Getting your real estate investment career started as a novice can be challenging. There are a few significant real estate questions you will need to answer for yourself. For example, how will you finance the investment property? What will be your investment strategy? And, the topic of this blog: What are the types of property you should be targeting?
Related: Financing a Rental Property: What’s the Best Way?
Real estate is a very diverse endeavor, so there are many, many kinds of investment properties out there. Not all types of property are created equal, however. This is especially true if you are a new real estate investor. For that case, we’ve complied the best types of property you should consider investing in as a novice.
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Single-Family Homes
When it comes to residential real estate investing, two candidates are constantly competing for the first place. One of those candidates is single-family rentals, or SFRs.
Whether you are just starting out or expanding your real estate investment portfolio, SFRs are an excellent choice to invest in. Chances are you can make high positive cash flow with these rental properties. This holds true in virtually every housing market, even in the hottest ones. SFRs are mostly on the cheaper side of prices, too. Paying for an SFR is not too difficult as well. For instance, when it comes to down payments, most SFRs only require the 20% minimum. Their low property price, coupled with their easy financing, makes investing in a single-family home among the best types of property for new real estate investors.
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Multi-Family Homes
The other type of residential real estate that is neck-and-neck with SFRs for the top spot is multi-family homes. Large multi-family homes with multiple units, like apartment complexes, can be difficult for new investors. Smaller multi-family homes, like duplexes and triplexes, are the choices to go with, and the choices of our discussion.
Multi-family properties are a great choice for beginners because, just like their counterpart, SFRs, they generate high positive cash flow. One reason this is the case is that multi-family homes have more than one housing unit, which increases the rental income when all units are rented out. Speaking of housing units, multi-family homes have cheaper property prices per unit. If you are a beginning investor and do not have your own place to stay, you can keep one housing unit for yourself and rent out the other(s). And lastly, multi-family homes have the possibility to quickly appreciate, which increases your return on investment if and when you decide to sell.
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Airbnb Rentals
Single-family homes and multi-family homes are types of property normally used for long-term residential real estate. If you are interested in its opposite, short-term real estate, investing for Airbnb might be right for you.
Related: Why invest in an Airbnb investment property over a traditional?
One of the most annoying aspects of long-term real estate is receiving late rent. If this problem pursues, an investor’s cash flow can flip from a positive to a negative. Even worse, an investor may have to deal with legal action, which can lead up to a strenuous eviction. With Airbnb, this is never a problem. The platform guarantees rent payments 24 hours after a guest has checked in an Airbnb rental property. Airbnb does even more for tenant-landlord relations. With Airbnb, you are less likely to deal with bad tenants. Airbnb’s review system allows host and guests, i.e., investors and tenants, to learn about the other party objectively before they decide to do business.
A huge reason why Airbnb is among the best types of property for novice beginners is its investment flexibility. This strategy can be used as a passive or full-time investment, opening up your options. The obvious catch, however, is that you own an investment property. Overall, Airbnb is a superb choice for aspiring investors to earn high returns and to get their feet wet in real estate.
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Commercial Investment Properties
Residential real estate is not the only type of real estate out there. Instead of renting a residential rental property for tenants to reside in, you can rent out a commercial property for businesses to operate in. This is the essence of commercial real estate.
Commercial real estate is great for beginners because of its high return on investments. It’s estimated that most commercial properties have a yearly return of 6-10% of the property price. One reason this happens is because of the longer leases that normally accompany commercial real estate rentals. It’s harder for a business to move out than for an individual tenant. Also, these types of property tend to be more passive investments, while still generating high rental income.
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Turnkey Properties
Turnkey properties are rental properties that are sold by companies or individual sellers that can be rented out immediately after purchase. From this statement alone, you can probably see why it’s a great choice for new investors.
Related: Why Investing in Turnkey Real Estate Investment Properties Makes Sense
Turnkey properties are managed by companies. Virtually every management duty, ranging from finding tenants to upkeeping the property, is performed by the company. This significantly lowers stress for investors and is excellent for new investors, as they can still make high rental income with little management duties. Reduced obligations for the investor means reduced risk, another huge plus for new real estate investors. Turnkey properties are among the best types of property for beginning investors that we can’t recommend enough.
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Real Estate Investment Trusts
Real estate investment trusts (REITs) are another way to invest in real estate properties through companies. Just like turnkey properties, they are an excellent way for aspiring investors to invest in real estate properties.
These types of property are known for their high rental yields. That’s because REITs are required by law to allocate 90% of their dividends to linked investors. Along with the high yields are the simple taxes, another major benefit of REITs. Just like turnkey properties, these properties are passive investments, allowing you to make money while not being too involved with the property.
There you have it, these were the types of property best suited for new real estate investors. A certain type will be more appealing to you depending on your goals and situation. Regardless, you will need to research these properties before investing in them. How can you do that? By starting your trial with Mashvisor, you can have access to the most comprehensive search on residential investment properties in the US!