Keep One Mortgage
Anyone who wants to get into real estate investing can do it without dealing with two mortgages. I recommend the same plan to everyone who asks me about it. Buy a duplex. You rent half of it out and live in the other half. You don’t have to drive across town to take care of maintenance or repairs. Plus you develop a great relationship with your renters by sharing the lawn. Residing in half of a duplex may not work for larger families, but for young people looking to make a career out of becoming a landlord, it’s the perfect way to start building equity.
There are other options to accomplish the same thing. Purchasing a home with a guest house or an apartment attached to it are other options.
Affordability and simplicity are key for first-time real estate investors. One of the hardest parts of breaking into this business is securing funding; many real estate entrepreneurs mortgage their own homes to get the cash they need for a down payment on their first property. With this in mind, single-family homes, duplexes, and small, single-unit commercial properties are going to be good bets.
Single-family homes in particular are much easier to sell if things don’t work out, and they’re also quite valuable as rental properties. You can charge a good premium over a comparable amount of square footage in a multi-unit property. Maintenance is also less of a learning curve for those who aren’t experienced with the practical aspects of managing commercial properties or apartments.
For first-time real estate investors, I would recommend investing in properties that are relatively low-risk and have a steady cash flow. These might include:
● Single-family homes or small multi-unit properties (duplexes, triplexes, or fourplexes) that are located in desirable neighborhoods with strong rental demand. This can help ensure a steady stream of rental income and make it easier to find and keep good tenants.
● Properties that are in good condition and require minimal renovations or repairs. This can help reduce the likelihood of unexpected expenses and make it easier to manage the property.
● Properties with a strong potential for appreciation over time. This can help increase the value of the property and potentially generate a larger return on investment if you decide to sell it later.
● Properties that are located in areas with a stable economy and job market. This can help ensure that there is a consistent demand for rental properties and that your investment will be more likely to hold its value over time.
Overall, it’s important to do your research and carefully evaluate potential investment properties before making a purchase. Additionally, it’s a good idea to work with an experienced real estate agent or investment advisor who can help guide you through the process and provide valuable insights and advice.
Below Market Value Fixer-Uppers
For first-time real estate investors, I would recommend investing in small multifamily properties. These typically consist of two to four units and are a great way to start building your portfolio. They offer the opportunity to generate income from rent while also providing a hands-on learning experience. You can manage the property yourself and gain valuable insight into how the rental market works.
Another option is single-family homes. These provide more stability than multifamily properties since you don’t have to worry about multiple tenants or leases at once. You can focus on one tenant and build relationships with them over time, which can lead to long-term success as an investor.
Finally, I would suggest looking for fixer-uppers in desirable neighborhoods that you can purchase below market value and then renovate for a profit. This strategy takes more time and effort but can be very rewarding if done correctly.
Vacation Rentals and Senior Neighborhood
First-timers should look to invest in an area local to them. In addition to understanding the market near them, investors need to consider the end goal. Are you flipping the home for resale, or are you going to lease and hold, meaning keep the property as a rental? Defining the target first is essential to finding the right property. What’s the difference? Are you looking for a quick return or a long-term passive income? My top three picks for new investors are:
1. Multi-family homes. Seek out fully occupied long-term tenant homes. This will be a passive income as a lease and hold.
2. Vacation rentals. Look for properties near rivers, lakes, and vacation destinations and use them as AirBnBs, VRBOs, and your own personal vacation home.
3. Your senior neighbor. Don’t neglect the senior next door. Oftentimes families do not want to deal with cleaning out properties and selling when mom and dad need to downsize, move to a nursing home, or pass. These homes typically will need to be renovated, but they offer the highest return. These properties are typically some of the most desirable properties for other seniors (who have spent their lives making renovations and are over it!) or their baby boomer children who have absolutely no desire or idea how to fix and update a home.
Move-in ready homes that are updated are still on the hit list of homes that are selling with multiple offers and over asking price due to scarcity and demand. This will be a flip for a quicker return on investment.
As a real estate agent, the top three biggest new investor mistakes are:
1. Not knowing the area. Pulling “numbers” in a city or zip code but not knowing the intricacies of the exact location. This will skew numbers right at the onset. Perhaps the averages are true for the “zipcode,” but you may be in a block of the neighborhood where all the homes are condemned and in a depreciating area where it will be hard to resell.
2. Not having a clear picture of ARV. Not knowing what the resale value is after renovations or having a skewed number because you’re unfamiliar with the location often leads first timers to invest in the neighborhood. Just because you purchase a home for $20,000 and put $80,000 into renovations does not necessitate a $100,000 resale. A lot of first timers lose money on their first deal because they over-improve the property for the location.
3. Not doing a property inspection. Investors tend to be cash, with no inspection buyers to lock in prime property. Doing this puts the investor at risk for some major element repairs that are going to cut into their bottom line. Pitfalls typically are foundation issues, electric issues, and major elements such as requiring a new roof, HVAC, etc.
Townhouses or Student Housing
For a first-time investor in real estate, investing in properties may be a thrilling and lucrative activity, but visiting properties helps to decide. Making wise decisions is crucial since choosing a property to invest in can have a big impact on an investor’s success. We’ll talk about a few of the investments that are best for beginners in this article.
1. Single-Family Residences:
● One of the most popular types of real estate for novice investors is single-family homes. They provide a number of benefits, including simplicity in management and a consistent flow of money.
● They also frequently increase in value over time, generating returns on investment over the long run.
● For investors who don’t want to deal with several renters, single-family houses are a great option.
● When compared to more expensive commercial properties, these properties are also rather inexpensive.
● Buying a single-family house is a terrific way to start expanding your real estate portfolio, producing income, and building equity.
2. Duplexes or Triplexes:
● Duplexes or triplexes mean properties with two or three apartments.
● Here you can stay in one apartment and rent the other to earn rental income makes it more accessible to start investing.
● These homes appeal to tenants since they are frequently found in desirable areas.
● The benefits of purchasing a duplex or triplex include the potential for higher rental revenue.
● When compared to larger commercial properties, duplexes or triplexes attract more novice investors.
3. Condos or Townhouses:
● Condos and townhouses can be viable options if you want to invest but do not want to maintain them and upkeep safe properties.
● These residences are part of a bigger complex and could provide amenities like swimming pools or exercise facilities.
● Also, they could cost less to maintain and require less upkeep than single-family homes do.
● A more cost-effective method to start investing in real estate and generating rental income is by purchasing a condo or townhouse.
● The homeowner association costs that apply to these homes, which can be expensive, must be kept in mind.
4. Student Housing:
● For first-time real estate investors, investing in student housing might be a lucrative choice.
● Housing for college students is constantly in demand, and rental homes close to campuses are frequently in great demand.
● This kind of investment often has lower vacancy rates and can produce steady rental revenue compared to others.
● Investing in student housing requires higher control because it is difficult to manage and has a greater turnover rate.
● Ensuring the house is situated in a desirable area close to the university is also crucial.
5. Vacation Rentals:
● Particularly in well-known tourist areas, vacation rentals can generate a consistent income.
● These homes can be utilized by the owner for private vacations and often bring in more money from rentals than long-term rentals.
● Investing in holiday rentals involves more management and maintenance compared to other estates.
● Operating a vacation rental may also be subject to additional rules and charges.
● As a result, it is crucial to learn about local laws and be ready to devote the required time and effort to managing the property.
In conclusion, those who are new to investing in real estate can do well. The success of an investor can be significantly influenced by their choice of property. The budget, individual preferences, and long-term objectives should be taken into account for the decision. New investors can make good decisions and create a profitable portfolio by doing research and collaborating with experts.
HUD Homes and Turnkey Rental Properties
Homes held by the Department of Housing and Urban Development, or HUD, are referred to as HUD homes. This ownership takes place when an owner can’t pay their FHA mortgage and the property gets foreclosed. Then, HUD tries to resell that property, and they prioritize owner-occupant buyers and real estate investors while doing so.
For first-time investors, foreclosed homes are excellent investment opportunities as they are generally sold below their market value. However, lenders often hesitate to finance these investments as they possess high risk. Therefore, this investment is best for first-time investors who have enough cash to invest.
Turnkey Rental Properties
Turnkey rental properties are renovated real estate units that you can purchase and then rent out immediately. There are property investment companies that are specialized in turnkey properties, and they are responsible for developing these rental properties. Some developers even search tenants for you and offer you the property management services you’d need.
For beginners who want to get into the real estate market but lack the time and experience, turnkey rental properties can be a smart investment to go for. This is an investment that helps you to learn how to minimize risk when it comes to investing in a rental property.
Flipping Distressed Houses
Investing in distressed houses has increasingly become a popular choice for first-time real estate investors. Such properties are often undervalued, allowing investors to buy them at a discounted price and then make improvements to increase the property’s value. This provides an excellent opportunity for investors to generate a significant return on their investment within a relatively short period of time.
It’s important to assess the market and competition thoroughly before making any decisions. Having knowledge of the neighborhood and conducting research into the local housing market can help ensure that you find the best possible deal. Additionally, it is important to consider available financing options and create an accurate budget before investing in distressed houses.
Collective Real Estate Projects
Collective Real Estate Projects
A new investor in real estate is yet to understand the market algorithms and buyer behaviors. It is also understandable that many of these first-timers don’t have a lot of capital to put in. They can try investing in any property that is being purchased by pooled capital. This way you’re putting in less money and being exposed to lower risk because you are not the only ones to decide or make amateur decisions.
Apartments in Official or Institutional Locations
States or neighborhoods that have a lot of corporations and colleges are great for rental businesses because single students and job-holders are always in search of a place to live. A first-timer can try buying a small apartment and leasing it for a minimum price that justifies an acceptable return. Later, he can use the gain from here to invest in more rental units or even sell them for a good profit.
I recommend first-time investors purchase a condo when it comes to real estate. These are easy to manage and help you get a feel for the real estate market. The condo association typically takes care of any external repairs, leaving you responsible only for the interior. This is less expensive and you have a good idea of how to proceed with future investments.
Small Multi-Unit Apartment Buildings
As a real estate expert, I highly recommend that first-time investors focus on three main property types to maximize their potential returns and minimize risk: single-family homes, duplexes or triplexes, and small multi-unit apartment buildings.
● Single-family homes: These properties are an excellent starting point for first-time investors due to their high demand, straightforward financing options, and ease of management. When selecting a single-family home, it’s crucial to look for properties in neighborhoods with strong rental markets, low vacancy rates, and good schools. Additionally, consider homes that require minimal maintenance or renovations to keep your initial investment costs low.
● Duplexes or triplexes: These properties provide the perfect balance between the simplicity of single-family homes and the potential for increased cash flow. As a first-time investor, owning a duplex or triplex allows you to live in one unit while renting out the others, significantly reducing your living expenses and mortgage payments. Look for properties in desirable neighborhoods with low vacancy rates and solid rental histories.
● Small multi-unit apartment buildings: For those looking to scale their investment quickly, small multi-unit apartment buildings (5-20 units) can offer the potential for higher returns and increased cash flow. However, these properties require more hands-on management and maintenance. It’s essential to have a solid understanding of landlord-tenant laws and be prepared to work with a property management company if needed.
● Bonus: VA Loan Benefits for Veterans If you are a veteran with access to a VA loan, you can leverage this benefit to significantly improve your investment potential when purchasing a duplex, triplex, or quadplex. By using a VA loan, you can enjoy the advantages of a 0% down payment, competitive interest rates, and no private mortgage insurance (PMI) requirements. Here’s how you can live for free and generate cash flow at the same time:
○ Purchase a multi-unit property (up to a quadplex) using a VA loan, ensuring that you meet the VA’s occupancy requirements by planning to live in one of the units as your primary residence.
○ Rent out the other units in the property to generate rental income, which can cover your mortgage payments and potentially provide additional cash flow.
○ Benefit from living in your own property without a mortgage payment, thanks to the rental income from the other units. This strategy allows you to build equity and wealth while enjoying the benefits of homeownership.
Remember, when investing in real estate for the first time, it’s crucial to conduct thorough research, network with experienced investors, and work with a knowledgeable real estate agent. By focusing on these property types and leveraging the expertise of seasoned professionals, first-time investors can confidently navigate the world of real estate and lay the foundation for long-term success.
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