A real estate portfolio consists of real estate investments, including investment properties, REITs (real estate investment trusts), and real estate mutual funds. The most common types of investment properties seen in real estate portfolios include single-family homes, duplexes/quadruplexes/apartments, and commercial real estate.
A real estate portfolio can get you closer to achieving financial freedom, or it can be a source of supplemental income; some have become so successful at it that they have made it their entire entrepreneurial career. If you’re interested in starting a portfolio, or if you already have one started, it’s important to diversify your portfolio as much as possible. Here are a few different types of property investments.
Residential properties are usually the first kind of property that real estate investors buy, with single-family homes being the most popular residential property. There are also residential property development projects.
If you want to skip the headache of managing more than one property and paying taxes on multiple properties, then investing in multifamily properties can be a great option to make a profit, as well as diversify your investment portfolio. Owning an apartment complex can also increase your net worth, and it’s not likely for an apartment to sit vacant as other rental properties can.
This is a good place to start, as many people— even those not interested in real estate— can get experience in vacation rentals. Services like Airbnb and Vrbo allow homeowners to list their properties as vacation rentals. Of course, you don’t have to use your own home as a vacation rental property, and investing in one has the potential to bring in a good bit of money. However, some places don’t allow for short-term renting (less than 6 months), so you may have to look outside of your town, also known as a practice called long-distance investing.
Long-distance real estate investing refers to investing in a property that’s located in another city or state. Investors typically do this when the market prices are higher in their location, but it can be beneficial to any investor. Having investment properties in different locations can help protect you from economic downturns. Characteristics of a good real estate market include:
- Low crime rates
- A growing population
- Good school districts
- A growing workforce
- High demand for rental units
- A diverse economy
Commercial properties are used for business, rather than residency. Sometimes apartment complexes are considered commercial real estate, but other types include office buildings, retail centers, industrial buildings, and hotels. Just like there are lenders for residential properties, there are lenders for commercial real estate properties.
Because hotel rooms are charged by the night, you will be able to generate revenue every night. There are many ways to add more value to hotels, one of those ways being renovations/remodels. As a hotel owner, you’re able to add things like gyms and restaurants— which you are able to enjoy as well. However, hotels can be a challenging asset to your portfolio.
Investing in office buildings also provides a good way to build professional relationships. An office building can be home to many different types of businesses, so not only will your portfolio be diverse, but so will your professional network. These types of tenants are also more likely to have longer lease terms.
Shopping malls are a great commercial investment to add to your portfolio. As a collection of retail stores and eateries, you’ll be able to maximize the marketing power of the mall. With multiple businesses within one entity, your risk decreases. If one store in the mall fails, it won’t hurt your pockets as long as the majority of businesses are thriving.
Many may not realize it, but the land is actually another good investment. Without any buildings, it has the potential to be used for farmland, natural resources, residential, or commercial property. This is probably the cheapest in turns of costs for investors, but raw land has the potential to make a profit and create passive income.
When starting out, be sure to invest in the type of property that’s best for you. You can even start out with REITs and mutual funds. Don’t try to invest in everything at once. It takes time to build a diverse portfolio.