The real estate investment world is full of insider baseball terms. There’s NOI, CoC, DCR which are types of different classes of California investment property (A, B, C, and D), and that’s only scratching the surface. It can be a lot to take in, which is one more reason real estate investment consulting is critical to a successful ROI (return on investment) and IRR (internal rate of return).
Three of the most popular types of investments are REITs (and various categories that fall under the REIT umbrella), real estate funds, and direct investment property. Learning which one of these is best for your unique investment goals is the first step towards a profitable portfolio.
REIT stands for real estate investment trust. These are similar in nature to a mutual fund or other collaborative investment – several investors pool their capital, purchase a commercial property (or properties), and then earn revenue through it. The profit is distributed via dividends on your shares of the investment.
It’s important to stop here and note that REITs aren’t merely a group of partners who purchase an investment property together. Rather, they’re real estate corporations that make investments through shareholders and pay out dividends to shareholders. They are regulated by the Securities and Exchange Commission (SEC) and are traded like stocks.
There are two main types of REITs: equity and mortgage. Equity REITs are trusts where the investors own shares in the property itself. If your REIT purchases an apartment complex, for example, it would be considered an equity REIT. Mortgage REITs, on the other hand, are collective investments into mortgages. These can be commercial or residential mortgages, agency or non-agency mortgages, and everything in between.
While REITs share many characteristics with real estate funds, they aren’t the same. The largest difference is that REITs are a short-term option for investing in rental properties, while real estate funds are a long-term option. That is, REITs offer regular dividends, while real estate funds payout small distributions if there is substantial positive cash flow, but pay out investment plus appreciation once a property is sold. This means that real estate funds provide a decidedly non-liquid form of investing.
California real estate funds often invest through REITs. This may sound counterintuitive but remember that the world of investment properties is broad and multifaceted. A real estate fund may have some investments in REITs, others in direct property investments, and others in land.
Investment property in California is a bit more hands-on than REITs and real estate funds. We like to call it direct investment property. As the name suggests, we’re talking about purchasing property yourself or with partners and generating revenue via the property’s use. This can be done by renting it out or holding the property and selling once it’s appreciated. Depending on your choice, it offers a liquid or non-liquid investment. This customization makes investment property incredibly attractive. You can build up the type of portfolio you want, diversified between short and long-term investments.
Regardless of the type of investment, it’s always a smart idea to get help from California real estate investment consulting professionals. They can give you invaluable local information and steer you towards the most profitable investments. Optum Real Estate Management is the unrivaled leader of Southern California real estate investment consulting. Call us now at (949) 400-4275 to find out why!
Now that we’ve covered the three most common types of real estate investments, let’s take a look at investing in rental properties in California. This is easier said than done, of course, given the scope of California’s rental market. Still, there are a few general principles you’ll want to follow before investing.
Location matters more than anything else. The age-old adage of “location, location, location” exists for a reason. You want to make sure you choose the right county, city, and neighborhood to purchase a rental property in. A large portion of this is based on the market values of any given zip code. You want to make sure you pick somewhere that isn’t too expensive and where property value is rising. It wouldn’t make sense to invest $1 million in a single Beverly Hills rental property, for example, when that same sum would buy you several properties in Highland Park (one of LA’s hottest up and coming neighborhoods).
Location and market value aren’t the only factors you need to consider when investing in California rental property. You’ll want to have a full understanding of all relevant trends. These can range from local economic and employment trends (is a major corporation moving to town?) to state and local government policies (perhaps your city’s Planning Department is notoriously strict with their zoning ordinances). Keeping up with these types of local, regional, state, and national trends isn’t easy, but it’s something that you absolutely need to do to invest successfully.
Another factor to consider when investing in rental properties in California is whether you want to go single-family or multifamily. Multifamily investments (apartment complexes, condos, townhomes, duplexes, even mixed-use developments) are what most people think of when considering rental investments. They’re attractive for many reasons, not least of which is that they have multiple units, which means multiple sources of revenue.
Single-family homes offer their own benefits, though. While you may not collect as much rent, you can expect significantly less of a headache. You will have one renter rather than multiple tenants clamoring for property management. Purchasing a single-family home is also less expensive than purchasing an entire complex. This makes it ideal for those new to investing in rental properties in California. You can generate revenue while learning everything mentioned above.
Now it’s time to take the plunge. You know the value of direct California investment property. You know what to look out for when investing in rental properties. You know what is at stake and the profits you can earn. It’s time to call Optum Real Estate Management.
Our real estate investment consulting analysis is the last piece of the puzzle. We consider all the trends mentioned above and more to give you a holistic picture of investment success. What are you waiting for? Call us now at (949) 400-4275 to get started.