Getting into real estate can be a daunting task. Where do you even begin? Intriguing promises like the following encourage more and more people to begin their investment property journey each year.
“Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.” - Andrew Carnegie, billionaire industrialist
As a beginner investor, there are a few types of homes to consider to maximize your Return on Investment (ROI) and make the investment worth the time, money, energy, and efforts needed to make it a successful venture.
The first step is acquiring funding to purchase an investment property. A minimum downpayment of around 20% is often necessary to obtain a mortgage, so may mean securing an additional loan, asking friends or family, or finding other ways to come up with the upfront cash.
If you currently have a property or apartment, you may consider renting out a room to bring in additional cash. Having a roommate to share your expenses can help you quickly come up with the investment startup funds needed to purchase an investment property.
Detached Single Family Home
When considering the purchase of an investment home, a single-family home is the type that often comes to mind. It is typically occupied by one family, and owned by a single owner. Finding the perfect property with all the amenities preferred at the right price point can take time, and having a professional realtor that you trust and who is quick to respond to your questions and inquiries is paramount.
With one family occupying the property, amenities and upgrades such as a pool, theater room, gym room, etc. can make the property even more appealing and fetch a higher monthly rental fee.
Nailing down a great mortgage rate and affordable mortgage is imperative to ensure you can charge a fair rental price and still make a favorable profit.
Major repairs on the home may come up unexpectedly, and there needs to be enough wiggle room to cover large repairs such as a new roof or replacement air conditioner.
A mobile home is a prefabricated structure or large trailer that stays in one particular place. It is an ideal investment for a beginner, as the cost of entry can be significantly lower than a single-family home or duplex.
While the physical structure may be cheaper, it is important to remember that mobile homes often come with dual monthly fees for both the owner and the renter: both the monthly rental for the mobile home, as well as a lot rental fee at a mobile home park or land rental fee for the space the mobile home occupies.
A duplex is a single structure owned by one owner that is divided into two apartments with each having a separate entrance, sharing at least one joint wall.
In heavily populated areas, this type of housing can be ideal, which allows you to have your own space and only one neighbor versus multiple units like at an apartment complex.
From an investor standpoint, you have two units in one structure, with the option to live on one side and rent out the other, or have two separate tenants. Large repairs such as a new roof can be offset by the two renters while only needing to repair the one roof for the home.
Airbnb Rental Properties
Homes that can be used as Airbnb rentals are a great option, as you can charge a flexible and higher rental price per night versus a monthly rate. During holidays and special events in the city, you can fluctuate the nightly rental prices to meet supply and demand needs.
Airbnbs can be anything from a cabin in the woods to a mansion with multiple bedrooms in a large city, or an upscale bachelor pad with a movie room, swimming pool, and swim-up bar. A unique property will bring in a specific clientele and the ability to set a price point to match the location and available amenities.
The downside is having multiple people in and out, and the property may sit vacant for a few days out of the month. However, you have the opportunity to make more money than having just one tenant on the monthly rental model.
Having a rental property manager who can schedule the cleaning after each use, and ensure that the property is maintained and guests are welcomed in a friendly manner can be priceless.
It can be tempting to purchase a house at a great price, which in turn needs a little (or a lot) of work. If you are handy and can do basic routine house projects, this could be an option. However, there are a lot of variables involved with a fixer-upper, that can have the project prices skyrocket from a simple fix into a costly repair. This may be an option for those who have the right skill sets, time to complete the projects, and the ability to flip the house quickly to maximize the return on investment, but also involves the most risk financially.
Factors to consider when purchasing a home
Is the home within a school district that is appealing to young families? Is there a college or university nearby that would attract students to rent your property? Is the property on a major street, or tucked away on a quiet cul de sac?
Crime in the Area
Certain areas of a city will be more attractive based on the low crime rate, and if people feel safe in a particular area of town.
Is there well-paying employment nearby without significant commutes? Properties near large corporations, like an Amazon hub or large computer company that employs a significant amount of people, can make a property in the close vicinity all the more appealing.
Having accessibility to grocery stores, shopping districts and malls, movie theaters, parks, and other activities will bring renters and families to the area.
Some areas are more prone to natural disasters such as tornadoes, hurricanes, earthquakes, and flooding. These areas are likely to have higher insurance rates in these zones, and may not be a desirable area to purchase a long-term house.
Your choice, your investment
As you come to decide on a location, a property, and a plan, consider the aforementioned factors to see if real estate investment is right for you. Property management companies like Rooftop Rentals headquartered in Idaho Falls, Idaho, can provide guidance toward properties in your area, or manage your newly acquired property.
Real estate investment doesn’t have to be hard, it just has to be smart. Consult the specialists for the most comprehensive advice to begin letting your money work for you.