Selecting your first properties is very important step. If you choose poorly
in the beginning, your real estate experience may be bitter.
Learning what to
look for and when to buy a property are essential to your success. No cookie
cutter approach works for all investors. However, most first-time investors do
best when they start with small apartment buildings. Duplexes can be good
investments for investors who will live in one of the units, but they generally
don't produce enough income to pay for themselves when they are not owner
occupied. Buildings with four rental units typically are ideal first investment.
The cost of these buildings is usually manageable, and the financing often is
quite attractive because the buildings can be purchased with as little as a 5%
down payment when the purchaser will live in one of the units.
A four-unit building offers many advantage over duplex. If you don't plan to
live in the apartment building, you have four rental units to pay for the
property. If one unit goes vacant for a while, you still have three units to
help pay the mortgage. It's possible to buy buildings where three units cover
your costs and fourth unit represent profit. Creative financing usually is not
very effective with four-unit buildings because the loans generally are sold on
the secondary market and must meet strict criteria.
Triplex are buildings with three rental units. Normally, they are better
than duplex, but not as good as four-unit buildings. When you make your choices,
don't be blinded by the sales price. A cheap buildings is not always good
bargain. You have to run the numbers on any property to see whether it is viable
purchase.
A lot of investors consider buying a single-family house, condo, or co-op as
an investment property. This can be okay if you will live in the home, but a
single dwelling generally is a poor investment for purely financial purposes.
The cost of most homes is too high to expect the rental income to cover the cost
of mortgage.
