Most people only think of the stock market when building wealth for retirement. The reality is that the stock market is only one component of how you should build your retirement plan; smart investors are diversified and have money in real estate, equities, and bonds. If you only invest in equities you are vulnerable to the volatility of the market and can’t easily hedge yourself against a downturn. The most stable asset you can invest your money in is real estate, and it’s been going up in value since 1870.
Most people don’t realize initially how much wealth his tied up in real estate, but the fact is real estate makes up the 60% of total global wealth. Part of that is because real estate isn’t a nice to have, it’s not a speculative equity that is tied to the market and quarterly earnings reports, it’s an absolute necessity.
The total value of real estate is 217 trillion-dollars and 162 of that is residential real estate. Real estate is a scarce resource that we can’t produce more of– and that continues to push the value upward.
Now that you have your mind thinking about investing in real estate where do you go next, and what types of real estate should you be looking at. There are many different ways to invest in real estate and here are a few of them.
Income producing real estate:
There are basically four different types of real estate you can invest in for cash flow purposes.
- Offices
- Retail
- Industrial
- Leased residential
Benefit:
● Investor gets cash-flow from rents
● Investor can benefit from capital appreciation
Non-income producing real estate:
- Houses
- Vacation properties
- Vacant commercial buildings
- Raw land
Benefit:
● Investor can benefit from Capital appreciation
Commercial
When looking at income producing real estate options consider commercial to be the most popular and dependable because there is less risk of a company defaulting on their payments. Depending on the location, capitalization rates can be from 5–8% with the booming micro economies earning you even higher. Ideally you invest in a suburb of a major city that is expanding rapidly and there is a shortage of office space available driving cap rates upward.
Out of all of the commercial real estate options triple net lease is highest in demand. This is because the tenant is responsible for everything including property taxes, insurance, maintenance, repair, operations and utilities. Another reason these have become so popular is typically only public companies or very large companies will enter into these leases, they are concerned about the perception and image of their business and want to be accountable to making sure that it looks and functions right at all times.
Retail
There are many different types of retail space to choose from including, single tenant buildings, shopping malls, strip malls, and retail parks. Out of these options retail parks are currently highest in demand due to greater visibility and access.
The key to any retail park investment is going to be on the anchor store that supports the shopping center. If the park contains anchor stores that are struggling you should expect it to impact every store in the center. The fact is that larger anchor stores really drive the value of the entire shopping center and will determine not only your cap rates but also long-term capital appreciation.
Industrial
There are two main benefits of investing in industrial space including that it requires lower investment amounts as well as the fact that it requires less maintenance.
You could invest in warehousing, manufacturing, research and development, or distribution. On occasion you can find partial or full office investments classified as industrial.
When investing in industrial it’s important to look at ceiling height, location relative to major transport hubs and routes, and also the type of loading capability. Does this investment provide the requirements of the types of businesses prominent in that area.
Multi-family residential
This type of real estate investment is considered to be the safest. Everyone needs a place to live and therefore will always need real estate. Even in down markets people will still need to pay rent and have a roof over their heads. Because you aren’t depending on only one tenant, if you lose one it’s not going to impact your bottom line.
It’s important to understand the neighborhoods you are investing in, people want to be close to freeways and other transits. They also want to be close to shopping centers, schools, and parks. If you purchase a multi-family building that is in a struggling neighborhood where people are moving out instead of in, your investment could be at risk.
RealtyReturns
Platforms like RealtyReturns are democratizing US real estate investing by allowing cross-border investors to invest in tokenized commercial, multi-family, and residential real estate through ERC-20 compliant security tokens. The integration of the blockchain into the traditional real estate investing model provides asset-back token and liquidity to investors all across the globe.
Each token represents legal ownership in fractional real estate with access to income generating properties and capital appreciation. Investors around the globe that have ETH will be able to invest as little as 2 ETH into fractionalized US real estate through the RealtyReturns online marketplace, and bypass the working with banks, attorneys, brokers, title insurance companies, and escrow.
