Real estate is one of the oldest and most popular asset classes. Most of the new investors in real estate know that, but what they don’t know is how many different types of real estate investment exist.

It goes without saying that each type of real estate investment has its potential benefits and risks, including unique peculiarities in cash flow cycles, lending traditions, and standards of what is considered to be appropriate or regular, so you should study them well before you start adding them to your portfolio.

As you uncover these different types of real estate investments and learn more about them, it isn’t unusual to see someone build a fortune by learning to specialize in a particular niche.

Categories of Real Estate

If you’re intent on developing, acquiring, owning, or flipping real estate, you should better come to an understanding of the peculiarities of what you’re facing by dividing the real estate into several categories.

Residential

Residential structures are properties such as houses, apartment buildings, townhouses, and vacation houses where a person or family pays you to live in the property. The duration of their stay is based on the rental agreement, or the agreement they sign with you, known as the lease agreement. Most residential leases are on a twelve-month basis in the United States.

Commercial

The commercial property consists mostly of things like office buildings and skyscrapers. If you were to take some of your savings and construct a small building with individual offices, you could lease them out to companies and small business owners, who would pay you rent to use the property. It isn’t unusual for commercial real estate to prolong multi-year leases. This can lead to more excellent stability in cash flow and even protect the owner when rental rates decline. Still, if the market heats up and rental rates increase substantially over a short period of time, it may not be possible to participate as the office building is binded by the old agreement.

Industrial

Industrial real estate usage can consist of anything from industrial warehouses leased to firms as distribution centers over long-term agreements to store units, car washes, and other special purpose real estate that generates sales from customers who temporarily use the facility. Industrial real estate investments often have significant fees and service revenue streams, such as adding coin-operated vacuum cleaners at a car wash to increase the return on investment for the owner.

Retail

Retail properties consist of shopping malls, strip malls, and other retail storefronts. In some cases, the landlord also receives a percentage of sales generated by the tenant store in addition to a base rent to incentivize them to keep the property in top-notch condition.

Mixed-Use

Mixed-use properties are those that combine any of the above categories into a single project. Mixed-use real estate investments are popular for those with significant assets because they have a degree of built-in diversification, which is important for controlling risks.

Ways to Invest in Real Estate

Apart from this, there are other ways to invest in real estate if you don’t actually want to deal with the properties yourself. Real estate investment trusts, or REITs, are particularly popular in the investment community.

You can also get into more esoteric areas, such a tax lien certificates. Technically, lending money for real estate is also considered real estate investing; it can be considered this as a fixed income investment, just like a bond, because you are generating your investment return by lending money in exchange for interest income. You have no underlying stake in the appreciation or profitability of a property beyond that interest income and the return of your principal.

The same way, buying a piece of real estate or building and then leasing it back to a tenant, such as a restaurant, is more akin to fixed income investing rather than an actual real estate investment. You are essentially financing a property, although this somewhat straddles the fence of the two because you will eventually get the property back, and presumably, the appreciation belongs to you.