1: Rental Properties
This is the most common type among beginner property investors. With rental properties, a real estate investor simply buys an investment property and rents it out. There are mainly two ways to make money with these types of real estate: long-term rental properties (Traditional) or short-term rental properties (Airbnb).
This is one of the best types of real estate because almost every type of investment property can be a rental. Single-family homes, multi-family homes, vacation homes, condos, townhouses, you name it! However, the type of investment property has to match with the rental strategy in order to have a profitable investment. For example, a vacation home would make a better return on investment as an Airbnb rental property.
Another reason for the popularity of these types of real estate is that rental properties allow for cash flow (monthly rental income – monthly rental expenses). This means that when a real estate investor rents out his/her investment property, he/she will have a stream of income in the form of monthly rent. However, the rental property has to generate positive cash flow in order to profit from it.
Fixing and flipping real estate is a great way to make a fast profit. When investing in these types of real estate, a real estate investor finds investment properties that he/she can buy for a cheap price (such as distressed properties, foreclosures, or short-sales), works on renovating them, and then sells them for a profit as quickly as possible.
When compared to other types of real estate, fix-and-flips are considered risky for beginner property investors. It might take some time to find the right investment properties to flip. Moreover, property investors have to keep their finances in order. Otherwise, they could end up spending too much on renovations and not make the desired profit. Not to mention, reselling these types of real estate has to be done quickly – the longer you hold the flipped investment property, the less money you’ll make because you’re paying the mortgage without making any income.
If you’re thinking that the only way to make money from real estate investing is through property ownership, then think again! There are types of real estate that allow you to make money and be part of the business without having to become a landlord. Real estate wholesaling is one of those types. In real estate wholesaling, your job is to find a property for sale and sign a contract with the seller. Then, you start looking for an end-buyer for this property before the contract deadline expires. Once you’ve found the right buyer, you work as a middleman between the seller and the buyer.
Real estate wholesaling is one the best types of real estate for beginner property investors because they don’t need to have a lot of cash to buy an investment property and it gives them the ability to make significant money in the short term. In addition, a real estate wholesaler doesn’t have a long-term commitment to a rental property, doesn’t have to look for and deal with tenants, nor is there any need to fix or manage investment properties.
Speaking of types of real estate that don’t include property ownership, real estate investment trusts are an excellent choice. REITs are companies that pool money from investors to buy and manage large investment properties like hospitals and skyscrapers. As an investor, you’ll receive a passive income in the form of dividends. Therefore, investors don’t have to deal with the responsibilities of being a landlord like dealing with tenants, managing rental properties, conducting real estate market analysis and a rental property analysis, etc.