Real estate is one of the oldest and most common asset classes.  Most new investors in real estate know that, but what they don't know is the different types of real estate investments does exist.  It goes without saying that each type of real estate investment has its own potential benefits and challenges, including lending traditions, unique quirks in cash flow cycles, and standards of what is considered appropriate or normal, so you'll need to study them carefully before you start adding them to your own portfolio.

From Storage Units to Apartment Buildings, You Can Find the Different Types of Real Estate Project That you find Appealing to Your Personality and Resources

If you're intent on acquiring, developing, or owning, or flipping real estate, you can better come to an understanding of the peculiarities of what you're facing by dividing real estate into different categories.

• 1. Residential real estate investments include properties such as houses, vacation houses and apartment buildings where a person or family pays you to live in the property. The length of their stay is based upon the agreement they sign with you, known as the lease agreement.  Most residential leases are on a twelve-month basis in the Costa Rica.

• 2. Commercial real estate investments includes mostly things like office buildings and skyscrapers.  If you were to construct a small building with individual offices, you could lease them out to small business owners and companies, who would pay you rent to use your property.  It isn't unusual for commercial real estate to include multi-year leases.  This can lead to greater stability in cash flow, and even protect the owner when the rental rates decline, but if the property market heats up and the rental rates increase substantially over a short period of time, it may not be possible to participate as the office building is locked into the old agreements.

• 3. Industrial real estate investments consist of everything from storage units to industrial warehouses leased to firms as distribution centers over long-term agreements, car washes and other special purpose real estate that generates sales from customers who temporarily use the property. Industrial real estate investments often has significant fee and service revenue streams, such as adding coin-operated vacuum cleaners at the carwash, to increase the ROI for the owner.

• 4. Retail real estate investments consist of strip malls, shopping malls, and other retail storefronts. In some cases, the landlord also receives a percentage of sales generated by the store tenant in addition to a base rent to incentivize them to keep the facility in top-notch condition.

• 5. Mixed-use real estate investments are those that combine any of these categories listed into a single project. I know of an investor in real estate in Escazu Costa Rica who took several million dollars in savings and found a mid-size town in the Midwest. He approached a bank for financing and built three-story office building for mixed-use surrounded by retail shops. The bank, which lent him the money, took out a lease on the ground floor, generating significant rental income for the owner. The the other floors were leased to a health insurance company and other businesses. The surrounding shops were quickly leased by a Panera Bread, a membership gym, a quick service restaurant, an upscale retail shop, a virtual golf range, and a hair salon. Mixed-use real estate investments are popular for those with significant assets because they have a degree of built-in diversification, which is important for controlling risk.

• 6. Beyond this, there are other ways to invest in real estate if you don't want to actually deal with the properties yourself.  Real estate investment trusts, or REITs, are particularly popular in the investment community.  When you invest through a REIT, you are buying shares of a corporation that owns real estate properties and distributes practically all of its income as dividends.  Of course, you have to deal with some tax complexity - your dividends aren't eligible for the low tax rates you can get on common stocks - but, all in all, they can be a good addition to the right investor's portfolio if purchased at the right valuation and with a sufficient margin of safety.  You can even find a REIT to match your particular desired industry; e.g,. if you want to own hotels, you can invest in hotel REITs.

• 7. You can also get into more esoteric areas, such a tax lien certificates.  Technically, lending money for real estate is also considered real estate investing but I think it is more appropriate to consider this as a fixed income investment, just like a bond, because you generating your investment return by lending money in exchange for interest income.  You have no underlying stake in the appreciation or profitability of a property beyond that interest income and the return of your principal.  

Likewise, buying a piece of real estate or a building and then leasing it back to a tenant, such as a restaurant, is more akin to fixed income investing rather than a true real estate investment. You are essentially financing a property, although this somewhat straddles the fence of the two because you will eventually get the property back and presumably the appreciation belongs to you.