Yes, there definitely are ideal types of properties that a beginner should look into. A lot of great investment properties are up for sale now more than ever but that does not mean you will jump right into it. You have to set certain criteria to see if they’d make a great starter investment property.
Here are the four types of properties we recommend, if you are after a positive cash flow potential.
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Income Property #1: Dual Keys and Duplexes
Perhaps the best way for new investors to get started is with multi-family homes. They are a gem to find – and easily get sold! Property investors know these are great investments, thanks to the diversified risk.
The best way to explain why these are great income properties for new investors is with numbers. Let’s say you have two homes on the market. The first costs is around $600K up and is a single-family detached home. The other option is a $650 to $750K dual key. The dual key isn’t much larger but still commands $150K more due to extra build costs such as the dividing wall which is fire and soundproof, and the extra bathrooms, kitchens, and bedrooms.
Even though the dual key has a larger mortgage payment, the fact you will be able to fill it with TWO tenants instead of one makes a huge difference.
Each tenant can pay a bit less than they would for the entire single-family home, but you actually make more money. This leverage grows even more if you’re able to get a larger unit, such as a triplex or quadplex.
Another factor to consider is maintenance cost.
Even though a dual key has some separate entities (like the air conditioning units and walls), they also share a few. For example, it still has only 4 external walls, whereas owning two single-family homes would mean maintaining 8 walls. If something happens to the roof, you’re only dealing with one large roof instead of two smaller, separate ones. These maintenance savings become even more substantial if you get a building that houses even more families.
Income Property #2: Co-Living
Investing in the new Coliving has two great results, the owner has more money coming in and the property is helping people find a place to call home.
A Coliving home has a few more costs than a normal 4 bedroom home such as more bathrooms, more air conditioning, and communal furniture.
Coliving homes make over 40% more than an equivalent house when they are in the correct location. We research with our property management and make great positive income properties with Coliving.
Finally, keep in mind the most valuable part of what you’re buying – the land the home sits on.
Over time, this land may be the most lucrative part of your investment.
A co-living property is also flexible – if you decide to convert to a house and land, there’s no adjustment needed.
Income Property #3: Detached Single-Family Homes on Sale
When most people think of income properties, they generally think of single-family homes. These types of properties are easy to understand, mainly because so many of us have already purchased one for our personal use.
These types of properties are great for new real estate investors, but you can’t just buy any home. To help ensure positive cash flow, you need to get a great deal on the property.
Why? Mainly because there aren’t as many advantages to renting out these types of properties.
You’ll need to rely on a low mortgage rate. That way even if the market goes down and you have to lower rent or have a major maintenance issue, you’ll still be able to maintain positive cash flow.
If getting a great deal were easy, everyone would do it! The key is to be patient and keep your eyes open. You will probably need to spend more time looking at different properties than you’d prefer, but that’s okay. It’s all a learning process.
Income Property #4: Completed and Ready to Rent out Apartments
We get a lot of these stocks nowadays, premium location and build – no need to wait because it’s ready for the taking and no build time to wait. Though it can be on the pricey side due to a lot of factors – the pros outweigh the cons.
We know how long land get’s registered nowadays and how construction delays can impede the completion and handover of your property. This is the reality all builders and property investors face nowadays. With a completed apartment, you wouldn’t be faced with such a dilemma.
The downside of course is that these completed apartments require a 10% downpayment compared to a 5% for registered land that is ready to build on.
You can already start renting the apartments right away and you don’t need to wait for months for construction. These apartments can range from $450K to as much as $900K depending on locations.
Takeaway
To be clear, there are a number of other types of income properties you can invest in. For example, you can buy/build a number of coliving homes and rent them out. Another option is to purchase a commercial warehouse, divide it up, and rent out each space to a different small business.
Knowing the kind or type of property portfolio you’d like to build or grow helps to determine which property to start with.
Remember to invest in something that you can easily understand and manage. There are options that don’t require an extremely large upfront cash investment- especially if you’re investing on your own.
Always think outside the box. New investors are just learning the ins and outs and usually don’t have the cash flow that more experienced investors have. It can be a bit of a problem when looking for investment properties – you have to be open to different strategies and work with partners or experts to steer you off on the right path.
4 out of our 10 clients are 1st-time investors and beginners – and we want them to scale a low-risk, high-yield, and diversified property portfolio. We are happy to make a change in their lives and yours too.
Gil Elliott is the Managing Director and Founder of Positive Income Properties. Gil has a rich background in business consulting and property investment. All of these he gained in his nearly four decades of experience in the real estate and marketing industries.
