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What Type of Property is Best for First Investment?

Starting your journey as a real estate investor can feel like stepping into uncharted territory, especially for those taking their initial plunge. Frequently, we engage with aspiring investors who find themselves overwhelmed by the vast unknowns of the real estate realm, such as the intricate jargon, the ever-shifting market dynamics, the financial nuances, and the inherent risks and rewards.

If this sentiment resonates with you, let me offer you a comforting truth: real estate investing is not an arcane science reserved for a select few. It’s an avenue open to anyone willing to seize the opportunity—all it takes to acquire a modest savings cushion and a bit of foundational knowledge.

What Type of Property is Best for First-Time Investment? 

For beginners in real estate investment, a recommended starting point is typically a single-family dwelling. Such properties often attract tenants with longer-term rental commitments, and families or couples are often perceived as preferable tenants due to the assumption of greater financial stability and regular rent payments.

Our suggestion for first-time investors is to begin with the purchase of a single-family home in a suburban area featuring a well-regarded public elementary school. This is advantageous because families consistently seek homes in good school districts, making this property type a reliable long-term investment.

The turnover of tenants tends to be lower than average, as families with school-age children typically prefer to establish a more extended residence, often renewing the lease at an increased rent each year.

You’ll see some monthly cash flow from rent, but the real jackpot is in that resale game. Sure, the mortgage might flex on you a bit, but that equity boost is worth it. Upon selling the property after a few years, investors can realize a substantial return that can be reinvested in subsequent properties.

Other Best Types of Properties for First-Time Investors 

When we talk about primo investment picks for beginners, single-family homes often grab the spotlight, but there are other options that first-time investors should have on their radar.

Condos Near Universities 

Housing around colleges and universities is always going to be in crazy demand. Rental properties generally perform well when they are within walking distance of educational institutions, regardless of their size, be it studios, one-bedroom apartments, or larger condos.

But if you’re eyeing a studio, go big or go home, like something over 500 square feet. The smaller ones? They’re a tough sell and rent, trust me.

Properties with Two Separate Entrances 

Search for a property that allows legal leasing to two long-term tenants, such as one featuring a mother-in-law suite or a slick setup like a furnished garage or basement with its own entrance. Single-family homes flexing with additional dwelling units (ADUs) or properties that can be split into two rentals are in high demand right now.

Go for one that’s legal in construction and zoning, and expect to double up on the income with just one purchase. Just a heads up, ensure each unit is leased for over 30 days at a pop. Trying to rock short-term rentals might land you in some legal hot water in most cities.

Real Estate Investment Trusts (REITs) 

For novice investors, a REIT stands out as an excellent choice, as it eliminates the need to purchase or manage a property actively. As an individual player, you can snag shares and rake in dividends from real estate assets on an exchange.

REITs are generally considered low-risk, high-liquidity investments, providing effective diversification and potentially lucrative returns. It’s a smart move for newbies, especially if you have limited savings, are not keen on property management, or are a bit jittery about going all-in in one place.

Tips for Buying Your First Investment Property 

  • Before immersing yourself in real estate property investing, consider these top-tier moves:
  • Assess your commitment to being a landlord, which demands serious time and effort.
  • Utilize tools like Zillow’s Rent Zestimate or Rentometer to gauge expected rent and compute cap rates or ROI.
  • Eliminate high-interest personal debt to save on a down payment.
  • Enhance your credit score by paying bills on time, reducing credit card balances, and refraining from opening new accounts.
  • Explore long-distance real estate investing if properties in your local area are financially out of reach.
  • Forge connections with professionals like plumbers, electricians, and maintenance workers to streamline property management, facilitating effective handling of maintenance and tenant relations.
  • Recognize that continuing ownership costs encompass more than just your mortgage, encompassing leasing and property management fees, regular maintenance and landscaping expenditures, and property and rental taxes.
  • Prioritize cash flow over appreciation unless your investment involves rental real estate with exceptionally high returns.
  • Precisely compute repair and ownership expenses, property valuations, and fair market rental rates.

While the first step might seem daunting, it’s just the beginning of a thrilling journey into the real estate investing world. With every property key turned, you can open doors and unlock the potential for a lucrative and fulfilling future.

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