Types of real estate investments explained

In 2024, the real estate market presents a broad array of opportunities for individual accredited investors, driven by volatile public markets, evolving economic conditions, and the rise of innovative investment platforms. 

While traditional real estate investments like residential, commercial, and industrial properties remain popular, new and diverse options have come to the fore. Here’s a deep dive into the most intriguing types of real estate investments for this moment and beyond.

### 1. Multifamily investments

Multifamily properties continue to dominate as the largest commercial real estate sector. These properties encompass apartment complexes, townhomes, and other multi-unit residential buildings. Multifamily investments are particularly appealing for several reasons:

* **Stability and resilience:** Multifamily properties are historically less volatile and more recession-resistant than other asset classes. They also offer a better hedge against inflation due to the ability to adjust rents regularly.
* **Supply and demand imbalance:** With rising home prices pushing potential buyers into the rental market and a slowdown in new construction due to higher costs and interest rates, demand for multifamily units remains strong. This imbalance creates opportunities for investors to capitalize on rising rents and occupancy rates.
* **Inflation capture:** Multifamily properties allow investors to capture inflation more effectively than other asset classes, thanks to the frequent lease turnovers, which provide opportunities to adjust rents in line with inflation.

### 2. Commercial real estate debt funds

Commercial real estate (CRE) debt funds offer a compelling opportunity for investors seeking diversification, downside protection, and attractive yields. These funds invest in debt positions secured by real estate assets, providing a flat rate of return or a coupon.

* **Diversification and protection:** Debt funds often target a diversified portfolio of real estate loans, spreading risk across various properties and borrowers. This built-in diversification can provide a buffer against market volatility.
* **Yield opportunities:** With traditional sources of debt capital, such as regional banks and commercial mortgage-backed securities (CMBS), tightening their lending practices, private debt funds are stepping in to fill the gap. These funds can lend to high-quality borrowers at more conservative leverage levels, offering attractive returns in a higher interest rate environment.
* **Liquidity considerations:** While private CRE debt funds are generally less liquid than publicly traded REITs, they may offer more liquidity than other private-market real estate investments, such as equity investments, which may have longer holding periods.

In today’s market, CRE debt funds offer a strong investment thesis, especially for those looking to capitalize on the current lending environment and secure steady income streams.

### 3. Raw land

Raw land investments offer a unique opportunity for investors who want control over the development of their assets. While these investments typically do not generate cash flow and have a speculative timeframe, they offer flexibility and long-term potential.

* **Development potential:** Raw land can be subdivided, developed into residential or commercial properties, or held for future appreciation. This flexibility allows investors to adapt their strategy based on market conditions.
* **Minimal maintenance:** Compared to developed properties, raw land requires minimal maintenance, making it an attractive option for investors who prefer a hands-off approach.
* **Speculative appeal:** In uncertain markets, holding land can be a "wait and see" strategy, allowing investors to make decisions based on future economic developments.

While raw land investments may not be suitable for everyone, they offer a level of control and flexibility that can be appealing in today’s market.

### 4. Short-term notes

Short-term notes are one of the most accessible real estate investment options, appealing to those seeking flexibility and quick returns. These notes are typically backed by real estate and offer a yield or flat rate of return over a short duration, usually between three to nine months.

* **Flexibility:** Short-term notes allow investors to manage their cash flow effectively, with the ability to reinvest in subsequent notes or shift to other investment opportunities as they arise.
* **Real estate backing:** These notes are secured by real estate assets, providing a level of security and reducing the risk of loss.
* **Low barriers to entry:** With minimum investments often as low as $5,000, short-term notes are accessible to a wide range of investors, making them an attractive option for those looking to dip their toes into real estate investing without committing to long-term holds.

In the current market, where flexibility is crucial, short-term notes offer a practical solution for managing liquidity while still benefiting from real estate-backed investments.

### 5. Industrial real estate

Industrial real estate has emerged as one of the most resilient and in-demand sectors within commercial real estate. This category includes warehouses, logistics centers, and manufacturing facilities, all of which have seen increased demand due to shifts in consumer behavior and global supply chains.

* **E-Commerce growth:** The rise of e-commerce has driven demand for industrial space, particularly for warehouses and "last-mile" fulfillment centers that facilitate quick delivery to consumers.
* **Geographic diversification:** As the "knowledge economy" spreads beyond major metropolitan areas, Tier II cities like Phoenix, Raleigh, and Austin are seeing increased demand for industrial space, driven by both consumer activity and the reshoring of manufacturing.
* **Supply chain resilience:** On-shoring and the emphasis on domestic industrial policy are driving long-term demand for industrial properties, making them a strategic investment choice for the future.

### 6. Mixed-use spaces

Mixed-use developments combine residential, commercial, and sometimes industrial spaces into a single property, offering a dynamic environment that can attract a diverse range of tenants.

* **Urbanization of the suburbs:** The trend of urbanizing suburban areas has accelerated, driven by people seeking urban amenities without the high cost of living in major cities. Mixed-use developments in these areas offer the best of both worlds, providing space and affordability along with convenience.
* **Flexibility and adaptability:** Mixed-use properties are inherently flexible, allowing operators to adapt the property to meet changing tenant preferences and market demands. This flexibility provides a level of downside protection in uncertain times.
* Appeal to a broad demographic: These spaces can attract a wide range of tenants, from young professionals and families to businesses seeking convenient locations for their operations.

As societal shifts continue to influence how people live and work, mixed-use developments offer investors the opportunity to participate in a growing and evolving sector of the real estate market.

### 7. Health care facilities

Health care facilities, including medical office buildings (MOBs), are increasingly recognized as valuable real estate investments due to their essential nature and recession-resistant characteristics.

* **Stable demand:** The demand for healthcare services remains consistent, even during economic downturns, making MOBs a stable investment option.
* **Long-term leases:** Healthcare tenants often sign long-term leases, providing steady and predictable income streams for investors.
* **Demographic trends:** An aging population and the shift towards outpatient care are driving demand for healthcare facilities, further enhancing their investment appeal.

As healthcare continues to evolve, MOBs and other healthcare-related real estate offer a resilient and potentially lucrative investment opportunity.

### 8. Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) are a popular and accessible way for individual investors to participate in the real estate market without directly owning or managing properties. REITs are companies that own, operate, or finance income-producing real estate across a range of property sectors. They offer a way to invest in real estate with the liquidity of publicly traded stocks.

* **Accessibility and liquidity:** One of the biggest advantages of REITs is their liquidity. Unlike direct real estate investments, which can be illiquid and require significant capital, REITs are traded on major stock exchanges, allowing investors to buy and sell shares easily. This accessibility makes REITs an attractive option for those who want to invest in real estate without the complexities of property ownership.
* **Diversification:** REITs often hold a diversified portfolio of properties across different sectors, such as residential, commercial, industrial, and healthcare. This diversification can help reduce risk and provide exposure to various real estate markets and asset classes.
* **Dividend income:** REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends. This makes them a popular choice for income-seeking investors, providing a steady stream of income while also offering the potential for capital appreciation.
* **Variety of sectors:** REITs can be sector-specific, focusing on areas like retail, office, industrial, healthcare, or even specialized sectors like data centers or cell towers. This allows investors to target specific areas of the real estate market that align with their investment goals or outlook on certain industries.
* **Tax efficiency:** While REIT dividends are typically taxed as ordinary income, they can offer tax advantages in a portfolio, particularly in tax-advantaged accounts like IRAs.

### 9. Distressed asset investments

Distressed asset investments represent one of the most opportunistic and potentially high-reward areas of real estate investing. These opportunities arise when property owners face financial difficulties, often due to changes in market conditions, and are forced to sell at a discount.

* **Market volatility:** Volatility in capital markets has increased financing risk for many operators, particularly those who expected to refinance at lower interest rates or took on floating-rate debt. As a result, some operators may be forced to liquidate assets, creating opportunities for investors to acquire properties at below-market prices.
* **High return potential:** Distressed assets often come with higher risk but also offer the potential for substantial returns, especially if the investor can stabilize the property and eventually sell it at a premium.
* **Once-in-a-cycle opportunities:** Economic downturns and periods of market dislocation often create unique opportunities to acquire distressed assets that may not be available in more stable times.

For investors with a higher risk tolerance and the ability to navigate complex transactions, distressed asset investments can be an attractive option in 2024.

### 10. Hotels

Hotel investments have historically been one of the most cyclical real estate asset classes, heavily impacted by economic downturns and external events like the COVID-19 pandemic. However, the sector is rebounding, and opportunities are emerging.

* **Revenge travel:** As people seek to make up for lost travel time during the pandemic, hotel occupancy rates have rebounded, and many operators are seeing strong demand. This trend is expected to continue, providing a favorable environment for hotel investments.
* **Valuation opportunities:** Despite the recovery in occupancy rates, hotel valuations remain suppressed in many markets due to rising interest rates and lingering uncertainty. This creates potential opportunities for investors to acquire assets at attractive prices.
* **Diverse property types:** The hotel sector includes a wide range of property types, from budget motels to luxury resorts. Each offers different risk/return profiles, allowing investors to choose the level of risk they are comfortable with.

### 11. Diversified Portfolios

Diversification is a critical strategy in any investment portfolio, but it is particularly important in real estate, where market conditions can vary widely across different sectors and regions.

* **Asset class diversification:** Diversifying across different types of real estate—such as residential, commercial, and industrial—can help mitigate risk and provide a balanced return profile.
* **Geographic diversification:** Investing in properties across different regions or markets can reduce exposure to local economic downturns and increase overall portfolio resilience.
* **Strategic allocation:** Diversified portfolios can be strategically allocated to balance income-producing properties with growth-oriented investments, offering a mix of stability and potential for capital appreciation.

## Key considerations before investing

Before diving into real estate investments, it’s essential to consider several critical factors:

1. **Property type:** Choose the type of property that aligns with your investment goals. Whether it's residential, commercial, or industrial, understanding the characteristics and potential risks of each property type is crucial.
2. **Location:** Location remains a fundamental aspect of real estate investing. Assess the property’s geographic location, accessibility, and potential for appreciation or rental demand.
3. **Finances:** Ensure that you are financially prepared to invest. Real estate requires significant upfront capital, and it’s important to have a clear understanding of your financial position and potential returns.
4. **Legalities:** Verify that the property is free from legal issues, such as liens, zoning restrictions, or environmental concerns. Legal complications can significantly impact the profitability and feasibility of your investment.
5. **Market conditions:** Assess the current market conditions and how they align with your investment strategy. Consider factors like interest rates, economic trends, and local real estate market dynamics.

In 2024, the real estate market offers diverse opportunities for individual accredited investors, driven by volatile public markets and evolving economic conditions. Traditional investments like multifamily and commercial properties remain strong, while innovative options such as CRE debt funds, raw land, and distressed assets are gaining attention. Explore a comprehensive guide to the most promising real estate investments this year, from resilient industrial spaces to accessible REITs and healthcare facilities. Learn how to navigate the complexities of today’s market and capitalize on emerging trends.

Types of real estate investments explained

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