In Real Estate Investing 101 we went over how to get involved in the world of real estate. Real estate is a large wealth generator, maybe the biggest wealth creation vehicle out there. It is important that anyone seeking financial freedom is involved in some form of real estate.
Today we want to take a deeper dive into the different asset classes of real estate. This is for people that want to own properties. In Real Estate Investing 103, I will discuss the opportunities for those who do not want to own physical property.
Before we jump into the different asset classes of real estate, we need to know what our passive income goal is. Remember, following our Retirement 4-50 cash flow retirement plan, real estate is 1 of 4 pillars of cash flow. The others being residual employment income, business, and investments.
We need to determine our passive income needs from real estate because that will determine what asset classes we will invest in. The needs of someone whose goal is $500/month are vastly different from someone who wants to achieve $15,000/month. However, we can mix and match asset classes in order to achieve our goals. For instance, we can leverage two residential homes and an apartment building. We own all three if it achieves our goal.
Each asset class has its own pros and cons. I highly recommend that you read as many books as possible, even if you do not particularly want to get into that asset class. You’ll be surprised how much knowledge carries over into each asset class and to your business overall. But that’s enough from me, let’s get into the different asset classes of owned properties.
Single-Family Residence. This is where most people start. There are many different types of single-family residences. From my experience, buying a small home in a nice neighborhood will carry you the furthest. A rule of thumb that I like to follow is “Don’t buy a home that you wouldn’t want to live in yourself.
Pros. Easy to buy. Huge down payment benefits if you live in the home first. Can leverage other sources of revenue when you live in the home, like renting rooms and Airbnb.
Cons. Can only buy about 4 homes on your individual credit report. Will need to incorporate a business at some point to buy more homes. Takes many homes to achieve financial independence.
Read More. Read the book “Building a Rental Property Empire.”
Multi-Family Residence. This is a home that is 2-4 units. It is still considered in the same category as a single-family residence. There are many types of these properties, including small apartment-style homes or full homes with additional mobile homes on the property.
Pros. You can house hack and live in one of the units, potentially for free. You will usually generate a lot more income than a single-family residence, helping you achieve your financial goals a lot sooner.
Cons. You will now be a landlord, so it depends on how you feel about that. The same rules about personal credit report apply here. You can only buy so many on your personal credit.
Read More. Read the book “Build a Rental Property Empire”. Also, visit the BiggerPockets website.
Apartments. The granddaddy of commercial real estate. Any property over 5 units is considered residential commercial real estate. You will need a corporation or business entity of some sort to get started. Also, having business credit is a must. Luckily one book covers all of this.
Pros. Apartments will help you achieve your financial independence numbers very quickly. You may only need to have one building to achieve your goals. They are valued based on cash flow. So, if you can increase the cash flow, you increase the value of the building.
Cons. You will probably need a property manager. You will need a high-level of financial education in order to buy and operate an apartment. You can do it though!
Read More. The best book on real estate I have read is “Zero Down” by Monica Main. She covers not only how to acquire apartments, but also how to quickly build business credit.
Commercial Buildings. Buying commercial real estate is exactly similar to buying apartment buildings. The cash flow of the building is how it is valued. You usually will try to put one tenet into the property.
Pros. Can be very passive if you have a strong business as a tenet. Say someone like Best Buy.
Cons. Can be a nightmare if you have a weak tenet, like a local struggling restaurant. Your fates are tied together.
Read More. “Zero Down” covers some of the commercial properties. I would also search through BiggerPockets to get the low down. Also, read “The ABCs of Real Estate Investing.”
Mobile Homes. Mobile homes are very easy to get into. They can be bought for between $10,000-$15,000. Flipping mobile homes is an art form, but you need to know the business aspects of this.
Pros. There is a lot of money to be made in mobile homes. If you know the business, it is actually very low risk. You can create real estate notes via seller financing.
Cons. Most people snub their noses at mobile homes, and you may not want to “lower” yourself to that level. It depends on your own attitude towards this asset class.
Read More. The second-best book on real estate I have read is “Making Money with Mobile Homes.” It is the best book on seller-financing I have read. It explains how you can make 200% returns extremely easily.
Mobile Home Park. Why own a few mobile homes, when you can own the whole park? You can either own the land and charge “lot rent” to everyone. Or you can own the mobile homes as well.
Pros. If you only own the land and charge “lot rent”, there is no maintenance costs associated with the individual mobile homes. Over time “lot rents” go up and your property value will continue to rise. In today’s current situation, more and more people are looking for affordable housing.
Cons. You have to know about mobile home parks. It is not a “buy and figure out” kind of venture.
Read More. “10 Other Real Estate Investments You Could Do” is a good start, however, I would look into a book specifically targeted at mobile home parks.
Self-Storage. Self-Storage is in a commercial real estate asset class. However, you run it as a business. By running it like a business, you can increase the value of your self-storage facility.
Pros. You can buy underperforming assets and convert them to updated facilities. By adding “luxury” upgrades, like RV storage and packing storefronts, you can increase revenue. You can also increase revenue by creating different sizes of storage units.
Cons. Self-Storage is hyper-local. This means that a 5-mile radius is your market. When you take over a facility everything could be perfect. If someone builds a facility near yours, your whole investment may be at risk.
Read More. “Building Wealth in Self Storage” is the one-stop-shop for your self-storage questions.
Billboards. Billboards are extremely passive. You may have to go perform some maintenance once and a while, but mostly you are just collecting checks.
Pros. This is a great passive income source of real estate.
Cons. Extremely hard to find. Near impossible to build because of permitting. You would have to become an expert in a particular area and double down on getting the job done. If you are determined, you can accomplish this.
Read More. “10 Other Real Estate Investments You Could Do” is a good start. I would search for a book that is completely based on buying billboards.
Land. Buying land at a discount is an art form. Anyone can pay top dollar for it.
Pros. Finding people who are behind on property taxes can allow you to buy real estate at steep discounts. You can then sell it via seller-financing and creating passive income from real estate notes. You can do everything completely from a laptop.
Cons. Getting started creating land notes can be difficult. There are plenty of resources to get started, but it is like content creation. You just have to start and pray it works. But I know it would work for you.
Read More. “Dirt Rich” is a great starting point and he also offers a program with everything built into it. I would read the book first to see if this interests you.
Bed and Breakfast. Buying a historic building may be something that you want to do. You may as well have your business buy it.
Pros. You can live in your bed and breakfast as you operate it. You will be paying off a huge historic building through your business venture.
Cons. Running a bed and breakfast is not for everyone. It requires a lot of work. However, you may want to run an Airbnb instead. I think you can leverage the best of both worlds.
Read More. “Start and Run Your Own Bed and Breakfast Inn” is a perfect start to your business. He talks about everything from finding a spot, talking to city officials, and obtaining financing.
Wow, so many ways to invest in real estate. Looking through all of them, you can make a decision that gets you where you want to be. You have to find a balance of passive income and workload that fits your lifestyle.
Which asset classes interest you? What books do you plan of reading? Tell me in the comment section below. Also, please leave me a Like if you enjoyed the content. Real Estate 103 will focus on the world of real estate without owning properties. See You Then.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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