contrast to many of the previously discussed options. You can invest in a REIT and earn income from the properties that the business manages rather than owning them yourself.

Some REITs are listed and traded publicly on the New York Stock Exchange (NYSE). If you're interested in commercial real estate but lack the funds to invest directly in a property, a REIT can be a wonderful option. These organizations often specialize in commercial properties, such as malls, offices, and hospitals.

5. Real Estate Crowdfunding

Real estate crowdfunding is a modern method that allows investors to come together, usually online, to pool their money and engage in chances they couldn't otherwise afford. Similar to REITs, this form of investing also requires very little capital up front and is regarded as passive.

While many online real estate crowdfunding sites demand users to demonstrate a particular degree of income before investing, some are accessible to all investors. Investors can choose from a variety of funding options including equity-based and debt-based offerings. Some platforms will allow members to invest in property using their own cash, while others may require that you have some sort of credit score or collateral for your loan.

Real estate crowdfunding is one of the most popular ways for individuals to invest in real estate today. Many people view investing through these platforms as being similar to investing in stocks or mutual funds because it allows them to diversify their portfolio without having to purchase individual properties like they would with a traditional brokerage account.

Conclusion:

You should now have a better idea of some of the various assets you have access to when it comes to real estate investing. While there are certainly more out there, these are some of the most notable. If you're just starting out with investing in real estate, any of these types may be a good place for you to begin.

If you are interested in investing in real estate and have a question about it, you can give us a call. We'd love to help you conceptualize a plan and maximize the gain you can make with your investment as you search for options around Des Moines and Central Iowa!