Real Estate Investments: Types & Explanation

Real Estate Investments

Real-estate investments can be lucrative if you do it with planning. People are choosing real estate over other forms of investments, as it has growth potential and offers appreciated value after a certain amount of time.

Your investment can generate profitable returns either through wholesaling or even passive rental income. There are multiple benefits of investing in real estate: it provides you cover for the uncertain fluctuations of the stock market, generates consistent monthly returns, and also offers some tax benefits. If you have a pre-rented property for sale, you can generate good returns with it. 

Before investing, you must know the different types of investments and real estate categories. 

Real estate investments can be divided into two categories: physical investments, which broadly include residential and commercial projects, and the other category where you don’t have to physically own the property, REITs, and crowd funding platforms. However, both categories are different and have their advantages and barriers. Physical real-estate investments generate high returns. However, to invest in this category you are required to have money at hand. You need a significant amount to invest in this category. Whereas, for REITs and crowd funding, you need less money compared to physical real-estate investments. 

Let’s look at all of the categories in brief. 

The Different Types of Real Estate Investments

Before you step into the field of real estate investments, you must know that putting too many eggs inside one basket is risky. For secure investments and constant returns, it’s advised to keep your portfolio diversified. 

1. Pre-leased Properties 

Pre-leased properties have gained prominence in the real estate market due to all the benefits they offer. Pre-leased properties are the ones already rented out to a lessee during the time of sale on fixed terms and conditions. 

These properties offer a fixed return on investment (ROI). You can start generating returns from the first day itself since there is a zero waiting period. Also, you don’t have to experience the tiring process of finding a tenant for your property, as you get tenants right from the first day. Moreover, if you can get your hands on a pre-rented property located in a prime location, you can charge a high amount to the tenant over the time. Rental income properties also offer the benefit of capital appreciation over time.  

If you are looking to invest in a segment that offers medium to low risk, you can invest in pre-rented properties. Since this category of investment offers assured returns, there’s less risk associated with them. 

However, there are some essential factors to consider before investing in pre-leased properties. Location, tenant check, lease duration, etc. 

2. Fractional Ownership 

As the name suggests, fractional ownership means you get to own a fraction of the property as the ownership is split between different owners. In most cases of fractional ownership, a group of owners comes together to invest in the commercial real estate category.

Due to this collaborative consumption, you don’t face the financial burden of buying a property on your own. Another benefit of fractional ownership of property is its less liquid nature. Moreover, you also have the option of diversifying your fractional ownership portfolio by investing in multiple properties. 

However, ensure that you have a solid contract with proper terms and conditions in place with verified tenants so that you don’t have to worry in the future. Fractional property investments are good for people who don’t wish to use the majority of their savings in real estate investment.   

3. Long-term Rentals 

This form of real estate investment is the most common one. There’s a lease agreement between a landlord and the tenant who stays at least a year or more. In long-term leasing, the landlord finds a verified and trustworthy tenant who would occupy the property for a long. 

The biggest advantage of long-term rentals over short-term rentals is that it ensures stability for owners. Long-term rentals include leases that last for more than a year. Also, another advantage of the owner is regular income generation in the form of rent. Moreover, long-term rentals are good for initiating and regularizing your passive income. 

However, as a landlord, you need to take care of expenses such as maintenance, repair, etc., which can consume a portion of your income. Also, another concern for you can be the timely payment of rent. If your tenant is irregular with paying rent, you might have to face issues. Therefore, it’s essential to ensure that your tenant has a sound financial background which ensures timely rent payments. 

4. Short-term Rentals 

Short-term rentals are also one of the most lucrative ways of generating returns from a piece of property. There are multiple benefits of short-term rentals. You can charge a handsome amount per day stay. Also, you can use your property when it is unoccupied. 

The market for short-term rentals, also known as vacation rentals has grown exponentially. Especially, after the growth of some home-sharing apps, this marketplace has become even more accessible. You have options to explore. 

However, there are some other things too that you must know before investing in vacation rental properties. Short-term rentals have high and frequent maintenance costs. 

5. House Hacking 

House hacking is another form of investing popular amongst young homeowners. Such investors invest in properties located in prime locations or even in their neighborhoods and rent out a specific portion. 

It’s a great way to generate income through your property. Most people who prefer this form of investment wish to balance their expenses. If you are investing in a property close to your workplace, you can save your cost of commuting to work and even cover up for other expenses through house hacking. Also, house hacking gives you the opportunity of investing in properties you wouldn’t have been able to afford otherwise. Another benefit of house hacking is that the maintenance cost and other expenses incurred are split equally between all parties. 

These are some of the popular forms of real estate investments. Investing in the real-estate sector is one of the most important financial decisions an individual has to make. However, if done with proper planning and management, it can be one of the best ways to build wealth. Before investing, plan out your budget, timeline, and all the other essential factors which will help you keep the process hassle-free. Keep a diversified portfolio and do your due diligence before picking the right category for yourself!

Rakshit Shah
Rakshit Shah

Rakshit Shah is an investor and author who currently works with Prelease Property, India’s largest pre-rented property investment platform. The company guarantees rental income starting from the day investment is made through its seamless process flow, pick or list pre-rented property, letting the company handle everything else. Apart from real estate investing, he loves going on adventurous trips.