When most people think about real estate investing, they picture buying a rental property. Maybe it's a duplex. Maybe it's a single-family home. Or maybe it's an apartment building. And honestly, that's still where my mind goes first because so far I only invest in residential real estate. However, there are alternative real estate classes out there that I think are worth exploring (and am learning more about myself).

Residential rentals have completely changed my family's financial trajectory. They've become one of the biggest contributors to our net worth and, more importantly, to our financial freedom. They're also the asset class that I understand best. I know how to analyze them, finance them, renovate them, and manage them. Because of that, I still think they're one of the best wealth-building tools available for physicians willing to put in a little work.

But they aren't the only way to invest in real estate.

As investors gain more experience, many begin branching into other real estate asset classes that offer different risk profiles, different levels of involvement, and different opportunities for income. Some are considerably more passive than owning rentals. Others require an entirely different skill set. None of them are objectively better or worse. They're simply different tools that solve different problems.

If you've only ever thought about or already own rental properties, here are the 4 alternative real estate investments worth understanding in my opinion. But first…

Why Look Beyond Residential Rentals?

There are plenty of reasons investors may eventually diversify beyond traditional rentals to alternative real estate. Maybe they're tired of managing tenants. Maybe they want to reduce maintenance headaches. They could want a different type of cash flow. Or maybe they've simply accumulated enough capital that larger commercial opportunities become available.

In my situation, it's a bit of a mix of all of these reasons. With 9 rentals, I think we are ready to diversify more. We also manage our own properties and that comes with both good (tax benefits) and bad (annoyance factor) things. So, we explore other options while still looking for good rental properties.

Let's look at 4 of the more common alternative real estate investment classes

Just as diversifying a stock portfolio doesn't mean abandoning bonds, diversifying within real estate doesn't mean giving up residential investing. It simply means recognizing that there are multiple ways to generate income from real estate.

1. Triple Net (NNN) Properties

One of the most popular “mailbox money” alternative real estate investments is the triple net lease, often abbreviated NNN.

In a traditional residential rental, you're generally responsible for paying property taxes, insurance, maintenance, repairs, and capital improvements. Even if you hire a property manager, those expenses ultimately belong to you.

A triple net lease flips much of that responsibility onto the tenant and generally applies to larger commercial (i.e. non-residential) properties.

Under a true triple net lease, the tenant pays the property's taxes, insurance, and maintenance expenses in addition to their rent. As the owner, you still need to understand the lease and monitor the investment. Responsibility for structural repairs and capital expenses depends on the specific agreement.

Many of the buildings you drive past every day operate this way. Think of standalone Walgreens, CVS, Starbucks, Dollar General, or fast-food restaurants. Many medical office buildings are structured similarly.

Why investors like NNN properties

The biggest attraction is obvious: They can require much less day-to-day management than residential rentals.

Long lease terms, often 10 to 25 years, can provide more predictable rental income, provided the tenant continues paying. Maintenance calls are minimal because the tenant handles most operational responsibilities. If the tenant is a financially strong national company, the income can feel remarkably predictable.

Compared to coordinating a plumbing repair at your duplex, collecting rent while a Fortune 500 company handles nearly everything else sounds pretty attractive.

The drawbacks

Of course, there are tradeoffs.

The first is cost. Triple net properties are often expensive and may require substantially more capital than a residential rental. Second, your success often depends on a single (or a few) tenant(s).

If your duplex loses one tenant, you're still 50% occupied. If your 24-unit apartment building loses one resident, you barely notice.

But, if your single Walgreens vacates the building, you're suddenly 100% vacant. And it can take a long time finding a new tenant. Think of all the “For lease” signs you see on buildings that take forever to find a new tenant. That concentration risk is something investors sometimes underestimate.

Triple net properties also tend to have lower capitalization rates because investors are willing to accept lower returns in exchange for greater stability.

Compared with residential rentals

Residential rentals generally offer easier financing, lower barriers to entry, and more opportunities to force appreciation through renovations or improved management.

Triple net properties sacrifice some of that upside in exchange for simplicity and predictability.

For someone seeking maximum passivity, that tradeoff may be worthwhile. Especially if you've already built up a good portfolio of cash flowing residential properties and have the capital to buy a triple net.

2. Self Storage

Self storage has quietly become one of the hottest sectors in alternative commercial real estate over the past couple of decades. Instead of renting people places to live, you're renting them space to store their belongings.

Facilities may include climate-controlled units, traditional drive-up storage, RV parking, boat storage, or combinations of all of the above.

On the surface, it almost seems too simple. People rent a box. They put their stuff inside. They pay every month. But the business is much more sophisticated than that.

Why investors love self storage

One reason is maintenance. Storage units don't have toilets. They don't have kitchens. Many don't need the residential heating systems found in a house, although climate-controlled facilities have their own HVAC needs. Nobody calls because the dishwasher stopped working. The operating expenses are often considerably lower than residential housing.

Storage facilities also create multiple revenue streams. Owners may sell locks, moving supplies, tenant insurance, premium climate-controlled units, parking spaces, and other add-on services.

Demand also tends to remain fairly resilient because people need storage during many different life events: Moving, divorce, downsizing, college, business inventory. Even people who simply run out of room in their garage.

The downsides

That doesn't mean it's easy. Modern self storage has become a sophisticated operating business. Pricing changes frequently. Occupancy must be monitored closely. Marketing matters. New competitors can quickly impact local supply.

Many successful operators adjust rental rates almost like hotels or airlines, constantly balancing occupancy and profitability. It may involve fewer residential maintenance calls, but operating a storage facility is far from completely hands-off.

I also worry that the market is becoming more saturated. How can people have so much stuff to fill all of this new supply? Yet somehow they keep getting filled.

Compared with residential rentals

Self storage generally has lower maintenance costs and fewer emotional tenant interactions.

Residential rentals may offer more familiar financing options, and housing serves a basic need. Both residential and self-storage buildings may qualify for depreciation, but the applicable schedules and tax benefits differ.

Personally, I think both can be excellent businesses. They simply require different expertise. But you do need to know how to analyze the market and the opportunity, something I am certainly not fluent in yet.

3. Real Estate Notes

This may be the least familiar alternative real estate investment on this list. With note investing, you aren't buying the property itself. You're buying the loan secured by the property. In other words, you're becoming the bank.

Rather than collecting rent, you're collecting principal and interest payments from the borrower.

Notes can be purchased from existing lenders or originated through private lending arrangements. Some are performing loans where borrowers pay consistently. Others are distressed loans purchased at discounts because the borrower has stopped paying.

Why investors like notes

Many note investors enjoy the predictability and lack of maintenance compared to actually owning the property. There are no leaking roofs. No tenants. No late-night maintenance calls. Income comes from scheduled loan payments, provided the borrower pays as agreed.

Because the loan is secured by real estate, investors also have collateral if the borrower defaults.

Some experienced investors even purchase non-performing notes at significant discounts, hoping to either restructure the loan or ultimately acquire the underlying property.

The drawbacks

Of course, becoming the bank introduces different risks. Borrowers can default. Foreclosure is expensive and time consuming. Legal expertise becomes important. You also have less direct control over the underlying asset compared with owning the property yourself.

Unlike a rental property, you can't renovate the kitchen or improve management to increase value.

You're relying on the loan itself to produce your return.

Plus, if your collateral (i.e. the property) is not a good investment in itself, then you risk inheriting a bad investment if the borrower defaults. Not that it can't be turned around, but then you will be the one who has to do that (which is a very active endeavor).

Compared with residential rentals

Notes eliminate many operational headaches but also eliminate much of the upside that comes from appreciation, forced equity creation, and depreciation benefits.

For investors seeking passive income with less operational involvement, notes can be an attractive option. However, the downside is potentially becoming a reluctant property owner.

4. Oil and Gas Mineral Rights

This final investment surprises many people because they don't immediately think of it as real estate. But it absolutely is.

Owning mineral rights means owning the rights to the natural resources beneath a piece of land. Interestingly, the person who owns the surface isn't always the person who owns the minerals underneath it. Those ownership interests can be separated and bought or sold independently.

If an energy company wants to drill, they'll often lease those mineral rights from the owner in exchange for royalties based on production.

It is important to distinguish a mineral or royalty interest from a working interest in a well. Working-interest owners generally share drilling and operating costs; royalty owners generally do not bear those costs, although lease terms can allow certain deductions. These are different ownership structures with different risks. The National Association of Royalty Owners explains the distinction.

Why investors buy mineral rights

The appeal is simple. Once the rights are acquired, the investment can become remarkably passive. If production occurs, royalty payments simply arrive.

There are no tenants. No roofs. No renovations.

And in periods of rising oil or natural gas prices, royalty income can increase substantially.

Mineral rights also provide diversification because their returns are driven by commodity production rather than local housing markets.

The downsides

They're also probably the hardest investment on this list to analyze. Income depends on commodity prices, drilling activity, geology, and production levels. You need to work with an operator that you can really trust and that knows their stuff.

A property with tremendous royalty income today may produce much less ten years from now as wells decline.

Valuation is complex, taxation can be complicated, and many opportunities require specialized knowledge that most investors simply don't have.

Diversification across properties, wells, and producing regions can help reduce concentration risk, although it cannot eliminate commodity or production risk. If you concentrate them on just one area and it comes up dry, you would be seriously out of luck.

Compared with residential rentals

Residential rentals are more familiar to me and give me more direct control over day-to-day decisions. You have direct control over the property. You can improve it. Plus you can refinance it. And you can actively influence your returns.

Mineral rights, on the other hand, often involve giving up control in exchange for potentially passive royalty income if you work with the right operator and choose the right wells.

So Which One Is Best?

Like almost every investing question, the answer depends on your goals. If you enjoy operations, renovations, and creating value, residential rentals or self storage may fit you well. However, if your primary goal is passive income with minimal management, triple net properties may be more attractive. If you like lending, underwriting, and structured cash flow, notes deserve a closer look. And if you're comfortable with commodity markets and specialized analysis, mineral rights can provide diversification that's difficult to find elsewhere.

Personally, I'm still happiest owning residential rentals.

Part of that is because they've worked incredibly well for me. But an equally important reason is that I understand them. Experience matters. Familiarity matters. Confidence matters.

I've learned over the years that successful investing usually isn't about finding the highest possible return. It's about finding an investment you understand well enough to stick with through good markets and bad ones.

Final Thoughts

One of the biggest mistakes I see investors make is trying to learn five different asset classes at once.

They buy a rental house, invest in a syndication, purchase a note, speculate on land, and wonder why they never become truly good at any of them.

I think a better approach is to become exceptionally competent in one strategy first. Build your knowledge. Develop your systems. Gain experience. Learn from your mistakes. Then, if it makes sense, expand into other opportunities that complement your existing portfolio. This is still the stage that Selenid and I are currently at. We have a system that works. So we stick with it. But we are curious enough to explore and may take the plunge in the future.

Real estate is an incredibly broad asset class. Residential rentals are just one corner of it.

The good news is that there are plenty of alternative paths to building wealth through real estate. The trick isn't finding the “perfect” investment. It's finding one you understand well enough to keep investing in for decades.

What do you think? Have you invested in real estate? How about alternative real estate classes? What have your experiences been like? How do you determine your investment strategy? Let me know in the comments below!