Updated April 14, 2020
This article was published with permission from Accuplan Benefits Services
With interest rates at historical lows and banks searching for anyone who can contribute to their bottom line, today's real estate market may offer a uniquely lucrative opportunity for investors to start their career in real estate.
Of course, not every alleged opportunity is actually a way forward. At times, what appears to be a tremendous opportunity may turn into an investor's version of Waterloo. Even when an investment may be a good one, it is still important to recognize that every type of real estate comes with both advantages and disadvantages.
One thing to remember is that what makes sense in one market may not in another. Buying apartments is an excellent opportunity in some metropolitan areas but is not likely to work out quite as well in the middle of the Nebraska corn belt. Using tools like Rentometer.com to analyze the local areas can give you a better idea of what is renting well and what is sitting vacant.
Getting into any investment is relatively easy, but it is essential to have an exit strategy in case conditions change.
Let's Explore 4 Types of Real Estate Which Could Be Right For Your First Investment.
1. Apartment Buildings
Apartments do offer several advantages over other forms of investment in real estate. They concentrate a large number of renters into a single property, which reduces such overhead costs as yard maintenance and taxes that would otherwise pile up over a large number of properties. To paraphrase an investor keen on apartments, "Many doors under only one roof."
On the other hand, apartments are highly dependent on the current state of the construction industry and the general economy in any particular region. Lots of new construction will drive down the income from existing properties, while an economy that is on the downtick may well witness a rise in occupancy rates as more people are forced out of their homes.
2. Commercial Real Estate
Commercial real estate is another economy-dependent investment type of rental opportunity. At the right time and in the right location, commercial space can be very cash positive since most such rentals are nothing more than an empty shell with some carpet on the floor. This saves a lot of money on the construction and remodeling costs.
Yet a down economic picture has been known to turn a once-profitable commercial building into one that literally cannot be rented at any price whatsoever. At times like those, thinking outside the box and innovating the space for co-working or daycare or another service might work well.
Most people wouldn't think twice if farmland was brought up as an investment opportunity, but they should. Not only is urban farming a growing trend, but a lot of people are trading in their offices and commutes for chicken coops and John Deere tractors.
But there's also the other side of the coin where other investors are investing in farming without the farmland, their primary duty is to provide the money, and experienced farmers take care of the rest. This is what's known as Farmland REITs, and they have a lot of benefits, and one main advantage is portfolio diversification for the investor.
4. Single Family Homes
Most investors start their real estate investing careers looking into single-family houses. It is a category of real estate that they already know the most about, and the one that has the largest pool of potential customers. While this has typically been a buy-and-sell market, interest in homes as rental units has been steadily increasing. Single-family homes are also easier to sell when the time comes.
The one disadvantage of single-family rentals is that they do not return a significant profit over a mortgage payment, which means that it takes time for appreciation and monthly payments to add up to a substantial margin.
Higher-density rentals such as duplexes will produce a better income stream right away, but they are harder to sell due to the smaller pool of potential buyers. With tools like Rentometer.com to help set rents, you can start ahead of the curve and not take a loss as you learn the rental market.
For investors who are just getting started in real estate, the particular category of property they choose is often a case of market timing.
Ideally, you want to be buying property right at the tail end of a depressed market so that it begins to appreciate right away. However, you can't start making money without jumping into the pool, so an argument can also be made for just making it happen today.
The best real estate investors understand that this is something that works best when looked at from a long-term perspective. The sooner you get started, the shorter that long-term will be.
Whichever rental property path you choose, use Rentometer.com to help set reasonable rental rates for your property. Give yourself a fighting chance at success instead of floundering until you figure it out.