The 4 Types of Commercial Real Estate Investment Strategies [Guide] (2024)

FAQs

What are the 4 types of real estate investments? ›

Real estate investments can occur in four basic forms: private equity (direct ownership), publicly traded equity (indirect ownership claim), private debt (direct mortgage lending), and publicly traded debt (securitized mortgages). Many motivations exist for investing in real estate income property.

The 4-3-2-1 Approach

This ratio allocates 40% of your income towards expenses, 30% towards housing, 20% towards savings and investments and 10% towards insurance.

There are five main categories of real estate which include residential, commercial, industrial, raw land, and special use. Investing in real estate includes purchasing a home, rental property, or land. Indirect investment in real estate can be made via REITs or through pooled real estate investment.

Remember, there are a hundred different investment strategies available in real estate investing but only four types of real estate: residential, commercial, industrial and land. So, why are property types so important in real estate investing? The short answer is they each produce returns in different ways.

Commercial real estate is “vast” in almost every sense. That is good for investors, as it provides numerous entry points into investments and enables investors to easily diversify growing real estate portfolios. The “Core Four” in real estate are generally viewed as office, industrial, retail, and multifamily.

Each of the four main types of real estate exposure – private equity, private debt, public equity and public debt – has its own set of advantages. Arguably the best approach is to combine their complementary benefits.

The 2-out-of-five-year rule states that you must have both owned and lived in your home for a minimum of two out of the last five years before the date of sale. However, these two years don't have to be consecutive, and you don't have to live there on the date of the sale.

Real estate appraisers and valuation professionals generally calculate property valuations using the three different methods of value: the cost approach; the income approach; and the comparable sales/ market approach.

The five most common asset classes are equities, fixed-income securities, cash, marketable commodities and real estate.

What are the 3 classes of investing? ›

Common forms of alternative investments include real estate, commodities, cryptocurrency, and collectibles.

financial asset

a contractual claim to something of value; modern economies have four main types of financial assets: bank deposits, stocks, bonds, and loans.

The four major types of capital include working capital, debt, equity, and trading capital.

The four phases of the real estate cycle are recovery, expansion, hyper supply, and recession.

The main asset classes are equities, fixed income, cash or marketable securities, and commodities.

Level 4: Long-term Investors

Long-term investors are those who have a long-term investment plan and are engaged in that plan to ensure it helps their financial objectives. They are generally very conservative people (i.e. no fancy cars or houses) and have well-balanced financial habits.

Characteristics of impact investing

These four characteristics are (1) Intentionality, (2) Evidence and Impact data in Investment Design, (3) Manage Impact Performance, and (4) Contribute to the growth of the industry.

For example, certificates of deposit (CDs), money market accounts, municipal bonds and Treasury Inflation-Protected Securities (TIPS) are among the safest types of investments.

Buy and hold

A buy-and-hold strategy is a classic that's proven itself over and over. With this strategy you do exactly what the name suggests: you buy an investment and then hold it indefinitely. Ideally, you'll never sell the investment, but you should look to own it for at least 3 to 5 years.

What are the 4 economic characteristics of real estate? ›

Real estate has seven specific characteristics related to its economic impact or physical nature. They are scarcity, improvements, location, investment permanence, uniqueness, immobility, and Indestructibility.

Real estate investing can be lucrative, but it's important to understand the risks. Key risks include bad locations, negative cash flows, high vacancies, and problem tenants.

The four principles of finance are income, savings, spending, and investing. Following these core principles of personal finance can help you maintain your finances at a healthy level. In many cases, these principles can help people build wealth over time.

The 80% rule means that an insurer will only fully cover the cost of damage to a house if the owner has purchased insurance coverage equal to at least 80% of the house's total replacement value.

The 70% rule can help flippers when they're scouring real estate listings for potential investment opportunities. Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home.

The top 7% are hustlers. If they don't know something, they'll learn it. If the heat is on, they'll put in the extra hours to make it happen. You don't have to know everything, everyone, have all the money, or talent, but if you'll apply those two principles, you'll do very well in real estate.

Commercial real estate (CRE) sits at the confluence of three distinct markets – space, equity, and debt.

 If you have been involved in real estate for any length of time, you've heard it said that the three most important things when it comes to real estate are “location, location, location.” I've heard nationally-recognized experts say that over and over on national media.

Real estate valuation is done through three main approaches. They are the cost-based approach, comparison approach, and income capitalization.

A 3 fund portfolio is a diversification approach whereby the investors put their money in a certain ratio in three different asset classes, i.e., domestic stocks, domestic bonds, and international stocks. It is a simple, low-cost investing approach that ensures retirement savings at a minimal risk appetite.

What are the three 3 key elements of an investment strategy? ›

INVESTMENT STYLES

There's much debate about the relative merits of active and passive — two common investing styles — which are based on very different views of how capital markets operate. You can find out more about active and passive investing in Beyond the benchmark: active or passive investment management?

Dave divides his mutual fund investments equally between four types of funds: Growth and income, growth, aggressive growth, and international.

A simple way of classifying investments is to divide them into three categories or “investment methods” which include: Debt investments (loans) Equity investments (company ownership) Hybrid investments (convertible securities, mezzanine capital, preferred shares)

There are four main asset classes – cash, fixed income, equities, and property – and it's likely your portfolio covers all four areas even if you're not familiar with the term.

Cash, stocks, bonds, mutual funds, and bank deposits are all are examples of financial assets.

What is the most common type of financial asset? ›

1. Cash and the Cash Equivalents. Cash and cash equivalents are highly liquid financial asset types that are quickly convertible into cash without significant risk of loss in value.

There are four types of capital budgeting: the payback period, the internal rate of return analysis, the net present value, and the avoidance analysis.

Capital Structure refers to the proportion of money that is invested in a business. It has four components and it includes Equity Capital, Reserves and Surplus, Net Worth, Total Borrowings.

One may use it to finance overall business operations and investment activities. The types of capital structure are equity share capital, debt, preference share capital, and vendor finance.

IRR, CAP Rates & Cash On Cash

Three real estate metrics or expressions of Return On Investment investors may encounter today include IRR, cap rate and cash on cash yields.

It will be the way you divide your contributions among the three basic investment categories: stocks, bonds and stable value money market funds.

In a nutshell, calculating ROI on commercial property is a crucial step in evaluating the profitability of your investment. A good ROI in real estate is usually at least 8% to 10%, but you should also consider other factors such as potential risks and market conditions.

What are the 3 types of return? ›

Divide 72 by your average expected annual return

The answer you get is how many years it should take for your money to double. In this case, it would take you 7.2 years to double your money.

The main types of active management strategies include bottom-up, top-down, factor-based, and activist.

Buy and hold

A buy-and-hold strategy is a classic that's proven itself over and over. With this strategy you do exactly what the name suggests: you buy an investment and then hold it indefinitely. Ideally, you'll never sell the investment, but you should look to own it for at least 3 to 5 years.