by Yieldstreet | Staff
Understanding the difference between the real estate asset classes and property types is key for investors in the space. But information available can be either incorrect or difficult to understand. Whether you’re a budding real estate investor, or just curious to learn more about investing, here’s a crash course on real estate asset classes versus property types and what you need to know.
Before we dive in and start exploring the ins and outs of the real estate asset class, let’s make sure we’re all on the same page as to what an asset class actually is.
Put simply, an asset class is a group of financial instruments that have comparable characteristics and exhibit like behaviors in the marketplace. Below are just a few examples:
As you’ll see from the list above, real estate is an asset class that is often categorized under the larger umbrella known as alternative assets. Alternative assets are assets that fall outside more traditional categories such as stocks and bonds. Until recently, there was a high barrier to entry for individual investors to take advantage of opportunities within alternative asset classes. Platforms such as Yieldstreet, however, are giving individual investors access to investments previously only available to institutions or the mega-wealthy.
Invest in Alternatives Today
Within real estate, there are property types and property classes. These two terms are not the same and shouldn’t be treated as such. A real estate property class refers to the characteristics of a real estate investment and is often categorized as Class A, B, or C. These classifications were developed by real estate investors, lenders, and brokers to provide a means to communicate and rate the quality of the property quickly. There are no set guidelines that define these ratings and often there may be some disagreement on a particular asset.
The real estate asset class, on the other hand, is broken down into two main property types: commercial and residential. Below is a detailed breakdown of the different types of both residential and commercial real estate.
Residential property is simply real estate for living. It includes single-family homes, townhouses, condos, and vacation houses. Residential real estate properties are considered an investment if the asset is not owner-occupied, and it is owned for financial gain—either via rent or the appreciation in value.
As you may have guessed, there are a variety of property types that fall under the residential real estate property type. Here’s a quick breakdown of residential property types within the real estate asset class.
Single-family homes. Designed as a dwelling for one family, this type of property doesn’t share walls with neighboring residences or common areas. However, the property might be a part of a homeowners association (HOA) that provides access to community amenities such as a pool, tennis courts, and clubhouse, just to name a few.
Co-ops. Also known as housing cooperatives, co-ops aren’t considered real property because owners are technically purchasing shares in a corporation that owns the building. In lieu of a mortgage, individuals take out a share loan. You would then receive a lease that entitles you to occupy a particular unit in the co-op. Similar to condominiums, co-ops often have maintenance fees.
Condominiums. Unlike a co-op, condo units are owned by individuals but have shared access to common areas that are co-owned by all of the residents in the complex. Association fees are applied to maintain, improve, and fix common areas. Examples of shared amenities include a pool (or pools depending on the size of the complex), tennis courts, and package rooms.
Townhouses. A townhouse is another single-family residential property. Townhouses typically share walls with neighboring residences, but unlike condominiums, there isn’t a unit above or below. This type of residential property usually has outdoor space but also has access to neighborhood common areas. From a financing perspective, you can expect mortgage options to be in-line with standalone homes since townhouses are considered single-family residences by most mortgage lenders and banks.
Multi-family properties. Multi-family properties, such as duplexes, are buildings with multiple housing units. Multi-family structures can be anything from apartments to townhouses. However, if the property holds more than four units, it is then classified as a commercial property. From a residential perspective, multi-family properties, although typically more expensive, are often more attractive to banks as they are viewed as less risky since the income generated isn’t coming from a single tenant.
Vacation homes. Also known as second homes, a vacation home is a residence that typically is used as a seasonal accommodation—think beach house or ski cabin. These residences can be a single-family home, condo, or townhouse, and can be rented out when not in use by the owner. It’s worth noting that financing is usually more expensive than a primary single-family residence.
Commercial Real Estate, or CRE, includes any property that generates income. Let’s take a look at the different types of commercial real estate.
Multi-family. Multi-family properties are any properties that house more than one tenant. If a building has four or more rental units for living, then it is considered a commercial property. Just like with any residential property, multifamily properties can be anything from a townhouse to a condominium, apartment or duplex.
When it comes to multi-family real estate investing, property owners often don’t manage the daily upkeep of the property, but hire what is called a property manager or property management company to take care of the day-to-day.
Retail. Retail space can range from strip malls offering 5,000 to more than 100,000 square feet of space or can be a freestanding building, like a restaurant or a gas station. Additionally, there are commercial centers that host big-name box stores such as Target or Home Depot, with a store utilizing 30,000 to 200,000 square feet. Typically, multi-store retail centers are a better draw for investors as they host many tenants.
Office. Commercial office properties run the gamut from one-tenant properties to multi-tenant professional buildings and even skyscrapers. Office space can exist in cities, the suburbs, or even in more rural areas. However, when it comes to the attractiveness of commercial office property, location and the state of the building (Is it brand new or in need of renovations?) are key considerations for investors.
Self-storage. Self-storage facilities are a commercial property type that rents space to tenants either on a month-to-month or long-term basis. Spaces can range in size from lockers to rooms, containers, and even outdoor space for the storage of boats or RVs. From an investment perspective, US News and Money highlights, “Despite self-storage experiencing a runup in pricing and demand, the markets continue to grow and capitalization rates (a method for factoring return on investment) remain attractive.”
Hotels. Hotels offer a unique scenario in the commercial property class as they are able to adjust room rates to meet market demands. There are several ways to get involved in this type of commercial property. For example, you could purchase the actual hotel, invest in a crowdfunded hotel real estate transaction, buy into a real estate investment trust that owns hotels, or buy the stock of a hotel operator such as Hilton or Marriott. It’s important to note that the hotel industry is easily impacted by the economy, and in times of recession, return on investment can suffer.
Mobile homes. An often overlooked commercial property type is mobile home parks. From an investment perspective, you would purchase the land itself and then lease out the individual pads to residents that live in mobile homes. Since you are simply renting out the land, repairs and maintenance, as well as operating costs, are typically low. The turnover is usually minimal in this type of commercial property as it costs tenants thousands of dollars to move their mobile home to a different location. It’s also worth noting that mobile home parks have the highest capitalization rate of any real estate niche, at 7-10% nationally, according to Reonomy.
Land. Land investments typically fall into one of two categories: greenfield or brownfield. Greenfield land hasn’t previously been developed. Brownfield land was previously developed and typically requires clean-up before it can be used.
Industrial. While not as flashy as investing in a skyscraper or hotel, commercial industrial properties are typically stable, longer-term investments. It is worth noting that industrial properties can vary significantly from a business use case perspective. Here are a few examples:
Quite simply, manufacturing sites are where goods are produced and assembled. Heavy manufacturing commercial real estate properties typically encompass anywhere from thousands to even hundreds of thousands of square feet to accommodate heavy equipment and production lines. Examples include automobile plants, shipbuilding facilities, or even pharmaceutical companies. In addition to space for the actual manufacturing, industrial properties also require significant storage space as well as loading docks to ship the market-ready products.
Storage and distribution sites are the locations where the products made in manufacturing properties are stored and sent to the end-user. Depending on the type of products being stored, the size of this type of commercial property can have a large square footage range and have specific requirements. An example of these requirements might be a distribution facility needing to be central to a large population and ideally being located near an airport and shipping routes. For instance, Walmart fulfillment centers are more than 1 million square feet and employ over 600 people to handle the unloading and shipping goods.
General-purpose warehouses also fall under the storage and distribution category of industrial commercial real estate. These warehouses are more often for the storage of goods and products versus a central distribution hub.
A third storage and distribution type of property is a truck terminal. Truck terminals are used completely for distribution and serve as a mid-point site for goods to be shifted from one truck to another on the way to their final destination.
Flex Spaces are industrial commercial properties that are designed for diverse use. The site is typically comprised of at least 30% office space, as well as space for production. Examples include research and development facilities, data centers, and showrooms.
The real estate asset class offers a wide range of opportunities. Investors can put money into a variety of locations, property types, stages of development, and real estate classes to help diversify their portfolios. Interested in investing in real estate as an alternative asset but not looking to purchase a property on your own? Yieldstreet provides a seamless experience designed for investors to take advantage of real estate opportunities across the asset class. See if the Yieldstreet platform is right for you.
Sign up with your email address
Securely verify your identity and link a bank account
Verify your accreditation (if applicable) to access all of Yieldstreet’s offerings.
Our weekly podcast providing ideas about how to make money work for you and bring you closer to your dreams.
1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.
2 Represents an average net realized internal rate of return (IRR) with respect to all matured investments in your portfolio, utilizing the effective dates and amounts to and from the investments and net of management fees and all other expenses charged to the investments. Past performance is not a reliable indicator of future results and should not be relied upon as the basis for making an investment decision. All securities involve risk and may result in significant losses, including the loss of principal invested.[read more]
3 "Annual interest" or "Annualized Return" represents an annual target rate of interest or annualized target return and "term" represents the estimated term of the investment. Such target interest or target returns and estimated term are projections of the interest or returns and or term and may ultimately not be achieved. Actual interest or returns and term may be materially different from such projections. This targeted interest or returns and estimated term are based on the underlying investments held by the applicable.
4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.
5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.
6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including Dec 22th, 2021, after deduction of management fees and all other expenses charged to investments.
7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Prism Fund before investing. The prospectus for the Yieldstreet Prism Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetprismfund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.
8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.
No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.
Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor.
Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.
Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.
Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.
Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.
Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and willing and able to accept the high risks associated with private investments.
Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.
Banking services are provided by Evolve Bank & Trust, Member FDIC.
Investment advisory services are provided by YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission.
Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.