What makes real estate a popular investing strategy among investors is the variety of types of real estate investment properties it offers. There are single-family homes, multi-family homes, condos, and many more options! Whether you are a beginner real estate investor or a professional one, a millennial or a pensioner, real estate investing offers something for every real estate investor. In this article, we shed light on the best types of real estate investment properties for first-time real estate investors.
Is Real Estate Investing Really for Everyone?
There is a widespread misconception that real estate investing is not for everyone or you need a lot of money and experience to buy your first investment property. While it is true that some types of real estate investment strategies are not suitable for beginner real estate investors, such as real estate wholesaling, there are other types of investment strategies that suit novice real estate investors. The following types of real estate investment strategies are those that we believe to be the best options for beginner real estate investors.
Investing in Single-Family Homes
For beginner real estate investors with little experience, investing in single-family homes is one of the most common types of real estate investment strategies. When it comes to single-family vs. multi-family rentals, the former ranks first in terms of affordability and ease of property management.
Investing in single-family homes is the easiest way for beginners to enter the real estate investing world. The high demand for single-family rentals makes it a reliable income property in any real estate market. Furthermore, mortgage lenders classify single-family rentals as low-risk investments, and thus offer mortgages for relatively lower interest rates.
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A single-family rental property in a prime location can be used as a short-term Airbnb rental property as well as long as regulations permit it. With an Airbnb rental, you can earn a higher rental income per night under the right conditions.
Related: How to Invest in Single-Family Homes: Follow These 5 Steps
Investing in Multi-Family Homes
Multi-family properties are generally not the best types of real estate investment properties for beginner investors. They cost more and require more experience in closing deals, as the competition is stronger in the multi-family market. However, there are certain multi-family homes that can be an excellent option for you as a beginner real estate investor, and that is buying a duplex!
When a multi-family home has only two units, it is called a duplex. Duplex investment properties normally have two separate units, which means that when buying a duplex, you actually own a multi-family home for two families to live in. As a beginner real estate investor, owning a duplex sounds like a great idea. You can enjoy higher rental income and if you decide to live in one of the units, easy financing. Owner-occupied loans require a low down payment (as low as 3.5%) but on the condition that you live in your multi-family investment property for a certain period of time (usually up to one year). After that, you can move out and rent out the two units for the maximum rental income.
Related: What You Need to Know Before Buying Multi-Family Homes for Investment
Investing in Turnkey Rental Properties
Among the common types of real estate investment properties for beginners are turnkey rental properties. A turnkey rental property is a renovated real estate unit (single family or apartment building) that you can purchase and immediately rent out. Property investment companies that specialize in turnkey properties are responsible for preparing the rental property. Some turnkey rental developers even find tenants for you and offer property management services.
Turnkey rental properties are suitable for beginner investors and those who desire exposure to the real estate market but lack the experience or time to renovate an investment property. Out of all types of real estate investment strategies, a turnkey property is one of the few that allow you to learn how to mitigate risks when it comes to owning a rental property.
Investing in HUD Homes
HUD homes are real estate properties that are owned by the Department of Housing and Urban Development (HUD). This ownership takes place after a property is foreclosed when the owners cannot pay their FHA mortgage. HUD then tries to resell the property, prioritizing owner-occupant buyers and then real estate investors.
For beginner real estate investors, investing in foreclosed homes seems like a great idea since they are sold below their market value. However, money lenders are skeptical when it comes to financing foreclosed homes as a real estate investment due to the high risk of investment. Therefore, if you have enough cash to buy a HUD home, then you should really consider this investment strategy. Their affordability can make them a great first rental property.
Investing in Commercial Real Estate Properties and REITs
Beginner real estate investors usually prefer residential real estate properties over commercial properties. The latter is more complex to manage and often requires large sums to invest in. However, investing in commercial real estate properties as a beginner is possible through REITs. Real Estate Investment Trusts are companies that develop and manage commercial properties. All you have to do is pick a REIT and buy its stocks.
How to Find the Best Types of Real Estate Investment as a Beginner
The best types of real estate investment properties for beginners are those that offer excellent investment conditions. A high cap rate and cash on cash return are what you should be looking for in your first investment property. If you prefer an Airbnb investment strategy, then you should watch out for the occupancy rate.
The investment property calculator is your best friend when it comes to evaluating a real estate investment. This innovative real estate tool provides you with all the metrics you need to assess the profitability of an investment property. Mashvisor’s own investment property calculator takes things further by helping you decide which rental strategy to follow.
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Related: Buying Rental Property Calculator: The First Thing to Do in Real Estate Investing