8 Types of Real Estate Investment

When most people think of investing in real estate, they think about being a landlord, but real estate investing comes in many forms. Yes, a landlord is one of them. However, other types of real estate investment have varying degrees of risk, reward, involvement, and finances. So, before jumping into your first or next investment, take a look at these different types of real estate investments and decide which is best for you. 

1. Buy & Hold

• Best for: Investors looking for long-term appreciation and stable rental income.

Buy-and-hold real estate investing involves purchasing a property to keep it for a long time. This is also known as becoming a landlord, a very popular real estate investment strategy. This allows you to earn rental income while benefiting from potential property appreciation over the years. It’s a fantastic long-term investment approach focusing on building wealth and enjoying the perks of passive income.

Pros	Cons
Long-term earning potential Potential to hire a property management company for a more hands-off approach Consistent income with quality tenants	ROI depends on market conditions Can be very hands-on in the beginning Responsible for maintenance

If you’re going to use this type of real estate investment property strategy, you need to have organized and efficient systems in place. Baselane offers tenant management, rent collection, and accounting tools to stay apprised of all the money you’re bringing in and how you can continue to do so. Did I also mention that it’s free? Yup—check them out by clicking the button below. 

2. Fixing & Flipping Houses

• Best for: Creative people who like hands-on projects, tradespeople, and general contractors.

Flipping houses is one of the most popular types of real estate investment. It’s all about buying a property for a great price, fixing it up, and then selling it for a higher price. You will find run-down homes for a good deal, renovate them quickly, and then profit when you sell. It’s a profitable venture, but having some DIY skills for repairs and renovations is essential. Also, having solid connections with contractors who can give you fair estimates and help with the repairs.

These are the two primary real estate investment examples to fix and flip a property:

• Repair and update: With this approach, you’re looking for a property that will become more valuable with a few improvements, like updating the carpet or replacing the roof. The goal is to get the work done as efficiently as possible and sell the property for more than you invested, including the upgrades.
• Hold and resell: This type of flipping is a bit different. Instead of buying a property and fixing it up, you buy in a quickly growing market, hold for a few months, and then sell for a profit.

Pros	Cons
Could provide a faster ROI It gives you more control over the potential increase in the property’s value Can be repeated with relative ease	This may result in unforeseen costs It can be labor-intensive This may make your investment illiquid for some time

3. Turnkey Properties

• Best for: People who like to invest in real estate but want to be more hands-off with property management.

A turnkey property is fully renovated and ready to rent out, requiring minimal effort from the owner. These properties are often rehabbed before being listed and may already have a renter in place at the time of sale. Additionally, turnkey real estate investors typically hire property management services, allowing the investor to offload maintenance tasks.

Pros	Cons
Immediate income as the properties are already rented out It is a hassle-free investment since property management companies handle tenant issues, maintenance, and repairs	Investors have limited control over property management decisions and tenant selection, as the property management company typically handles these Turnkey properties often require a higher upfront investment than properties needing renovation, potentially impacting overall cash flow

4. Real Estate Investment Trust (REIT) & Real Estate Funds Investing

• Best for: Analytical individuals who want to earn money from real estate but do not want to own properties fully.

Ever heard of REITs? In short, they’re a way to invest in real estate without much money. You’ll buy shares in publicly traded REITs or real estate funds, like mutual funds and ETFs. It’s an excellent option for new investors who might not yet be ready to buy property. You can start with a small amount of money and add more later. 

Plus, it’s a very similar process if you’re already familiar with investing in the stock market. REITs can focus on different real estate types, like apartments, healthcare facilities, or office buildings. Depending on the REIT or fund you choose, it may also be regulated by the U.S. Securities and Exchange Commission (SEC), which can help protect you from fraud.

Pros	Cons
Provides access to real estate without owning or operating properties It has a low entry barrier and small minimum investment requirements It can be traded on public exchanges	It doesn’t give you control over the property It doesn’t provide tax benefits related to home purchases or real estate It often carries fees and expenses

5. Buy, Rehab, Rent, Refinance, Repeat (BRRRR)

• Best for: People who don’t have a strict budget and are looking for an opportunity to build passive income through real estate.

In real estate investing, the BRRRR method involves buying properties that are undervalued and can be improved to increase their market value. Investors search for properties that are being sold at a discount compared to similar ones in the area. After fixing up the property, you would then list it for rent. Once you find a tenant, refinance the property based on its increased market value. 

This is a way to put money down on another property and start the BRRRR process over again. With the BRRRR method, you’ll make money from the increase in property value after renovations, rental income, and potential growth in property value over time. This adds to the money flow you have available and the overall net worth of your investments.

Pros	Cons
It helps you build a rental portfolio It allows you to build equity quickly instead of just focusing on immediate cash flow It offers multiple tax break opportunities from interest and owning a rental property	It requires a lot of money and labor to rehabilitate each property It is high risk due to exposure to market fluctuations and competition It requires a high level of management for renovations

6. Crowdfunding

• Best for: People who want a smaller investment to earn passive income online.

Real estate crowdfunding is one of the more interesting types of property investments. It is a way to raise money online for real estate acquisitions from a large group of investors. Individuals and businesses can use crowdfunding to access capital from a large group of potential investors on internet platforms and social media sites. The idea behind crowdfunding is that many people may be willing to invest a small amount in such projects, and when they do, large sums of money can be raised pretty quickly.

This allows you to invest in real estate without buying an entire property and allows you to diversify your investment portfolio. By participating in real estate crowdfunding, new investors can access investment opportunities that may have been out of reach otherwise.

Pros	Cons
It helps you earn passive income from dividends It may give access to commercial properties for a low minimum investment	It can be illiquid for the long-term It follows strict rules, and fees apply

7. Wholesaling

• Best for: Individuals who like to network and connect with real estate investors, buyers, and sellers.

When you wholesale in real estate, you hunt for cheap properties, lock them in with a contract, and then pass that contract on to a buyer for a profit. You play matchmaker between sellers looking to sell fast and buyers with cash aiming to pocket the price difference. The key is to snag properties at a significant discount and then hand the contract to a buyer for a fee. What’s remarkable is that, unlike real estate agents, wholesalers don’t need a license because they technically own the property they’re selling.

Real estate wholesaling often falls into one of the following real estate investment examples:

• Land wholesaling: Undeveloped land often has no structures built on it and could be inexpensive for investors to purchase and maintain due to tax benefits such as low property taxes when there are no structures.
• Residential wholesaling: Buying real estate may involve signing a contract with the seller and finding a buyer who would purchase the contract for a fee. This can include single-family homes, condos, townhomes, or multifamily homes.
• Commercial wholesaling: This involves selling commercial properties such as buildings, strip malls, apartment buildings, and office buildings. It is similar to residential wholesaling.

Pros	Cons
It requires minimal upfront capital and has financial risk It doesn’t require managing properties and can provide fast returns	It may only offer a small profit margin It may not provide consistent income

8. Fractional Ownership

• Best for: Those who prefer sharing the financial burden to lower their risk.

Fractional ownership in real estate is when multiple investors buy fractions of property together, making high-value real estate more affordable. Each investor owns a share of the property based on their investment, along with rights to usage, rental income, and appreciation. Here are some primary types of fractional ownership:

• Equity shares: Investors own a percentage of equity shares in the property. The focus is on investment returns derived from property appreciation and rental income. Ownership includes a deeded interest in the property. Investors have the opportunity to share both the property’s usage time and its financial performance.
• Use-based shares: These are based on the right to use the property for certain days or weeks per year, emphasizing personal usage rather than financial returns. Ownership is often paired with a contractually agreed-upon right of usage and direct ownership.
• Syndicated shares: In a syndication model, investors pool their resources to acquire larger properties managed by a professional syndicator. This allows investors to own a share of the property and receive financial benefits while benefiting from professional management.

Pros	Cons
Shared expenses Lower upfront investment Long-term income and equity A variety of different types of property investment	Usage divided between owners Income shared Limited control of property decisions

Frequently Asked Questions (FAQs)

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Back to You

As you can see, there are many types of real estate investment to choose from. Carefully review each strategy before diving in, and you’ll be a successful investor in no time. 

Which type of investment strategy do you like best, and why? Let us know in the comments.