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Determine the Best Type of Real Estate Investment to Fit Your Needs – Part I
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Nov 11, 2005, 13:30
Once you have decided to invest in real estate, it is important to determine the type of property that best suits your personality, skills, temperament, time availability, and practical needs. You wouldn’t expect a 65-year-old widow with a dependent sister to own and manage a fraternity house anymore than you would expect a 30-year-old first-time investor to own a retirement home.
In considering the different types of real estate investments available, it is essential to find the right match between he type of property you are interested in and the individual needs that you ha as a person. Real estate is classified into tow basic categories: income or investment property, and non-income-producing property. The return on capital invested in investment real estate stems from net income produced, whereas the return on non-income-producing property is measured primarily in private or public use value.
Types of Income Property
Vacant land
Single family residences
Condominiums and Townhouses
Duplexes, triplexes, and fourplexes
Apartment buildings
Shopping centers (“strip” and “anchored”)
Commercial and industrial properties
Non-Income-Producing Property
Personal residences
Churches
Schools
Parks
City halls
Courthouses
Other government buildings
As a potential investor, you should look for property you are genuinely interested in and enthused about. Give consideration to the long-term investment concept rather than a quick buy and sell for a meager profit. What you want to do is find a property than not only suits you, but also has growth potential. I would never buy anything I wasn’t interested in. when you first start out, it is best to buy something that you are familiar with so that you can analyze the growth potential of the community and neighborhood.
When I first decided to buy real estate and grow rich, I geared myself toward apartment buildings in Hermosa Beach, California, an ideally located, quaint (though at that time dilapidated) residential community in the South Bay area of Los Angeles County. When I started, I was single and liked the idea of having a home on the oceanfront – a recreational facility and residence all in one. My first purchase was a six-unit apartment building right on the oceanfront on a strip of land called “The Strand,” which looks out onto the beach and the blue Pacific.
The property was close enough to downtown that I could commute to work. This particular building was ideal for my needs because it has so many different floor plans – w one-bedroom apartments, 1 three-bedroom apartment, 1 two-bedroom apartment, and 1 small single unit. During my first few years of ownership, I couldn’t afford to occupy the nicest apartment, so I lived in the smallest unit and rented out the best apartments, which brought in much-needed rental income.
Residential Versus Commercial property
You should never invest in something you don’t know anything about. I am a great believer in becoming informed. However, I also feel that most first-time investors are far more naturally suited to invest in residential real estate than commercial property because they live in a house, they associate with their neighbors, and they are more inclined to know how to treat residential tenants than commercial tenants. If you work for Coldwell Banker’s commercial division, you might be inclined to invest in commercial property. The majority of investors aren’t, however. Consequently, if you happed to win the lottery tomorrow, I would advise investing in what you feel most comfortable with, which in most cases probably would be residential property.
Vacant Land
There are many different kinds of vacant land acquisitions that are good investments. There are also many vacant land purchases that are purely speculative, some of them bordering on gambles. Vacant land by itself produces no income until it is improved and put to a profitable use, the possible exception being vacant parcels that are used for parking, storage, or land fills. In general, any profit derived from vacant land usually comes from the increased value of the land over a period of time. The following work increases the value of raw, unimproved land, creating land that is improved:
Landscaping and grading
Installation of utilities
Construction of roads, curbs, and gutters
Construction of buildings
When you own a parcel of vacant land, it is very important to determine its highest and best use – meaning the most profitable use – so that the land can produce the greatest return over a period of time.
Duration of use is very important to consider when contemplating a vacant land purchase. Sometimes, the most profitable return from the vacant land parcel is not measurable in monetary terms, but rather in community services, such as schools, parks, playgrounds, or libraries. Vacant land parcels that lend themselves to monetary returns should be carefully analyzed to determine the best profitable use over the longest period of time.
Oftentimes it is very difficult to determine what the highest and best use of a vacant land parcel should be until the surrounding area is developed or shows signs of positive development. If you have a land parcel in a populated area, especially it if is in the path of future growth, the property can increase in market value as the community improves.
An expensive parcel of vacant land requires substantial holding power on the owner’s behalf until it can be developed and be put on a profitable use. Caution is the watchword for the first-time investor considering vacant land for a long-term investment. It is generally unwise to purchase vacant land for an investment unless you can see an immediate use for the property.
Continue on “Determine the Best Type of Real Estate Investment to Fit Your Needs – Part II”
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