As a first-time property investor, you may need help with financing and finding a rental property that matches your experience level. Most new investors find it hard to meet lender’s requirements for investment property loans. If they eventually get the loan, most new investors will spend the money on the wrong investment property.
For more on rental property terms and other concepts, learn about property investing terms.
As a new investor, the kind of home you buy matters. This single decision can mire you into endless difficulties that derail your investment journey, or it can accelerate your success. As a first-time real estate investor, you want to buy a home that is easy to manage and will let you scale investments quickly.
The home should have the following qualities: there should be high demand for it; It should be in a location with a large pool of potential renters; it should be reasonably priced; it should be easy to sell, and you should not have a lot of difficulty keeping it in good shape. What kinds of investment properties meet these criteria?
4 types of homes that are perfect for beginner investors and why
As a beginner investor, your first property should offer consistent results with low risk and more flexibility. You will get these benefits with the following four types of homes.
1. Single-family homes
The standard three-bedroom home with two toilets is the number one type of property for new real estate investors. They are easy to manage, in high demand, have high resale value, and, most importantly, affordable. Depending on the location, two-bedroom single-family homes with one toilet may be the preferred option for renters.
Unlike multi-family homes, there are no common areas to maintain, so maintenance costs for these homes are significantly lower. Additionally, because a single-family home feels more like a natural home than an apartment, tenants typically retain the rental for a long time and take care of the building as if it were their property.
A final reason to invest in this property type is that mortgage lenders love them. You can finance the home or find a buyer when you want to sell it.
2. Multi-family homes; duplex houses
The great thing about buying a duplex house is that you can incorporate the owner-occupy strategy into your investment plan. A duplex is two single-family homes on a single property. These homes are great for beginner investors because they qualify for FHA loans. That means you can buy your property with as little as a 3.5% down payment.
But this is only possible if you are willing to live in one of the units as an owner-occupier. Typically, you are expected to stay in that home for one year before you can vacate and lease it out. The implication is after just one year, you can double your rental income without spending more money to buy a new rental property.
3. Turnkey rental property
Buying a turnkey property is like buying a ready-made rental property off the shelf. These types of homes are sold by companies that specialize in helping aspiring property investors get started with real estate investing in a way that poses minimal risk. They look for homes with the most significant potential as a profitable rental property.
After buying that home, they renovate it and, in some cases, find a tenant. They then turn around and sell that rental property to an investor. The advantage of buying a turnkey rental property is that the home is profitable from day one and already has a tenant. Sometimes, the turnkey company will even manage the house for you.
4. HUD Homes
HUD homes are owned by the Department of Housing and Urban Development (HUD). These are homes whose owners defaulted on their FHA mortgages, and the properties had to be foreclosed on. HUD homes are an excellent option for beginner investors because the HUD usually sells these properties below their market value. Furthermore, they prioritize owner-occupant buyers first and then property investors.
Buying a HUD home allows you to get it cheap while maximizing profits from the rental income on the home. The only challenge you will have with these homes is that lenders are reluctant to finance them. If you have enough cash to finance the property, a HUD is a great way to get started as a property investor.
Since starting with all four options is impossible, which of these four homes is best for you? That depends on your investment goals and the specific details of your situation. It might be a good idea to talk to an expert before you make your final decision.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.