What are the best types of real estate investments for beginners? There are so many types you may not know where to start. Assuming you weren’t born a Rockefeller or Hilton your ability to obtain financing may have a lot to do with where you begin. Because much has been written on creative real estate financing we won’t get into it today. If you’re an average Joe like me who wants to start investing in real estate Single Family Homes, Non-Commercial Multi-Family and Commercial Real Estate are all worth considering.
Single family rental houses are probably the most common type of real estate investment. Typical advantages of single family investments include:
- They’re relatively easy to find because most housing is single family
- Simple management – you only have 1 tenant
- Large pool of purchasers when you’re ready to sell. Homeowners or other investors may purchase the property
Keep in mind that you’ll be covering the cost of all the expenses if you don’t have a paying tenant. Without significant reserves those costs can quickly take a toll on your personal finances.
Before we begin this section we need to make a distinction. Multi-family properties containing more than 4 units are considered commercial. Properties discussed in this section are multi-family properties ranging from 2-4 units. A few things to know about these properties include:
- They’re harder to find and may be in less desirable areas
- They’re more management intensive – more units equals more tenants and more maintenance
- Potentially higher returns because of multiple units
- Potentially lower risk because of multiple income streams.
I think this is a great place to start investing if you can find an affordable deal. You only have one building to maintain but you have multiple revenue streams. Yes, there is more management involved and your tenants may be more transient but there are more of them to cover your costs.
Commercial property covers many different types and classes. This is not a viable starting point for most investors, but it’s worth considering as a long term goal. In the commercial space, multi-family properties and self-storage are attractive to many and worth investigating. These may be great investments if you don’t mind starting small and working toward larger more desirable properties. A few things to know about these investments:
- Even small properties may cost upward of $500,000 dollars.
- They can be management intensive
- Returns can be significant
These can be life-changing investments if purchased right and managed well. You may think this level of investment is unattainable but you might be surprised what is attainable if you start small, invest diligently and grow your business.
I believe the property types we’ve covered today are the best types of real estate investments for beginners. Each has pros and cons but all can be profitable. I’d encourage you to investigate all three. Whichever you choose, I would encourage you to learn it well, improve your systems and always dream big. If you invest wisely, work hard and dream big, you just may be surprised where you end up!