Overview of Types of Real Estate Investment

Developed land, including commercial, industrial, and residential real estate, derives its value from existing and expected future economic uses. In contrast to owner-occupied properties, financial investors in this asset class typically seek income from commercial and residential users and potential capital appreciation from a future sale as part of a well-diversified portfolio.

Building on the foundation developed earlier in the curriculum, which introduced the unique attributes of real estate as well as its investment characteristics, we now turn our attention to the key features of real estate relevant to valuation, economic drivers affecting property cash flows and prices, and the unique information challenges investors face when assessing and valuing real estate versus other investments. The valuation process for real estate properties using a discounted cash flow, income, or sales comparison approach is broadly similar to that for public or private companies once these important differences are taken into consideration.

This learning module focuses primarily on investments based on commercial or residential real estate properties that are relatively well developed, are stable, and produce reliable periodic income. Portfolios of investments involving these underlying properties are widely available to investors via equity instruments, such as real estate investment trusts (REITs) and real estate operating companies (REOCs); fixed-income securities, such as mortgage-backed or covered bonds; and index-based products.