Disclaimer: This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice. Nothing contained on our site constitutes a solicitation, recommendation, endorsem*nt, or offer by ButterflyMX or any third-party service provider. ButterflyMX is not a financial adviser. You should always seek independent legal, financial, taxation, or other advice from a licensed professional.
Key takeaways
- An asset class is when similar investments are lumped together under the same classification.
- Real estate is known as an alternative investment.
- Real estate is considered a good asset class and investment.
- The main classes of real estate are class A, class B, and class C.
- Real estate is split into three property types known as: residential, commercial, and land.
- One of the best real estate property types to invest in is residential property.
Real estate investing involves doing extensive research into different property types and branches of real estate as well as the classifications of each. A real estate asset class is actually a small part of a larger type of asset class known as alternative assets.
Knowing what asset class a piece of real estate falls under can be useful when studying the real estate market. You’ll have a better chance of making a lucrative investment if you’re as knowledgeable about the type of real estate investment that you’re making as possible.
In this post, we go over what an asset class is and how it applies to real estate. Next, we review the main classifications of real estate. Finally, we cover the best real estate asset to invest in.
This post covers:
- What is an asset class?
- What asset class is real estate?
- Is real estate a good asset class?
- What are the main real estate asset classes?
- What are the real estate property types?
- What is the best real estate asset class to invest in?
What is an asset class?
An asset class is a series of similar investment types that are grouped together under a class. There are many different types of asset classes. For instance, stocks, fixed-income investments, and cash equivalent asset classes are some of the most common examples in the world of investing.
Real estate falls under a special type of asset class.
Reminder: Real estate investment trusts and real estate syndications still fall under the same asset class as real estate.
What asset class is real estate?
Real estate, such as multifamily investing, falls under the asset class known as alternative investments.
Additional classes under alternative investments include:
- Cryptocurrency
- Art finance
- Private equity
- Farmland
- Venture capital
- Hedge funds
- Marine finance
Is real estate a good asset class?
Real estate investing for beginners and experienced investors alike can be financially rewarding. As a result, real estate is one of the best asset classes. With a proper investment plan, real estate can be a lot less risky than other asset classes.
However, you often need to make a substantial financial investment upfront. As a result, real estate investing might not be as inclusive as other asset classes for investments.
What are the main real estate asset classes?
Now that we know what class real estate investing falls under, we can further break down real estate investing. Real estate doesn’t break down into further asset classes. Rather, it breaks down into property classifications.
Property classes are used by lenders and investors to easily categorize a property in official documentation.
The three types of real estate property classes are:
- Class A. These properties are usually considered “premium” properties. They tend to be newer or recently renovated with a high number of desirable features and amenities. Rental income is higher at these property types. They are typically located in highly desirable locations.
- Class B. These are mid-level or average properties. They aren’t that old, but they also aren’t considered cutting-edge or up-to-date. Rental income is average.
- Class C. Properties under this classification are the oldest property types. Many class C properties likely require modern renovations. These property types also have higher maintenance needs. Rental income is at a lower range than other property types. These property types are typically located in undesirable areas with few local attractions.
Learn how to invest in multifamily real estate:
What is the largest real estate asset class?
The residential real estate asset class size is easily the largest real estate property type. There are over 142 million housing units in the United States.
What are the real estate property types?
In addition to breaking down into property classes, real estate assets also break down into property types.
The three most common property types in real estate are:
- Commercial real estate asset classes. These property types include retail spaces, hospitals, offices, nursing homes, and storage facilities are all considered commercial.
- Residential real estate assets. Duplexes, apartment buildings, multifamily housing, condos, tiny home investing, and student housing fall under this property type.
- Land ownership assets. Any land that’s purchased, sold, and rented out is considered a real estate asset. Land ownership is further broken down into two categories: brownfield and greenfield. Brownfield land has previously been developed on. Greenfield land hasn’t been cleared of trees and other natural features.
What is the best real estate asset class to invest in?
One of the best real estate asset classes to invest in are residential property types. In addition to being the most popular investment type, residential property types host a number of other attractive features.
Residential property types:
- Include many different types of properties for beginner and experienced investors, ranging from duplexes to apartment buildings.
- Feature the lowest real estate asset class risk when compared to other property types.
- Can provide consistent cash flow in the form of rent.
- Are high in demand.
