Real Estate Property Types: What Should a Beginner Buy?
Americans consistently rank real estate as the best long-term investment, and for good reason: There are so many types of real estate out there, and there’s so much you can do with it! Whether you’re simply looking for a place to call home or you’re an aspiring real estate investor, there’s a property somewhere that’s perfect for you!
Here are some of the most common types of both residential and commercial real estate and how real estate asset classes are ranked.
Residential Real Estate
Residential real estate living spaces are designed and developed for personal use and are often places people call home.
These types of property include:
- Single-family homes
- Multi-family homes
- Condos and apartment buildings
- Rental properties
Single-family homes are among the most common types of property and likely what you envision when thinking of buying your first home. They’re designed with one owner or family in mind. A single-family home is a free-standing residential building with no shared walls, its own land, and its own utilities.
These homes often spark a homebuyer's imagination and help frame the needs, wants, and dreams of what you can do with your own space. Whether you’re looking for a serene backyard retreat, additional space to host guests, or even a garage where peace of mind comes with a parking spot, single family-homes offer countless opportunities for comfort.
Multi-family properties are buildings that house more than one family at a time. Specifically, each unit has its own kitchen, bathroom, and shared walls. The distinction of a multi-family property is that the building has one owner. You can think of duplexes or apartments where each unit has its own address.
Other Types of Single- and Multi-Family Homes
There are also different types of single-family and multi-family residential properties:
A townhome or townhouse is typically a single-family structure with at least two floors and shared walls with an adjacent unit. Townhomes are placed side-by-side, not on top of one another, and are pretty common in the Bay Area.
Individual property owners are responsible for the utilities and maintenance in a townhome, and most townhomes must adhere to the rules and regulations of a Homeowners Association (HOA). These allow a certain quality and aesthetic to be maintained throughout the complex or subdivision.
Condos, Apartments, and Penthouses
A condo, or condominium, is a housing or residential complex with separate units, each of which is individually owned. Condo owners are responsible for what goes on within their respective units, including paying for utilities, maintenance, and repairs.
Condos can be rather dynamic with additional on-site amenities, like a pool or common areas. Additionally, many condos solve the issue of commuting with proximity to nearby attractions and public transportation. Many condo buildings have an HOA structure, which is made up of residents in the building.
Apartments are very similar to condominiums. The key difference is that apartments are rented, not owned. The tenants pay rent instead of a mortgage and aren’t responsible for most maintenance and repairs, nor do they directly pay any property taxes.
A penthouse is an apartment or unit typically situated on the top floor of an apartment building, tower, or hotel. These units tend to have different floor plans than the other units in the building. Often the exterior walls of a penthouse differ from the floor below it, allowing for creative floor plans, outdoor space, and scenic views.
A housing cooperative or "co-op" is a type of residential investment property where the owners do not own their units outright. Instead, a corporation owns the property, and each resident is a shareholder in the corporation. This is based in part on the relative size of the unit that they live in.
Unlike condos, co-op buyers must be approved by the co-op board or association. While this might be a benefit in selecting ideal tenants and neighbors, it can also be a hindrance should you want to sell. Getting approval from the co-op board can delay the sales process.
Rentals can be either residential or commercial properties, and they are leased or rented to a tenant over a period of time. Rentals can be an excellent solution for a tenant needing housing in a specific area, and they can be a great real estate investment opportunity for an owner wanting to generate additional cash flow.
Rentals can be short-term (like hotels and Airbnbs), medium-term rentals (where a tenant stays between 30 days and 12 months), or long-term (where a tenant signs a lease of 12 months or more).
Other types of residential real estate include ranches, mobile homes, tenancy-in-common (TIC), and more.
Commercial Real Estate
Commercial real estate is more commonly used to generate income. These are typically real estate investments and come in all shapes and sizes.
Commercial properties include:
- Office buildings
- Apartment buildings
- Shopping centers
- Industrial real estate
- Self-storage facilities
- Mixed-use developments
Office buildings are designed specifically for office-related activities and are more commonly found in suburban and urban areas. Typically, office spaces are meant to accommodate cubicles, conference rooms, common areas, offices, break rooms, and more.
Apartment buildings are a type of multi-family residential unit that a single investor or real estate investment company owns. These multi-family homes are considered “commercial” if they consist of five or more units.
Shopping centers (a.k.a. strip malls, shopping malls, or retail centers) are spaces where multiple retail shops, stores, and other businesses are all in one central location. They’re designed to offer a variety of different goods, services, and entertainment options.
- Clothing stores
- Restaurants and coffee shops
- Movie theaters
- Community event spaces
- Hair and nail salons
Industrial Real Estate
Industrial real estate includes warehouses, manufacturing plants, industrial parks, and distribution centers. These real estate properties are meant to support various commercial and industrial activities that help businesses grow and thrive.
Self-storage facilities rent storage spaces to people and businesses to store personal belongings, equipment, inventory, and other items. These spaces are secure and available for both short-term and long-term use.
A mixed-use development is a property that is a combination of different real estate types, like an apartment building with boutique shops on the ground floor or a building that has both office space and restaurants.
Other Types of Real Estate and Real Estate Investments
Here are a few more options you have when breaking into the real estate industry:
- Vacant land: Purchase a parcel of raw land and build on top of it (within your area's rules and regulations).
- Real estate investment trusts (REITs): In 1960, Congress established REITs, which “allow individual investors to invest in large-scale, income-producing real estate” previously only available to ultra-wealthy investors. You can invest in public REITs in the stock market or private REITs through private lenders, firms, and websites.
- Real estate crowdfunding: Crowdfunding allows multiple investors to pool their funds together and invest in real estate opportunities you usually couldn’t invest in alone. These include apartment buildings, office space, high rises, etc.
Types of Real Estate Asset Classes
Whether you’re looking to buy a home for yourself or a property to invest in, real estate is often ranked on a scale from “Class A” properties to “Class C” (or D, E, etc.).
- Class A properties: This real estate is top-notch and usually consists of new builds with many amenities. They’re great if you want somewhere to live, but not so much if you’re an investor. There’s high growth potential, but often your cash flow will be low.
- Class B properties: These properties are a good mix for people looking to buy or invest. These buildings are slightly older but are well cared for. They offer a decent cash flow and growth potential.
- Class C properties: You know what they say: High risk = high reward. These properties can be very profitable if you’re an investor, but they’re usually fixer-uppers or in lower-income neighborhoods and often require constant monitoring and property management.
When deciding which property type to buy, keep your budget, lifestyle, and satisfaction in mind. Properties become cheaper but require more maintenance the further down the list you go.
Picking Your Type of Real Estate With Aalto
Whether you’re looking for a cozy condo or a spacious single-family Victorian, our self-service real estate platform is committed to shifting the balance of power in residential real estate away from industry insiders and toward people like you.
Are you ready to embark on your real estate journey? Get started on Aalto today!
Aalto is a real estate broker licensed by the State of California, License #02062727 and abides by Equal Housing Opportunity laws. This article has been prepared solely for information purposes only. The information herein is based on information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy of the information. Aalto disclaims any and all liability relating to this article.