Affluent Savvy
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What are the 6 types of real estate?

Investors large and small soon learn there are seven major types of real estate, including residential, office, industrial-warehouse, hospitality, retail, agricultural and the remainder, catch-all category of “special.”

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The Residential Markets

Perhaps the second-oldest kind of real estate after agricultural, residential is still largely an owner-user or smaller-investor market, though in recent decades even single-family detached homes, and certainly the multifamily building or apartment sector, have become increasingly popular among institutional investors. Just as with office buildings, investors have sliced and diced the multifamily or apartment sector, in this case into three large categories, denoted as high-rise, mid-rise and garden. In apartment-land, high-rise refers to 10-story structures and above, which are usually upper-class bastions from the get-go, due to the cost of construction. Once buildings get above five stories generally steel construction rather than wood becomes the norm, along with other attendant higher embedded costs such as elevators and larger stairwells, and even commodious underground parking garages. The mid-rise apartments generally fall between five and nine floors, and have elevators, but often still resort to parking lots to accommodate vehicles, if built in suburban locations. And garden apartments are the workhorses of the industry, usually two- and three-story buildings without elevators, found in both suburban and urban locations. As with office markets, in recent years there has been more fluidity in multifamily markets, with the conversion of warehouses or even old office buildings into living quarters becoming common. The clever re-purposing of an inexpensive dowdy office building or warehouse into residential has proven profitable if handled skillfully. In more cities, the “mixed-use” property type is being encouraged, which generally features ground-floor retail uses, with housing atop, though sometimes middle layers of offices or hotel suites are included. In addition, in latter years many shopping malls have been prospected for at least partial conversion to housing. From the perspective of institutional investing, one large change in recent years has been the heavy flux of large-scale buyers into the single-family detached home market. Such institutional investors as Tricon Residential, American Homes 4 Rent, and Brookfield Asset Management have moved into buying thousands of single-family detached homes for income and appreciation potentials. The granddaddy and biggest player in the single-family detached home market is the Invitation Homes, a Big Board-listed real estate investment Trust (REIT) which owns more than 80,000 houses and adds quarterly to its portfolio. The apparition of colossal buyers in the single-family home markets in the new millennium has raised some concerns, but for individual investors, or those participating in residential crowdfunding or syndications, there is a degree of confirmation when the large institutional investors are also in the game. If Wall Street, with its vast tribe of analysts and bean-counters thinks housing is a smart investment, then that is probably as good a bet as any.

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Of course, even before venturing into single-family homes, Wall Street, syndicators and institutional investors were deep into multifamily investments. Large multifamily investors, such as the publicly held REIT and Tennessee-based MAA, can own more 100,000 apartments, and are also accumulating portfolio properties with each passing year. There are yet other subcategories of housing, including condominiums and their cousins, the co-ops, and planned communities (especially for senior citizens), and even manufactured homes. In the US, the overarching story on housing is that due to property zoning and other restrictions, new supply has long been curtailed, especially since the Global Financial Crisis of 2008. This trend towards housing shortages is global, and seems to inevitably result from increasing urbanization, and the attendant nature of homeowners and other groups to seek greater control over neighborhood development—and not the least, to limit new competition. In such environments, even manufactured housing developments, once considered somewhat déclassé, have become an investable option in the 2000s. The quality of manufactured homes has risen in recent decades, and, moreover, while usually the residents of manufactured homes do not own the land—they rent a parcel—they do own their fabricated house, and thus tend to be a cut above ordinary apartment renters. Manufactured homes is a deceptively large market, housing 22 million US residents. Some experts regard manufactured housing as an evergreen market, doing well in good times, but also faring well enough in bad times as homeowners gravitate to more-economical options. Moreover, America’s rapidly growing senior population is comfortable in the mobile-home parks. Thus housing, one of the oldest types of property investments, has been renewed in the 21st century, though it truly never fell out of style. As long as people need shelter, there will be a market for housing.

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