Investing in real estate online through crowdfunding gives investors a wide variety of options and possibilities for investments. The types of properties they can invest in are no exception. There are many categories of real estate investors can put their money into. Each type has its own advantages and specifics.
Most real estate crowdfunding platforms make it easier for investors by offering only the most promising projects evaluated by their experts, or by an independent third party. That way, investors don't have to study the property type and other specifics very deeply.
However, having basic knowledge about real estate types allows investors to better understand the whole market and further reduce their risk. Also, in some cases, investors simply want to choose a specific property type to fit their investment strategy or to diversify their portfolio.
To get started with different types of real estate, it's essential to know 3 major types of properties. These are Residential, Commercial, and Land.
Multi-Family homes in Santa Monica, US
Residential real estate involves new developments and existing properties that are meant for people to live in. Nowadays most residential projects are new developments. These projects are usually debt-based where developers are funding them through loans.
Most common residential properties are:
Single Apartment/Condominium - a single unit which is a part of a larger building with other units
Single-Family Housing - single-family home is a separate building with open space on all four sides and is not attached to any other structure.
Multi-Family Housing - a type of housing where multiple housing units are contained within one building or several buildings within one complex. A common example of this type of property is an apartment building.
(Note: multi-family homes with more than 4 units can be considered as commercial property. This varies country by country)
Less common residential properties are, for example, mobile homes, residential caravans or houseboats.
Office buildings are a common type of CRE
Commercial real estate, also known as CRE, is primarily occupied by businesses and the tenants of the property are usually using it for working rather than for living. Commercial real estate crowdfunding investments are typically equity, where the main source of income for investors will be through capital gains or rental income.
Capital for CRE projects can be raised using multiple funding sources. The main source of funding is a combination of loans and the developer’s own equity. Banks usually cover 50 - 70 % of the project financing needs. The remaining part needs to be financed by the developer’s own equity, which is typically the most expensive source of financing. This means that many developers search for alternatives. This is where real estate crowdfunding investors can step in and provide the needed financing for the project.
The main types of commercial real estate are:
Office - a building containing office space for one or multiple companies
Retail - Retail properties include buildings such as shopping malls, retail stores, or shops. Some experts are expecting the number of physical retail shops to decline, due to the increasing popularity of e-commerce. However, it still plays a huge role in the real estate market.
Industrial - properties for manufacturing purposes such as plants and factories.
Also, logistic complexes belong here. With the rise of e-commerce these years, there is an increasing demand for logistics properties. This type includes warehouses, distribution facilities, fulfilment centres, and logistics parks.
Mixed-use - Another type of CRE are mixed-use properties. In this case, the building serves both purposes, residential and commercial. A typical example would be a storefront property.
Mixed-use properties offer a great diversification option within one project. For example, if the retail of the property doesn't perform very well, there is still the residential part, which can still provide some income.
Mixed-use properties in the city of Lübeck, Germany
Land can be used for many purposes, including both residential and commercial developments. Land can be defined as real estate or property without any buildings, structures or equipment on it.
Most land properties are bought to start a new development or in the hope the property will appreciate over time and can be sold for a higher price in the future.
“Buy land, they're not making it anymore” (Mark Twain)
BrikkApp has built a property crowdfunding investments aggregator. It compares real estate investments worldwide to allow individual investors to find the best investment opportunities from as little as 100 EUR.
BrikkApp’s database offers an independent overview and data for more than 200 real estate crowdfunding platforms around the world. To access this database register for free.