While some might think cash is king, the truth refers to what it can allow you to leverage or buy. If you look closely at the top billionaires on Forbes annual list, most of them have strong investments in all types of real estate properties. If you have just a little cash, or no cash at all, your desire to own single or commercial investment properties can still be realized, with the right setup and know-how.

For clarification purposes, any mention of investment properties will mean income generating real estate buildings. Since your primary residence is usually bought for capital appreciation, it is not included in our list.

Here Are The 7 Types of Real Estate Investment Properties

1 – Investment Property Using Single Family Homes

This is the type of property most people would rush out and buy, after reading the latest real estate investing courses. The most obvious reason is that they’re plentiful, and much easier to finance, especially if you tell the mortgage banker you’ll be using it as your primary place of residence.

Single family residences can either be a single house, condominium or coop. Most common methods of finding the best deals on single family homes is through foreclosure, close-out sales from a developer, or area fixer uppers you can buy and renovate, for substantial equity appreciation.

The goal from such real estate investment is to find a property you can renovate and flip for higher profit, or just rent out to a tenant for enough money to cover monthly expenses, and some initial profits. Single family homes can be a pain to finance, especially if you tell the loan officer what you true intensions are.

Why It Might Make Sense

When used as as part of your real estate investing portfolio, you’ll find the purchase prices can be smaller. Since the properties are smaller, your initial investment would also be smaller.

You’ll find plenty of single family homes for sale, regardless of what type of real estate market we’re currently experiencing. More supply, means better prices, especially if you know what you’re doing.

Here Are Some Of The Risks Involved

Mortgage bankers hate it as an investment property, because of the lack of economics of scale. If your single tenant moves out because of job loss, you’re left with an empty building that requires the continued payment of your monthly mortgage obligations.

This is probably the hardest type of investment property to sale, especially in a down real estate market.

If this is a single family house, you’re responsible for all maintenance calls, including any perceived emergencies. Unless this is high end real estate investing, most property management company would not even bother to give you a quote. You simply don’t have enough revenue to justify the cost, unless you’re willing to subsidize the single family investment.

2 – Using Small Multifamily As An Investment Property

This would comprise two to four family units in a house or building. This is the type of property most suitable for any real estate investing beginner. Sometimes the owner might occupy one of the unit, while collecting rent from the other units. If you’re worried about how you would make it as a landlord, this is the ideal type of investment property to get you started.

Some Positive Benefits

Mortgage bankers are more willing to finance this type of deals, because of the multiple sources of income from the tenants.

You’re able to qualify for a bigger mortgage, due to the fact you can add the potential tenant rent roll to your annual income. The higher your income amount, the higher the mortgage amount that can be financed.

Small multi-family buildings offers you more stable return on your investment dollars, as compared to a single family home.

It’s also much easier to do creative financing deals on such buildings, especially if you meet a very motivated seller.

Some of Your Obligations or Potential Losses

As the landlord, all property maintenance is your responsibility, unless otherwise stated in the lease agreement.

Most tenant leases are short, mostly one year, so you might have to deal with higher turn-over, especially in a bad jobs market. If you fail to screen your tenants carefully, one bad apple can contaminate the whole bunch.

If you live in the building, and become friendly with the tenants, your rents might not be paid on time, or not at all. People tend to pay friends last, so you better keep the smooching to a minimum, if you want your rent on time.

If you do get a management company to take care of the property, expect to pay much higher rate than those offered to true multi family buildings of 6 units or more.

3 – Using Large Multifamily As An Investment Property

For financing purposes, any building with five or more units is considered a true commercial property. A true commercial property is usually financed based on the rent roll. If you invest in a five to ten units building, you might not have enough economics of scale to truly benefit from the financing options available to you.

If you’re just starting out your real estate investing, stick to three or four unit buildings, or buy those large multi-family dwellings with over twelve units or more. In commercial real estate market, the most common buildings for sale, are five to ten units buildings.

Here Are Some Benefits of Owning Large Multi-family Buildings

If you’re buying a building with twelve units or more, you can easily setup different schemes to make seeking potential partners much easier to accomplish. You can buy one either as an LLC, S-Corp, or real estate investment trust.

When looked at, as per unit cost, this type of real estate investing is much cheaper than buying a single family home.

Mortgage financing for this type of investment property is usually straight forward, and can even be accomplished with bad or no credit, depending on the selling price. If the selling price is more than a million dollars, banks would treat the transaction as purely an investment deal, without need for personal recourse.

Large multi-family buildings offers you enough economics of scale, to justify hiring a management company to handle the usual landlord duties. If the property is large enough, you can own one, while living several miles from the property, or out of state.

Here Are Some of The Pitfalls

You’ll be playing with the big boys, so you need to get your act together, as a manager. If you’ll be managing the property, you’ll be facing many potential problems, that can trip the inexperienced operator.

While the acquisition cost per unit is cheaper, the initial setup cost might be substantial. You’ll need to setup an investment vehicle to buy and acquire the building, and from what I can tell, a good accountant or a good lawyer does not come cheap.

The closing cost on a large multifamily building is much higher. Most commercial mortgage lenders would require costly test of the soil, building infrastructures, appliances, roof etc. You can guess who would be paying for all that test, you. You can of cause negotiate some of the closing cost to come out of the current owner’s proceed.

When you buy one, you must be willing to keep it for a while, as it’s not the easiest of buildings to sell. The buyers you attract would be professional investors, that lack emotion, but only look at the operating annual performing numbers to make a deal. Not only is it hard to sell, it takes many months or years to find the right buyer.

4 – Investment Property Using Mixed-Use Real Estate

Mixed use properties are the toughest of all commercial properties to sell and finance. Even if you have a one family dwelling with a store, it will be considered a mixed-use building by the mortgage bankers. The dynamics of a building changes, once there is a store or offices located on the ground or upper floors.

If you’re a beginner in real estate investing, you’ll be wise to stay away from this type of investment properties. From my experience, buying one involves much higher down payment, excellent credit, and total personal recourse, regardless of what investment vehicle is used to acquire the deal.

I would recommend this type of investment property, if you’ll be using the retail space for your business, or you live in a big city with much foot traffic that can help justify higher rent.

5 – Using Office Buildings As An Investment Property

You better leave this type of properties to professional number crunchers, with much larger capital to play with. You can make a substantial profit with the right deal, in the right location. Likewise, your losses can multiply quickly, if one of your major tenant moves out due to poor economic conditions.

Many factors go into purchasing an office building, that is why it’s better to leave it to those with the funds to make it work. When the economic conditions are bad, office buildings might make much sense with the right tenants.

If you have any vacancy, it can take months, sometimes years to find a suitable tenant. When you decide to sell, be prepared to wait, unless you have one of those trophy properties. Regular mortgage financing metrics does not apply to this type of investment property, but you’ll find many commercial lenders that specialize in handling such deals.

6 – Industrial, Retail, or Shopping Malls As An Investment Property

For those with the stomach for high risk gamble, these types of properties might make economic sense. Industrial properties are usually occupied by one or two tenants, and mostly used for industrial purposes. Most of your goods made in the USA, are made within an industrial property. Buying and selling such buildings is far more complicated for the average real estate investor.

Retail mall or large shopping mall can also be acquired as part of your real estate investing, but involves a lot more risk. You’ll find no standard rules of financing, and it’s not uncommon to find some deals backed by city municipalities, to keep jobs within the city confines.

A lot of deals involving this types of investment properties usually involves access to tax-payer funds, or guarantees that the average investor lacks the connection to get.

7 – Land as an Investment Property

Finally, land is the riskiest of them all, as you have no income coming in to help defray cost. With the right land investment, you can make a bundle that would set you up for life, or you can lose your money to a shallow investment, with no profits for many years to come.

While they don’t make any more land, be careful how you buy any parcel, for investment purposes. Only invest money you’re willing to have sit ideal for many years to come. Also, be mindful of the classification of the land you’re buying. If you buy an industrial land, and you have the political connections to have it re-zoned for residential uses, you just might have a winner on your hands.

Beware of those land deals you see in some magazines, with cheap prices. The lands offered are usually located in the middle of nowhere, and might take many decades for development to reach such areas, unless you’re lucky.

If you have some funds to start your real estate investing, perhaps you might want to invest in a, buying investment property book. In commercial real estate, knowledge is truly power. You can learn easy ways, and means to get your investment property for less, while also saving a bundle from the financing cost.

Most professionals involved in any commercial real estate deal, are there to take a cut of the proceeds from either the buyer, or the seller. And what you know can be the tipping point as to how much you pay, and what your profit will be, when you sell the investment property decades later.