When starting a career in real estate, the first question to pop into your mind is: What is the best real estate investment for you as a beginner investor?
It is important for you to think carefully about what type is the best real estate investment for you. Take into consideration that the real estate business is diverse, and there are plenty of investment types and opportunities for you as a real estate investor. You could either choose to invest in a commercial real estate property, retail real estate investment, mixed-use real estate investment, or even residential real estate investment.
Keep in mind, as a beginner real estate investor it is all up to you and the investment goals you have in mind. However, the best real estate investment might be a residential real estate property due to the lower risks and easier financing strategies associated with it. Starting with a safer investment for a beginner real estate investor is the best choice. In this way you could explore the real estate market as safely as possible.
Investing in residential property rentals means that you rent out your investment property to people who are going to pay you rent in order to live in it. The duration, of course, depends on the lease agreement, which is usually 12 months in the US. In terms of the property types, they could be houses, apartments, or even vacation homes.
There are two primary types of residential real estate properties. There are single-family homes and multi-family homes. We are going to talk about both types and explain why you should invest in either of them.
Related: What Are the Major Incentives to Buy and Rent Residential Properties?
First, single-family homes
Investing in single-family homes might be the best real estate investment for you as a beginner investor. Here are some of its pros:
- Cheaper than other properties: Investing in single-family homes as a beginner investor is, in fact, the best real estate investment for you in terms of price and affordability. This is because single-family homes are cheaper than duplexes or apartment complexes, let’s say. It is also a good choice if you are considering taking a bank loan.
- Fewer taxes and fewer management costs: Single-family homes have fewer property taxes than other types of real estate properties. Other real estate properties have more taxes, especially, if you are working with commercial real estate. Management is another aspect to consider when investing in single-family homes. They need less maintenance in general. This is especially if you find good tenants who will make sure to take care of your rental property. Thus, you should not spare the effort to run a background check on your potential tenants.
- Better resale value: This is one of the reasons why single-family homes are the best real estate investment strategy for beginner investors. They get a better resale value as time passes. Of course, it depends on a few factors such as the location and the state of the rental property.
- Cash flow: When investing in single-family homes, it is guaranteed to have higher and more positive cash flow. After all, you can charge your tenants extra for utilities unlike other types of real estate properties.
- Easier to sell: If you consider selling your investment property after a while, you will always find buyers for single-family homes, whether home buyers or other real estate investors. Selling a single-family home is usually faster than selling any other type of real estate property. In addition, you benefit from better real estate appreciation rates, depending on the city, location, and facilities.
- Privacy: Many tenants prefer rental properties that provide more privacy, which means more tenant turnout to your investment property.
- Higher occupancy rates: In addition to all of the above, single-family homes enjoy higher occupancy rates than other real estate property types. Besides, you are less likely to have any problems with your tenants.
Related: What Are the Best Cash Flow Investments?
Second, multi-family homes
Yet another best real estate investment strategy is multi-family homes. They are either apartment buildings, duplexes, quadruplexes, or even townhomes – in other words, buildings with multiple rental spaces. Here are some of the advantages that make multi-family homes the best real estate investment strategy:
- Easier to finance: Though purchasing multi-family homes is more expensive than purchasing single-family homes, they are easier to finance. If you are considering taking a bank loan to buy an investment property, it is easier to get it for multi-family homes. Occupancy rates are another aspect to consider. Let us say that you purchased a building with 20 apartments. You have 15 occupied and 5 vacant apartments. This means that you have an occupancy rate of 75%, unlike single-family homes that have a 100% occupancy rate when they are occupied and 0% occupancy rate when they are vacant. Therefore, investing in multi-family homes is less risky, especially, if you are financing them with a bank loan.
- Faster growing real estate investment portfolio: This is indeed the best real estate investment for those real estate investors who want to grow their real estate investment portfolio faster. It is easier and more time efficient to grow as a real estate investor with multi-family homes than with single-family homes. Indeed, if you are getting a bank loan to purchase an investment property, it is easier to purchase one apartment building that the loan covers instead of buying a few separate housing units and getting separate loans for each.
- Easier to manage: If you are considering hiring professional property management services, it will be more financially convenient for you to own multi-family homes. Professional property management services usually charge you a percentage of the rent in return for taking care of your investment property. They take care of the maintenance and repair work, collect the monthly rent from tenants, and work on eviction procedures when needed. This means less management cost since one property management company is going to take care of the whole business for you.
Related: How to Find the Best Investment Property Using a Heatmap
Bottom line
You, as a real estate investor, are the one to make the investment decision. It is up to you to choose the best real estate investment for you. Just make sure that you have your investment goals set clear. You should also make sure that you have a solid investment plan that you are going to work according to. Calculate your finances and make sure you have a good budget to spend since it takes time to establish a good business in real estate investing.