Types of Real Estate

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Residential, Commercial, Industrial

We have left out raw land in this discussion, because land is not investing - it's speculation (gambling). It deserves a section of its own, due to its high risk

Residential consists of living quarters - single family homes (SFH) and multi-unit buildings (multi). There are advantages and disadvantages to both - you must decide for yourself which one (or both) that you will pursue.

SFH's get higher rents, and generally a better class of people - more affluent than apartment dwellers, as a general rule. They also tend to stay longer, because SFH's are harder to come by. Generally, the tenant only leaves if they buy their own home.

The SFH appreciates faster than a multi, and stands a better chance of increasing in value due to rezoning at some future time. On the down side, the SFH costs more per unit, and a vacancy means a 100% vacancy rate.

The per unit cost of apartments are lower because some of the costs are spread out among all the units. For example, instead of 12 furnaces for 12 units, there would be just one furnace for all units. And if someone moves out, the remaining rented units can keep the mortgage paid.

Residential properties often get rezoned as growth hits an area. Rezoning usually results in a sudden increase in value.

Commercial properties generally earn a higher return, but they also incur more risk. The area it is in can decline, resulting in empty storefronts. Or a WalMart moving in could have the same result. As it is true in all investing, the rate of return is affected by the risk factor 0 the higher the risk, the higher the potential return. One benefit of commercial property is the chance for the investor to convert to a higher use, such as turning an old car dealership into a small strip mall, or turning a single storefront into a group of "business incubators", resulting in several tenants instead of one.

Now we get to industrial property. This incurs the greatest risk, but the potential rewards can be huge. Best left to professionals because of all the legal issues and risks, we will not get too deep into the pros and cons here - it would require far too much webspace. Suffice it to say that industrial real estate is a game for those with a strong heart, a lot of capital, good "downtown" connections and nerves of steel.

If you purchase a real estate program, choose one like "The Simple Man's Guide to Real Estate" that covers ALL types of real estate.

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