The 4 Most Common Real Estate Types
A real estate investment doesn't just mean buying a residential property and then renting it out. Those who want to enter this market should know that they have plenty of options available, and most of them don't include being a full-time landlord. Regardless of how much spare money or time a person has, it's likely they can find a real estate investment that works for them. Learn more about what it takes to jump in the game.
Property terms are complex, and it's impossible to share them all in one article. However, there are a few that investors should note from right off the bat:
- Co-op: This term refers to any property owned by a corporation. The idea is for each resident to buy shares of the property (rather than units of property) with the price of the shares fluctuating based on the market.
- Commercial: Commercial property can mean office and retail space, but it can also refer to apartment complexes as well (which people may initially view more as residential property). Each province sets its own rules as to how large a multi-unit building needs to be before it crosses over from residential to commercial.
- Residential: Residential may refer to free-standing single-family homes, townhomes, condos, or duplexes. The owner may manage the building personally or hire a company to maintain its grounds and collect rents.
- Strata: With a strata property, residents outright own both the unit and the common areas used within the apartment complex. In practice, this can give residents more of a say over how property is maintained and repaired. This option is not available in every province though, so investors should take note if they're planning to purchase a condo.
A rental property is the most stereotypical form of real estate investment. The landlord is in charge of the property, and the tenant is responsible for paying rent. In Canada, rental agreement requirements vary, but are typically flexible enough to account for a variety of circumstances. Some landlords may rent their property out by the day, month, or decade. Landlords may also opt to use cutting edge technology to help improve the rental experience and the overall management and marketing of their properties.
Co-ops and strata properties set their own rules for owners that can make it difficult to set prices, find tenants, and collect payments. For investors who may want to capitalize on the Airbnb trend, they should know that certain cities, such as Montreal, are trying to limit their liability by cracking down on these types of rentals.
Being a landlord takes a lot of time and energy, which is why renting isn't for everyone. A flipped home doesn't require the investor to be a people-person. All they need to do is buy a home that needs some attention, give the home the renovations it needs, and then sell the home for a profit. Some investors will do the majority of work themselves while others will hire experienced contractors to finish the job.
Those who choose this option will ideally have some experience in home building permit requests and Canadian building codes. Some neighborhoods send officials over to the home to approve repairs while others may require the contractors to have specific licenses to perform the work. It's not impossible for someone to dive into this world with no experience, but it may take some costly mistakes to learn the ins and outs.
A real estate investment trust (REIT) is one where an investor parts with their money for a stake in the property. But unlike a strata or co-op, the investor isn't directly responsible for the upkeep of the property. If renting and flipping is like the stock market of real estate, then REIT is like the mutual funds of real estate. The primary property owner of the REIT may own several properties and distribute the funds of the individual investors across all of them.
REITs are excellent to soften the risk of investment, but they also lighten the rewards. The team at Million Dollar Journey shared that investing in REITs is a wonderful portfolio diversifier, and portfolio managers consider REITs a distinct asset class. Investors should consider what they want out of their experience before finding a REIT partner. Some investors want constant updates about their properties. They may even want a vote in which properties are given the most attention and who should manage them. Others will just invest their money, sit back, and let the investment run its course.
A plot of vacant land isn't usually purchased for the investor to build upon (though it does sometimes happen). This particular investment typically involves buying a plot, waiting for a time, and then selling it to an eager developer so it can be turned into a block of offices or a row of townhomes. Vacant land can pose its own set of risks though because not every investor finds the Panorama Hills home buyer they need to make the investment worthwhile. Zoning laws, environmental restrictions, and man-made or natural damage can instantly devalue a promising property.
Investing in property doesn't have to be a chore, but it will take some research to get it right. Investors can use this guide to decide which one is right for them.