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Modes of Real Estate investment

Real estate is a vast field for investing. It offers many different types of experiences for investors. We have come up with a list of ways you can invest in real estate:

  1. House Flipping
  2. Buy-and-Hold Residential Real Estate Investing
  3. Commercial Real Estate Investing

  1. House flipping

House flipping business is when you buy a real estate, work on it and sell it on a higher price. This business has been around for quite some time now and people have started decoding it. There are now experienced house flippers out there in the market, who are offering courses for the ones aspiring to be like them. It is claimed by some of these gurus that they have managed to flip over 1000 houses in almost 10 years; which is a great achievement on their part. Often we see people complaining that the real estate market is not that fast to be in the house flipping business. They claim that it takes time to flip a house and while you are at it you bind your investment to a particular project, which has a chance to being stuck.

Who is suited for house flipping?

House rehabilitation business is right for realtors, contractors and brokers. These people are the best suited for this job because they have a lot to put on the table in terms of their experiences. It is recommended to people who have already completed two or three house flip and fix investments in the past.

House flipping costs

The holding costs for house flipping usually include:

  • Mortgage Payments
  • Property Taxes
  • Utilities
  • HOA Fees

Return on Flipping investment:

The average return on a house flipping is said to be 20% of the gross profit. This means that if everything was done right, you should be saving this percentage of the total profit.

Potential Risks:

The rewards gained are high in this business. But you can never ignore the risks here too. The house flipping investors are subjected to the following risks:

  • Higher rehabilitation costs
  • Higher holding costs
  • Loan extension
  • Not getting a customer for long

  1. Residential real estate investing

Buying and holding residential real estate is a type that has been practiced for quite so time now. The investors with long term financial goals often go for this. They properties they invest in are family homes, apartment buildings and multifamily buildings.

Who is suited for residential real estate investing?

This investment type is best suited for long term investors. The goal here is to buy a land cheap and sell it after half a decade or even more. Most investors do this because they want a multiple property portfolio.
Specifically, this type is best suited for:

Return on Residential real estate investments:

The overall return on this type of investment is around 9%. It is inclusive of annual and rental incomes plus the price appreciation earned.
ROI also includes:

  • Mortgage Payments
  • Property Taxes
  • Repairs and Maintenance for Landlords
  • Property management Fees for Portfolio Investors

Risks involved:

Portfolio investors and landlords face the same buy-and-hold risks with their rental properties. The main risks include:

  • Occupancy Risk.
  • Price Depreciation
  • Personal Default.
  • Liability Risk

  1. Commercial Real Estate Investing

The property that is used for commercial or nonresidential purpose always attracts new investors. The very purpose of this property is to conduct business. These properties are purchased by investors and leased to companies. Commercial real estate investors are long term investors and they earn monthly lease income and price appreciation

The right person for Commercial Real Estate Investing:

This investing type is often for business owners who want to possess a property where their business is being conducted. Commercial real estate investing can also be good for new real estate investors who have an experienced mentor.
The most common types of commercial real estate investors include:

  • Businesses and corporations
  • Real estate investment funds
  • Limited partnerships.
  • Experienced individual investors.

Average Return on Commercial Real Estate Investing

The average returns in this type are considered to be over 20 years. The current annual return is at 9.5 percent gross return on investments.
However, the return is gross and therefore doesn’t include any costs, such as:

  • Monthly Loan Payments
  • Commercial Property Taxes
  • Repairs and Maintenance for Investor Managed Properties
  • Property Management Fees for Commercial Portfolio Investors

Potential Risks of Commercial Real Estate Investing

Commercial real estate investors generally face the following risks:

  • Occupancy Risk
  • Price Depreciation
  • Personal Default
  • Liability Risk

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