Are you a new real estate investor? It can be an exciting, stressful time as you explore your options. Here is a short article on what we believe are the best types of real estate investments for beginners to help you get your feet wet.
Real Estate Investment for Beginners #1: Single Family Homes
While these may not be the most exciting investments in the world, single-family homes are a great place to learn the ropes of real estate investing. There are a few reasons why.
- They are easy to understand. You may have already purchased several homes for personal use, so you have an idea of how the process works.
- These types of homes are abundant. Whether you’re looking in the city, suburbs or rural areas, you can find these types of homes around.
- They are less expensive than larger, multifamily units. The lower cost makes it a lower barrier of entry for you to buy and maintain the home.
One thing to keep in mind is the importance of location. You want to buy a home that’s in a great neighborhood for investing. That generally means a neighborhood with homes that are in decent shape, but not immaculate. If the homes in the area are too nice, the cost of the home will be higher and it will be harder to make a profit on your investment.
Real Estate Investments for Beginners #2: Small Multifamily Units
Another great real estate option is a small multifamily unit such as a duplex. These properties are sought-after by real estate investors because they let you generate multiple income streams without multiplying your required investment. In other words, a duplex may let you receive twice as much (100% more) monthly rent than a single-family home, but the duplex only costs 50% more than the single-family house.
The hardest thing about investing in these types of properties is finding them. Duplexes aren’t built very often, so you’ll need to keep an eye out for existing ones going on the market. One thing you can do to help keep your ear to the ground is to join a few local real estate investing groups. As you get to know people in the group, you may hear about people getting interested in selling their duplex, which gives you an opportunity to snatch it up before it goes on the market.
Real Estate for New Investors #3: Real Estate Investment Trusts (REITs)
A third option for new investors to learn about real estate investing is REITs. Investing in a REIT is where you invest in a company that owns or finances real estate properties. Investors can purchase REITs on the stock exchange.
This type of investment is a great place to start for several reasons:
- You don’t need to manage a property
- Lower upfront investment is required
- No liabilities, unlike if you own the property
- REITs often pay out nice dividends to investors
Investing in REITs won’t give you the same type of hands-on experience you’d get from owning and managing the property itself. But it does let you get started investing in real estate with a small amount of money.
If you’re a new real estate investor and want to buy a rental property, give us a call at 949-651-6300. We’d love to help you explore your options.