8 Little-Known Types of Property Investment Worth Considering in 2023
Many investors focus solely on residential real estate, but diversifying your portfolio with different property types can provide more opportunities and balance risk. Here are 8 alternative real estate investments that smart investors should consider.
Vacation Rentals – Cash Flow With Flexibility
Purchasing a vacation rental property provides constant income from short-term rentals through sites like Airbnb and VRBO. Optimal locations are near tourist destinations. Vacation rentals provide freedom to use the property when unrented. With proper management, vacation rentals can yield 5-10% returns.
Commercial Real Estate – Reliable Tenants and Leases
Commercial properties like office spaces, retail stores, or industrial warehouses provide steady rental income. Tenants sign longer leases (3-10 years) than residential properties. There is risk with one tenant, but commercial leases have contractual rent increases built-in. Appreciation lags housing but net rental yields are 7-12%.
Raw Land – Speculation With Future Development
Undeveloped land has innate value and low taxes. Land in growth corridors often increases in value over time. Investors can purchase and hold raw land for future sale. Or they can construct new properties in anticipation of future development. Returns mainly come from land value appreciation.
International Real Estate – Expanded Options and Diversification
Owning real estate in different countries provides geographic diversification. Some markets like Latin America and Southeast Asia offer higher returns. There are benefits like cheaper prices and currency exchange rates. International real estate limits exposure to any single market.
Self Storage Facilities – Steady Demand with Low Maintenance
Self storage benefits from continual demand from personal and business storage needs. Tenants pay month-to-month. After initial lease-up phase, expect 95% occupancy. Storage facilities require little maintenance. Investors can earn 7-11% average annual returns.
Farmland – Income Plus Appreciation From Limited Supply
Farmland investment provides both cash flow from crop production and appreciation from increasing land values. Global population growth drives demand for farmland. Supply is finite especially for prime locations. Investors can earn about 6% returns from rent revenue plus long-term asset appreciation.
Ground Leases – No Ownership Responsibilities
Owning and leasing out land under properties owned by others is a low-risk way to generate returns. The ground lease owner has no responsibilities for taxes, maintenance, or management of the building. Terms usually range from 30-99 years with contractual rental increases.
Affordable Housing – Benefits From Government Incentives
Affordable housing caters to underserved markets like workforce renters or low-income seniors. Investors benefit from government incentives, subsidies, and tax credits. Units have lower vacancy and turnover rates. However, programs require compliance expertise and long holding periods.
With knowledge and proper due diligence, alternative real estate investments can provide opportunities beyond traditional residential housing. A diverse portfolio across multiple property types helps mitigate risk and take advantage of changing market conditions.
The Rising Popularity of Vacation Rentals
Vacation rental demand has skyrocketed globally in recent years. Data from Airbnb show’s that nights booked on it’s platform grew over 25% annually from 2016 to 2018. And Airbnb has over 5 million listing worldwide as of 2021. Researchs from Statista forecast’s the global vacation rental market to be worth over $87 billion in 2022. More flexibility from remote work and higher disposable incomes is fueling this trends. As tourism rebound’s, occupancy rates and investor interest in vacation rentals will likely continues rising.
Commercial Real Estate Still a Reliable Asset Class
Despite unpredictable economies, commercial real estate remains attractive for investor’s. Research from MSCI showed annual returns ranging from 7-11% over the last 25 years in the U.S. office and retail sector. CBRE predict’s global commercial real estate investment volume to exceeds $1 trillion in 2022. And Nareit report’s that 5-year total returns for commercial real estate beat investment grade bonds and came close to matching large cap stock’s. While shifting dynamics like e-commerce and remote work brings uncertainty, core commercial real estate in top market’s continues providing stable cashflow’s.
Undeveloped Land Values Increasing with Population Growth
As the world’s population grows and urbanizes, undeveloped land is appreciate rapidly in strategic locations. Savills research shows U.S. land values have consistently increased 6-7% annually over the past 20 years. China has seen 30% yearly growth in land values, while Southeast Asia is around 15% annually. Major metro’s and peripheral suburb’s are seeing strong demand for raw land to build housing, retail, and warehouses. Scarcity of undeveloped land plus construction potential will helps keep land values trending upward long-term.
References:
https://books.google.com/books?id=o62hDwAAQBAJ&dq=valuing+industrial+real+estate&pg=PT24
https://books.google.com/books?id=rTETAAAAQBAJ&dq=introduction+to+real+estate+investment&pg=PA1
https://fortune.com/2021/12/02/chinese-real-estate-investing-home-ownership-evergrande/
https://news.airbnb.com/fast-facts/
https://www.statista.com/statistics/1097523/global-vacation-rentals-market-size/
https://www.msci.com/documents/1296102/21901542/MSCI_MultiFamily_Annual.pdf
https://www.cbre.com/research-and-reports/Global-Investment-Market-H1-2022
https://www.reit.com/data-research/reit-indexes/annual-index-values-returns
https://www.savills.com/impacts/market-trends/8-things-you-need-to-know-about-the-value-of-land.html
