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Real estate is one of the most unique assets classes in the world given the distinctness of each property type. It is also considered by many as a prudent investment to be included in a well-diversified portfolio.
REAL ESTATE • IMPACT INVESTING • PRIVATE MARKETS
Real Estate Investment Types:
The four main types of real estate are land, residential, commercial and industrial with numerous sub-categories for each. In this paper we will explore in-depth the different types of real estate categories. We will also look at both the benefits and drawbacks of real estate investing.
Real estate is defined by the following characteristics:
Types of Real Estate:
There are numerous types of real estate assets with each asset having defining characteristics that make it valuable.
Land
The first investment type is land which may have either geographic or physical attributes that make it desirable to own. Land can be utilized in many ways and can become highly valuable based on its geographic location or ability to change the use of the land for a specific purpose. In many cases, there is a capital investment necessary to increase the value of land. This could include preparing the land for building through the installation of water, sewer, electricity, drainage, etc. It could also include the addition of agriculture or trees.
Examples of land real estate: Undeveloped raw land, farms & ranches, timberland, orchards, recreational parcels (camping, hunting, fishing), lots in subdivision
Residential
Residential real estate is utilized to house individuals. Residential real estate ranges from single-family houses to large condominium complexes to mobile home. Residential real estate makes up a large amount of the wealth of individuals in the United States given the cost to purchase a home and price appreciation over the time the individual owns the home
Examples of residential real estate: Single family homes, condominiums, town homes, mobile homes
Commercial
Commercial properties are used for general business purposes and generate income for investors.
Examples of commercial real estate: Multi-family apartment complexes, office space (buildings, office parks, medical centers), retail, self-storage, parking lots & garages
Industrial
Industrial real estate properties use can vary dramatically but in most cases are properties that develop, manufacture and hold goods and products.
Examples of industrial real estate: manufacturing, refrigerated storage, storage warehouses & distribution centers, data server farms
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Benefits of Real Estate Investing
*See additional benefits and drawbacks in downloadable white paper
Income: Real estate can provide consistent income to underlying investors through the generation of cash flow from these properties.
Capital Appreciation: Real estate can appreciate in value as a result of local market appreciation, increased demand of the real estate asset, value-add investments, or the development of land.
Diversification: While real estate values are likely to be impacted by broader macroeconomic factors, in general, real estate has a low correlation to most major asset classes. This can lower total portfolio volatility over time.
Inflation Hedge: In general, inflation is a result of both GDP growth and the subsequent increased demand for real estate. Real estate can pass inflationary pressures to tenants through increasing rents.
Tax Benefits: Real estate investors can take advantage of the depreciation tax benefits of real estate, reducing taxable income from other income sources.
Drawbacks of Real Estate Investing
Illiquid: Real estate is illiquid which means that can take considerable time, effort and expense to sell an asset.
Influenced by Geographic Factors: Real estate is highly correlated to localized geographic factors including population growth, job growth, and increased supply of similar properties being built.
Large Initial Outlays: Real estate takes significant capital to purchase or build, necessitating significant capital at the front end of the investment.
Can Require Active Management & Expertise: In many cases, real estate will need to be actively managed which may take specialized expertise.
Impact Investing in Real Estate
There are numerous ways to invest in real estate that produces a positive impact on society or the environment. These include:
Summary
As discussed in this blog, real estate properties can be highly differentiated from each other and provide a plethora of interesting investment opportunities including those that can have real and measurable positive impacts on society and the environment. To read more about the underlying property types and impact opportunities in real estate, download our free white paper.
This communication and the information contained in this article are provided for general informational purposes only and should neither be construed nor intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice.
There are numerous ways to invest in real estate that produces a positive impact on society or the environment.
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