Real Estate Investing: Which Type of Asset Makes the Most Money?
When it comes to real estate investing, one question that often comes up is "Which type of real estate makes the most money?" The answer is that it depends on the type of investment and the risk involved.
In real estate, your money is made at the purchase and not when you rent or sell it. Certain asset types will perform better than others and what it usually comes down to is related to the risk. Asset classes with higher risk would be things like mobile home parks or senior care living facilities. These are high risk because they have more challenges to earn cash flow and appreciation. On the other hand, a very low investment risk would be a classic commercial property where you're renting to a large corporation like Starbucks or a Walgreens.
To quickly compare investments to one another, you want to use the formula for the cap rate. A cap rate is calculated by taking the net operating income and then dividing it by the purchase price. By using this formula, you can take the cap rate of several different asset classes and types and know which one has the highest cap rate, and therefore, the one that will make you the most money.
In summary, when it comes to real estate investing, the type of asset you choose will have a big impact on your returns. Understanding the different types of assets available, and the risks and returns associated with each, is essential for making the most money in real estate. And using the cap rate formula will help you compare different types of assets to determine which one is the most profitable.
