Real estate is amongst the most popular asset classes, and most of the investors know that. But, most of them don’t know about different types of real estate investments.
Inevitably, each type of real estate investment has its own potential benefits as well as pitfalls that include lending traditions, cash flow cycles, etc. Just by learning and mastering one single type of real estate investment, you can easily build a fortune in this lucrative industry. Undoubtedly, incorporating real estate into the portfolio is a smart move as you plan to diversify. Commercial real estate investment provides you with an opportunity to realize significant returns, but it’s important to know more about a property before investing in it.
If you’re convinced that this is an area in which you can devote significant time, resources and effort to achieve your financial independence, it’s imperative for you to be aware of all different kinds of real estate investments. So let’s dive in
Income-Producing VS Non-Income Producing
Some of the most prominent types of income-producing real estate investments are retail, offices, and industrial and leased residential. Some less common types are mini-storage, hotels, parking lots and seniors care housing.
Non-income-producing investments are like vacation properties, houses, and vacant commercial buildings. The most important thing that many investors overlook is that if you invest equity in a non-income producing real estate, you will not receive any rent and all the return will be through capital appreciation.
So while investing in debt secured by the non-income-producing property, keep in mind that the borrower’s personal income should be sufficient to cover the mortgage payments as there won’t be any tenant income to secure the payments for obvious reasons.
For most of the investors, offices are the flagship investment. In fact, they’re the largest & highest profile property type due to their typical location in downtown cores and suburban office parks. Fundamentally, the demand for office space is tied to the requirement of companies for office workers along with the average space per office worker. The typical office worker is involved in stuff like real estate, insurance, finance, services, management, accounting, and administration. With the growing number of white collar jobs, the demand for office spaces is also growing.
Returns from the office properties vary significantly as the market is very much sensitive to economic performance. One pitfall you must note that office buildings have high operating costs. So in case you lose a tenant, it’ll have a substantial impact on the returns as well. But mostly in times of prosperity, office property performs extremely well as the demand for space causes rental rates to increase.
When it comes to commercial real estate for rent in Dubai, the retail properties show up with a wide range from large shopping malls to single tenant buildings. Nowadays, the Power Center format is doing great having retailers occupying larger premises than in the shopping mall format as it provides the having greater visibility along with the access from adjacent roadways.
Most of the retail properties have an anchor like Wal-Mart. In case the retail property has a food store as an anchor, it’ll be known as the food-anchored. Such anchors would enhance the fundamentals of real estate making it more desirable for investment. Mostly, the retail center has one or more ancillary multi-bay buildings that often contain smaller tenants. And these small units are known as commercial retail units (CRU).
Industrial Real Estate
It includes everything from industrial warehouses leased to companies as distribution centers to storage units, car washes that generate revenue from customers who use the facility temporarily. Most often, the industrial real estate investments have significant fee & service revenue streams like adding vacuum cleaners at a car wash in order to increase the return on investment. This type of real estate investment is also quite likely to generate good income for the owner.