Real estate investments are an excellent way to earn income and create wealth. In addition, investing in a real estate property can be done in many different ways; you just have to find the one that suits you best. But what exactly is a real estate investment? How do you make one? What types of real estate investments are there? And how does the accounting of a real estate investment work? In this article, we will answer all these questions and discuss the different types of real estate markets.
What are investment properties?
Investing in properties is a way to make money with property. You can invest in real estate directly or through a real estate fund. Real estate investment aims to make money and generate passive income from rental properties or mortgage interest.
In other words, investing in real estate, or what is the same, real estate investment, is a choice between several strategies that allow you to generate passive income from rents or quick income after the investment is completed through the sale.
What are the types of investment properties?
Property investment is not limited to directly purchasing flats, houses, or land in the primary and secondary markets. Many other real estate transactions and investment methods can be handled, even if your investment capital is low. However, we must recognize that the most common are:
- Single-family homes
- Multi-family houses (apartment buildings)
- Buildings and commercial premises (office buildings, warehouses, shops)
Types of real estate investments include residential, commercial, and industrial properties. Real estate can include single-family homes or other residential properties; multi-unit apartment complexes; office buildings; warehouses; retail stores; hotels; and resorts.
Mobile home parks can also be included, as can undeveloped land for future development purposes and prefabricated houses (trailers) located on leased sites within trailer parks (mobile home communities).
The above are considered “real estate” investments because they comprise land and/or buildings.
What are investing properties in accounting?
We can observe the emergence of a new category of fixed assets: real estate investments.
Real estate investments are non-current assets because they are investments without liquidity because they cannot be quickly converted into cash. Long-term investments are also considered, meaning you must plan for what will be done with the property or if you want to sell it in the future.
As the objective of this type of investment is to obtain income, they qualify independently, but remember that it only has effects on their separate presentation on the balance sheet and in no way on the appraisal of such investments, which will follow the acquisition value and not an updated fair value.
How do you amortize this type of investment?
The amortization of real estate investments, as well as of immobilized materials, occurs through depreciation. Depreciation is a deduction from income that allows the cost of an asset to be recovered throughout its useful life. Here, we’re referring to the wear and tear brought on by using and enjoying the relevant real estate. The annual amortization of the good must be distributed between the acquisition price or production cost of the element during the estimated useful life of the same.
For example, if you buy a building for 100,000 USD and it has 20 years of expected useful life left (which means that it will last until 2042), then this building would be depreciable for those next 20 years at an average rate of 5%. In other words:
Annual depreciation = $100,000 x 0.05 = $5,000
How many types of real estate markets are there?
There are four types of real estate markets: residential, commercial, industrial, and retail. Residential is the most common form of real estate. It refers to homes, that is, the places where people live.
Commercial properties include businesses that rent or own space and operate their business in it (think of shops and restaurants). Industrialists are facilities or warehouses that produce or store goods like food or raw materials for manufacturing; typically, businesses rather than individual investors own them.
Retail properties include stores that sell products directly to consumers; at present, many commercial spaces also serve as offices for management teams that want to have a presence near their stores but do not need office space at home or in another place with more amenities such as those offered by shopping centers.
There are many different ways to invest in properties; you should only find the one that suits you best. Secured loans and joint ventures can be beneficial if you want a quick return on your money. However, if you have more time and want to minimize risk at all costs, real estate investments are probably the best option. Before making any decision on the best way to do it, it is important that you fully understand your options so as not to regret any decision made later. Investing properties