I’d like to walk you through some of the different areas of real estate investing so you can get a general lay of the land if you decide this is an area you might want to devote significant time, effort, and resources to in your own quest for financial independence and passive income.

Before We Talk About Real Estate Investments …

Before we dive into the different types of real estate investments that may be available to you, I need to take a moment to explain that you should almost never buy investment real estate directly in your own name.

There are a myriad of reasons, some having to do with personal asset protection.  If something goes wrong and you find yourself facing something unthinkable like a lawsuit settlement that exceeds your insurance coverage, you and your advisors need the ability to put the entity that holds the real estate into bankruptcy so you have a chance to walk away to fight another day.  A major tool is structuring your affairs correctly involves the choice of legal entity.  Virtually all experienced real estate investors use a special legal structure known as a Limited Liability Company, or LLC for short, or a Limited Partnership, or LP for short.  You should seriously speak with your attorney and accountant about doing the same.  It can save you unspeakable financial hardship down the road.  Hope for the best, plan for the worst.

These special legal structures can be setup for only a few hundred dollars, or if you use a reputable attorney in a decent sized city, a few thousand dollars. The paperwork filing requirements aren’t overwhelming and you could use a different LLC for each real estate investment you owned. This technique is called “asset separation” because, again, it helps protect you and your holdings.  If one of your properties got in trouble, you may be able to put it into bankruptcy without hurting the others (as long as you didn’t sign an agreement to the contrary, such as a promissory note that cross-collateralized your liabilities).

With that out of the way, let’s get into the heart of this article and focus on the different types of real estate.

From Apartment Buildings to Storage Units, You Can Find the Type of Real Estate Project That Appeals to Your Personality and Resources

If you’re intent on developing, acquiring, 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 several categories.

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

Commercial real estate investments consist mostly of things like office buildings and skyscrapers.  If you were to take some of your savings and construct a small building with individual offices, you could lease them out to companies and small business owners, who would pay you rent to use the property.  It isn’t unusual for commercial real estate to involve multi-year leases.  This can lead to greater stability in cash flow, and even protect the owner when rental rates decline, but if the market heats up and 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.

Industrial real estate investments can consist of everything from industrial warehouses leased to firms as distribution centers over long-term agreements to storage units, car washes and other special purpose real estate that generates sales from customers who temporarily use the facility. Industrial real estate investments often have significant fee and service revenue streams, such as adding coin-operated vacuum cleaners at a car wash, to increase the return on investment for the owner.

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

Mixed-use real estate investments are those that combine any of the above categories into a single project. I know of an investor in California who took several million dollars in savings and found a mid-size town in the Midwest. He approached a bank for financing and built a mixed-use three-story office building 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.

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.

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.

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Some of them, who spoke at the week long fourth product and interior design expo organised by the Interior Designers Association of Nigeria in Lagos, noted that the country had been import-dependent for too long and needed to look inwards for home grown resources.

The three-day Gida, Uno, Ile Design Exhibition, had as its theme, ‘Home grown, home inspired’.

“When we think of developing the local manufacturing industry, we often overlook talent. We have amazing talents in terms of designers and manufacturers, who understand the local market and can give advice on how to maximise space. We can explore this,” she said.

The Managing Director, Aframero Limited and head of IDAN’s membership services, Mrs. Yetunde Oghomienor, said lack of infrastructure had been the bane of manufacturing but that there was also the need to change the mind-set of consumers about locally-made products.

She said, “As an active member of the Manufacturers Association of Nigeria, we have always advocated support for local input in manufacturing, but there is a long way to go.

“The same way that the education system has been battered, so is the mind-set. We need to focus on training because we need it to get things done. The mentality of Nigerians is that imported products are of better quality, but that has to change.”

The Managing Director, Pinceto, Mrs. Tolu Pinheiro, noted that one area that could be explored locally was the pottery industry, which she said seemed to be dead.

“Nigeria has huge potential, which can be explored to help businesses grow as well as create employment,” she added,

The Lead Interior Designer, Inu Design Limited, Titi Fowora, said the downturn in the economy had created a platform for creative thinking and development of local talent.

The Chairperson, GUIDE 2016 Planning Committee and Creative Director, iDesign, Mrs. Tola Akerele, said the theme of the expo would help designers and other professionals in the built environment to better appreciate local artisans and product designers doing great works in the country.

 PUNCH.       

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According to him, one sector which has not been mentioned by the President-elect, and which is always forgotten by those in power, is housing.

Fortune-Ebie, who is also a former Managing Director of Shelter Afrique, spoke at the FIABCI Nigeria’s business forum in Lagos. The gathering had as its theme: ‘Real estate in Nigeria: Modalities, opportunities and challenges’.

He said, “The last serious attempt to tackle and solve the Nigerian housing problem was during the administration of Gen. Yakubu Gowon more than 40 years ago.

“As a former Head of State, you know the problem first hand, and now in your second coming as a civilian President, you must solve the housing problem for us. It is when you have done this that Nigerians will really and most meaningfully congratulate you.”

The FIABCI Nigeria President, Mr. Joseph Akhigbe, said a recent International Monetary Fund forecast had predicted that 70 per cent of the world’s growth would come from emerging economies, including Nigeria, hence the need for more investment in real estate.

He said the country had become a fertile ground for real estate investment, particularly mega malls, hotels and office spaces.

According to him, it is apparent that foreign investors seem to be the major players in the sub-sector, while local players appear to be on the losing end.

Akhigbe said it had become pertinent to seek ways how to harness the great investment opportunities in the real estate sector and how to surmount the challenges hindering commercial real estate investment.

Some of the speakers at the forum highlighted possible areas that could aid real estate investment.

The Managing Director, Crown Realties Plc, Mr. Darl Uzu, urged developers to identify opportunities in the market as well as what to build in order to make money.

He said the step would be to find and acquire land then source for funds either through individual contributions, or loans from individuals or financial institutions.

The final step, he noted, was to assemble the team and make it work through proper management, and receive the economic benefit.

The Managing Director, FSDH Asset Management Limited, Mrs. Olumayowa Ogunwemimo, said Real Estate Investment Trust could serve as an alternative source of real estate financing in the country.

She said, “Investors in Nigeria have little or no knowledge of REITs, which are a form of collective investment scheme regulated by the Securities and Exchange Commission, by pooling capital from investors and using same in the acquisition of income generating real estate, mortgage loans, or a combination of both.

“The portfolio of underlying assets is placed under professional management to maximise returns to the investors.”

PUNCH.

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