There is something for everyone in real estate investment. It does not matter whether you are a beginner investor or a seasoned professional, but new investors often have several questions. The most common question is, “What type of homes should I start with?”
There is no straight answer to this question. The best home for you depends on several factors. And the type of property you should invest in depends on your financial goals, resources, talents, knowledge, or strategies you plan to use. As a beginner, you should not dabble in what you cannot handle.
When starting, you may want to work with some professionals. One great strategy is to find a skilled property manager that can help you find an investment property and then help you manage it. Often when you find a local property manager, they’ll have a good idea of what properties are best and what you can expect to get for rental income, as well as expenses you’ll have to pay to manage them.
Your first investment should launch you to bigger ones and give you positive results and experiences. However, you should only invest in what you can handle. In this article, we will explain the best types of properties for beginners in real estate investment.
1. Single-Family Homes or “Bread and Butter” Houses
We advise beginners with little experience in real estate to invest in single-family homes because of the ease of management, demand, resale value, and affordability.
Single-family homes could be standard three-bedroom apartments with two bathrooms. These houses appeal to several people. Depending on your location, if residents prefer two bedrooms and one bathroom, you should go for such homes.
The aim is to find it affordable and easy to manage. You are sure to earn adequate income because there is a high demand for a single-family rental. Also, the mortgage for such houses has low-interest rates because lenders classify single-family homes as low-risk investments. And if you decide to use your “bread and butter” house for short-term Airbnb rentals, you will earn a higher income per night.
2. Turnkey Rental Property
Turnkey rental properties are also common among beginners in real estate investment. They are single-family units or apartments that have undergone renovations. That means you can purchase them and rent them out immediately.
There are several advantages of investing in these properties as a beginner. You may get some turnkey rental developers that will source for tenants and even provide you with property management services. It is also the responsibility of the turnkey property investment companies to prepare the rental property.
With these, you learn how to minimize the risk of owning a rental home. And if you are a beginner investor who requires exposure in real estate but does not have the time and experience, we recommend investing in turnkey rental properties.
3. HUD Homes
When homeowners are not able to pay their FHA mortgages, the properties become foreclosed. Such properties now belong to the Department of Housing and Urban Development (HUDs) who then resell them below the market value. Occupants and real estate investors are preferred buyers.
The benefit of buying these homes as a beginner is that you get the property at a cheaper rate. But due to the high risk of investing in foreclosed houses, lenders are reluctant to finance them. But if you are a beginner with enough money to purchase such properties, you should go for these houses. They are very affordable, and they will help you to maximize your profit.
4. Commercial Real Estate Properties and Real Estate Investment Trusts (REIT)
Commercial properties are more expensive and complex to manage. That is why a beginner investor will often shy away from it. But you can still invest in commercial properties as a beginner.
The best way to go about this is by selecting and buying stocks from a Real Estate Investment Trust. When you invest in these companies, they will develop and manage commercial properties while earning your income.
5. Multi-Family Homes
Yes, you can invest in a certain type of multifamily home as a beginner. The best option to go for is a duplex. Duplexes are multi-family homes with two separate units. Owning a duplex means that you have a multifamily apartment for only two families. The benefit here for beginners is that you enjoy a higher rental income and easier financing if you decide to stay in one of the units for a year.
The down payment that lenders will require in the owner-occupied rental home may be as low as 3.5%. After one year, you can vacate the property and rent out both units. And that is another method of maximizing income for beginners.
We do not advise you to go for other types of multifamily units apart from a duplex. That is because other multifamily units are costly, competitive, and require more management experience.
As a beginner investor, your first investment should aim to keep the risk low while maintaining flexibility. The homes you choose should give you consistent and desirable results but with lesser risks. Once you have your first rental property, you’ll need someone to help you manage it. Contact us today to reap the benefits of hiring the industry leader, Real Property Management Affiliates!
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