>> Jun 24, 2013
Before you consider making real estate as your de facto investing destination it’s necessary to have an idea of what are the different types of investment and the risks/gains associated with them.
If you are new to investing then it’s natural that you must have considered real estate as one of your options some time or the other. There are plenty of opportunities available in this sector as long as you understand what each type of investment is and what are the benefits and risks involved with it. However, there is more to realty investment than just buying a house or retail space and finding a suitable tenant for it. If you are considering making an investment it is essential to have an idea of the characteristics of the property and its performance in the long term as it will have a direct impact on the performance of your investment also. Each property investment has both its advantages and disadvantages. To ensure optimum benefit it is necessary to weigh the investment in both the lights. You need to ask yourself before making the purchase, whether the underlying property can perform well in the market. Even if it is not your first investment, never go by assumptions and preconceived notions.
Different Types of Real Estate Investments
All real estate investments are either for income producing properties or non-income producing properties. Majority of realty sector relies on the passive income these income producing properties generate. Offices, retail, industrial and leased residential are the examples of income producing real estate. The Non income producing investments like houses, vacant commercial space are generally bought either for personal use or as an instrument of capital appreciation. The classification of investment can be understood as follows:
Residential Real Estate Investment: Residential properties include apartments, houses, villas, and even multi-storey apartment buildings. However, hotels are an exception to this as they are a tool of income generation and hence classified amongst the commercial properties. Most of the residential realty investment lies in the non-income producing region. However, the surprising fact is multi-family residential apartments deliver the best returns amongst all over a period of time. Leasing out homes or floors of a home to tenants is a usual practice in the developing world, especially in countries like India, where the population and wealth distribution is highly skewed. IT hubs like Gurgaon, Bangalore, which attract a lot of working population is also a buzzing ground of home rental market.
Commercial Real Estate Investment: As the name suggests it mostly deals with office buildings, retail space and industrial space.
- Offices: Constructing and leasing out an office space is one of the long cherished dreams of many real estate developers. Many consider it as their flagship investment. Returns from the office properties are highly variable. There are times when the economy is out of favour and finding a tenant is quite difficult. Due to high operating costs, office buildings can prove to be a white elephant for the investor. However, during favourable market conditions Office space returns are extremely attractive.
- Retail space: There are different types of retail properties such as small shopping complexes to large malls. Branded showrooms with larger premises are in vogue, a part of the Power Center format rather than the mall format where the retailer occupies a small space inside the mall owing to the visibility difference. Commercial retail units are the smaller units that together form a big ancillary multi-bay building retailer. Various drivers for retail space include location, population density, population growth and income levels of people.
- Industrial Property: The average real estate investor’s preferred investment destination. Industrial property requires little or no maintenance and management, have minimal operating costs when compared to their office and retail counterparts. Types include warehouses, banks, manufacturing facilities or distribution hubs.
Saurabh Tyagi is an expert author, with an experience of over 4 years in writing content for articles and blogs. He loves to write on topics related to career, education, real estate and technology. A gadget freak and social media enthusiast, he also keenly follows the latest trends in digital marketing.