General Rule #1 for Buying Your First Rental Property: Start Small
Similar to most other jobs, real estate investing is largely learning-by-doing. Regardless of how much you think you know about investment properties and how much reading/research you have done, you are never really ready for being a real estate investor until you try it out. Trust us, investing in real estate is a lot of hard work – being a landlord is both an investment and a job. You will need to manage an investment property, deal with tenants, keep up with property tax and mortgage payments, etc etc. Thus, it is always better to start with a small income property to try out how it is. Moreover, choosing something small when buying your first rental property should generally mean that you are making a relatively small investment, which will make financing more manageable as well. Having said that, you basically have one of two options:
1. A Single-Family Home
A single-family home is probably the cheapest option for buying your first rental property as it will cost less than a multi-family property, generate less tax, require less maintenance, and avoid problems among different tenants occupying the same property. If you decide that a single-family home is the right option for you, check out Mashvisor for thousands of actual properties available throughout the US.
2. A Small Multi-Family Property
There are some real estate experts who highly recommend starting with a duplex or a triplex when buying your first income rental property. The reason? It’s simple. If you are just starting with real estate investing, probably you don’t have too much money, and maybe you don’t even have your own home. If you buy a duplex, you can live in one of the units while renting out the other. Multi-family properties tend to be cheaper per unit than single-family homes, so you will be able to save on both your home and your income property purchase. Plus, it is always advisable to start investing when you are young to achieve long-term profits.
General Rule #2 for Buying Your First Rental Property: Location Is Key
It would be silly to say that the type of property you purchase as your first income property does not matter. However, the importance of the location of this investment property can never be overestimated either. In real estate investing, location is key. Regardless of whether you decide to go for a short-term investment focusing on the positive cash flow or for a long-term investment focusing on real estate appreciation, the profitability – short run and long run – of your income property depends largely on the location. Most real estate investors would recommend buying your first rental property close to home. This strategy has many benefits, true – you are more likely to be familiar with the market, visiting your property will cost you less, choosing tenants will be easier, and so on. Nonetheless, don’t ignore out-of-state real estate investing when buying your first rental property, especially if you live in an overcrowded or overpriced state.
General Rule #3 for Buying Your First Rental Property: Check Your Real Estate Comps
Real estate market analysis is something that you should be able to do before you start thinking about buying your first property. You need be able to obtain real estate comps in order to see whether any income property is a good or a bad choice in any particular city and neighborhood. Luckily for you, Mashvisor’s investment property calculator eliminated the need to actually gather data and calculate comps. Instead, Mashvisor’s rental property calculator supplies you with ready figures on median property price, rental income, CoC return, cap rate, and occupancy rate at the neighborhood and the property level. What is even better is that all these numbers are disaggregated for traditional and Airbnb rental strategies.
General Rule #4 for Buying Your First Rental Property: Choose Your Strategy
When deciding on what’s the best kind of income property for you as a new real estate investor, it is very important to choose your property based on your real estate investing strategy.
1. Buy and Hold
Buy and hold is one of the most standard forms of real estate investing, and it’s an ideal strategy if market conditions are improving. This is an excellent choice for new real estate investors as it will supply you with an additional source of income, which should ideally be enough to cover the mortgage payments. In many cases, the rental income will suffice to also set some money aside or start paying for a second income property.
If you go for this option, then you should check if traditional or Airbnb is the better strategy in your neighborhood and for your property. Mashvisor’s investment property calculator will help you make this decision for thousands of properties in the US real estate market. If you decide to go for an Airbnb investment property, make sure to check out the legislation on Airbnb in your particular city.
2. Fix and Flip
Fix and flip is an excellent strategy if, on the other hand, you are not looking for a long-term commitment. It could work out well for a new real estate investor as you will not need to deal with all the disadvantages of being a landlord.
So, if you’ve decided that real estate investing is the right thing for you, make sure to do your homework and do some good research before you jump in. With the right real estate investing resources, the appropriate real estate investment tools, and sound judgment, you can easily make the right decision in buying your first rental property.