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Thinking about buying an investment property? Here are the things you should consider.
Pay down personal debt
As a new investor, the important factors you should probably be focusing on include:
Affordability
Simplicity
Exit strategies
Ease of property management
Low maintenance costs
Beginner investors should be looking to test the waters, and keep their risk low in their first investments. Err, on the side of this being a springboard investment to launch you forward as you learn and get results. The last thing you want is to bite off more than you can handle, and get stuck.
The ‘Bread & Butter’ House
For all of the reasons above, most investors trend towards the common ‘bread and butter’ house. That is your standard 3 bedroom, 2 bath, single family home. It’s what will typically be the easiest to finance, rent and resell, and where most of your money will come from. This is the standard, neighborhood home which appeals to the most people. There are exceptions, however. If you are in an area where there are mostly 2 bedroom, 1 bath homes, or almost all condos, then those may be your best choice vs. the 3 bed 2 bath home. It all comes down to what banks will be most comfortable financing, and which properties will fit the largest number of renters and end buyers.
Your first property is about maintaining flexibility and keeping risk low. It is about going for the homes that are going to deliver real, consistent results. You may aspire to live in a mansion next to LeBron James’ home, but that doesn’t necessarily mean it is a profitable investment. Leave the quirky homes and ultra-high-end speculation to others. Then you’ll be the one with the best investments making the most consistent cash flow at the end of the day.
Summary
Beginner investors should start by getting clarity on what they have, and what they want. They should be ready to take bold action and get going. Yet, to start smart, with properties that are going to give them the lowest risk, most options, and best flexibility. Once you get a few under your belt you can always expand to taking on more adventurous projects.