What are the different types of real estate/property assets? While real estate comes in many forms and versions it can generally be divided into five main categories of importance broadly. Real estate is quite different from other forms of investment such as stocks in which you buy a piece of the whole company. In real estate, the property you buy is considered the whole investment and each and every piece of land and building/home is different. You may buy a residential house in North Dakota and its worth could be $150,000 but the same size house in downtown LA will carry a price of many millions of dollars. This is because the worth of Real estate is determined by three things the location, the type of real estate i.e. residential or commercial and the cost of construction and overhead. In this article, we will discuss in detail the different types of real estate assets.
Residential Real Estate/Property
Residential real estate is one of the main types of real estate assets. Home ownership falls under this umbrella. In residential real estate, there are three main types of assets.
- Residential Plots of Land
- Residential Houses (includes single family and multiplexes)
- Residential Flats, Apartments and Condos
Residential Plots of land is an asset in which you own the land and the worth of the asset is determined by the location and the square footage of the land. This type of ownership includes land on which you are allowed to construct one or multiple family residences. This is the most sought after land in the USA and internationally as most builders and owners will seek it to construct.
This type of ownership also includes land on which residential mobile home parks and condos are built. If you own the land you may be able to strike a short or long term lease agreement to rent the land. Short term leases will usually be sought by trailer parks and mobile home parks while builders constructing condos will usually seek out a long term lease for renting the plot of land.
Residential Houses include already built or refurbished houses that are up for sale on the market. The price of this type of real estate fluctuates widely with the market. Most first time homeowners will seek to invest in their family residence and will usually tend to buy a house instead of building one. This can be a great asset for younger adults as building equity in your home is the best way to fight the markets, especially with the current low-interest rates.
Residential flats, apartments and condo ownership usually includes three parties. The owner of the land the building sits upon, the constructor/builder of the building and the buyer of the flat. This type of asset is looked down upon by most investors as it includes multiple partners in the deal with none having the power to decide on their own what happens to the asset. If you decide to buy or sell the flat/apartment/condo you will have to do it through the owner of the building. In most cases such properties include percentage cuts on profits and rental leases for the owners of the building and the land and hence most serious investors try to hold either the full apartment building with the underlying land or none at all. If you are a new buyer/investor, I would suggest staying away from this type of investment.
Commercial Real Estate/Property
Commercial Real estate includes properties such as shopping centres, plazas, apartment buildings, office buildings, markets, shops and offices etc. In commercial real estate, there are three types of assets.
- Commercial Plots of Land
- Commercial Buildings with units
- Commercial Units
Commercial plots of land are similar to residential plots of land but these plots of land can only be used to build commercial buildings. Commercial land is usually the most expensive type of land at all times on the market. This includes land in city centres and commercial hubs where the majority of buying and selling takes place.
Commercial Buildings with units include your local shopping markets such as Walmart or Seven-Eleven, or your local bank building. Similarly, any building with land rights that is in a commercial hub will be considered in this category. These assets are great investments but they require a few million dollars to get into. They can also be triple net where the tenant will take care of all the maintenance of the property and pay you an annual rent. Tenants in such places rarely leave and hence if you have the cash to get into this type of real estate then you can be set for life.
Commercial units include shops, offices and retail spaces within commercial buildings that are up for sale. Many builders will sell a few shops in the commercial buildings to take money out of the project to invest in their next project. These shops/offices can be great investment opportunities as they also enjoy tenants that are large companies who rarely shut down their stores.
Industrial Real Estate/Property
Industrial real estate assets can include industrial land and factories. These are giant investments and are usually made by businesses that are already in the manufacturing business. I would advise staying away from his type of asset as it has a tendency to fluctuate widely with the market. When the markets are bullish this type of investments skyrockets but when the markets go into a bearish mode this type of real estate is the first one to fall.
Agricultural Real Estate/Property
Agricultural Real estate includes land on which agricultural produce can be farmed. It is one of the prized assets of many country folks and can be a great asset. Even Warren Buffet the billionaire investor owns his own farm. Owning a farm is a good way to retire and earn comfortably as well. If you have a few acres of agricultural land you can start a fruit garden, farm wheat or barley, grow some red grapes and keep some chicken and cows. Just the eggs from the checked can earn you a few thousand dollars a month and thus can become a good way to retire.
However many city folks who have always lived in the city will shy away from such investments as they may not want to retire on a farm. They can do what is called a profit share and hire a farmer to run the farm. You will own the farm and all its animals and crops and the farmer will take care of the day to day. You will then share the profits 50-50.
Arid Real Estate/Property
Arid real estate includes land ownership in areas where there is little to no population. This includes land ownership on the mountains, in the deserts, in heavily forested areas. This type of land is not fit for agricultural production also. However, this type of land can also be an asset. If you own land near a famous landmark area you can start a resort or lodging. Similarly, you may be able to keep livestock on such lands.
So in summary land is always going to be an asset in this world as they are not producing any more of it. You can choose to invest in land or buildings. Every investor is different and has a different approach to investing but with land and real estate ownership you will hardly go wrong. You can also read the real estate investment guide on Investopedia.
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