What Kind of Real Estate Should You Buy?
There are many different kinds of real estate investments —
single-family homes, multi-tenant apartment houses,
duplexes, mobile homes, hotels, commercial properties,
condominiums, luxury homes, trailer parks, agricultural land,
and even undeveloped land. You can even buy things like notes or
tax liens, which the average person barely thinks of as buying
a house at all.
Should you go after any kind of a deal that looks good?
Should you specialize? Which area to invest in is the best?
The short answer is that it depends on understanding
yourself and your resources and your preferences, and keeping
in mind price trends, which we’ll talk about shortly.
But, if you’re starting out, some areas are definitely better
The two main kinds of real estate are commercial real
estate, and residential real estate — places for businesses and
organizations, and places where people live.
Where should you start?
Why? Partly because commercial properties are generally
much more expensive to buy and to finance. At least 10
times more expensive, in fact. An average home may start
at $50,000, but the average business operation begins at
$500,000. They are not only harder to finance, but also to
sell — small “Mom & Pop” businesses are among the toughest
to find a buyer for.
When you have a commercial property to sell, the smaller
number of potential buyers generally makes it a buyer’s market,
and that favors them, not you. Especially if you’re new to
Also, since commercial properties are not as easy to sell,
banks may require more money upfront. Apart from this, in
certain cases, there may also be stricter governmental standards
or restrictions or regulations with commercial properties.
Yes, you can make a fortune in commercial properties.
Unfortunately, you usually need to start with a fortune to try.
Residential properties, by contrast, are much easier to
buy and to sell. Residential properties are much easier to afford
and to finance. There are many more residential homes
on the market than commercial properties. Banks and lenders
are much more ready to extend credit and arrange loans for them.
Variety is wider and prices are far lower.
But what really puts the icing on the cake is the speed
and ease with which you can get a residential property to put
money in your pocket even when there are no buyers. Because
you can rent. You can’t get many families to live in a
retail storefront, but you can certainly get them into a single-family
home or duplex or triplex.
You can even live in the rental property yourself while the
other tenant pays the mortgage! (Great way to start)
Plus, there are special kinds of residential property that
have exceptional investment potential — especially distressed
properties, which is the term for properties that, for some
reason or another need major repairs or have suffered neglect
or need to be spruced up in some way or another.
Distressed properties are among the best ways possible
for an investor to buy property at extremely low prices. With
a little effort or investment, purchasing a distressed property
can lead to major returns quickly.
Commercial and residential don’t exhaust the real estate
market and there are many sub-categories — land, for example.
But land isn’t a good place to start investing in real estate
for much the same reasons that commercial properties aren’t.
Here, too, the market is specialized, there are fewer raw land
purchases than there are conventional home buyers, rental
income is hard to come by and you can’t save by living there
yourself. You could maybe rent the land to a farmer for the time being.
So what kind of real estate makes the best investment?
All of them can be good investments. But in my opinion,
there’s no contest. The best to own, the easiest to sell and
finance? Residential. All the way.
And which kind of residential property? That can be a
toss-up. Some investors buy to rent. Some buy to fix and flip.
Some put a lease agreement in place and then find someone
else to buy the note.
Some even buy a home to live in it while there rehabbing it to sell! The nature of your investment
goals and the condition of the home and the state of the
market can all be major factors in your decision.
If there’s a specific kind of residential property that I
would generally recommend for people getting started in
real estate investing, my recommendation would probably be
single-family homes for a one to 3-year hold then sell. If you’re looking to hold long term then it would be 2 or 4 units rentals. This is a much safer play if you want to be a landlord.
But the reasons for recommending single-family homes
apply to all kinds of markets. There are a lot more of them
around, for one thing. You have fewer tenants so you have
less tenant and rental issues. Single-family homes sell easier
and quicker than multi-family dwellings, and much easier
and quicker than apartment buildings or commercial/residential
hybrids like small motels. And, as a rule, it’s cheaper
and easier to rehab (and maintain) a single-family home than
a multi-family home, But with signal family, you can have cash flow issues.
But, more important than the kind of home may be the
kind of investor. The ancient Greek motto “Know Thyself” applies nowhere better than among real estate investors. Some
people love to get out the hammer and nails and start making
repairs. Others are all thumbs and need to go straight to
a contractor. Some people can’t deal with tenants at all and
have to hire property management specialists. For others,
tenants become like family (which, generally, is not a good
Ultimately, what you invest is not just your money but a
part of your time and a part of your life.
Look inside yourself and know what you’re most comfortable
with. It may not make a difference to how much
money you make. But it’ll make a big difference to the quality
and pleasure of your life as you do it. Remember buying rentals will create you a job and flipping is not investing, it’s a profession.
Have any questions? Please feel free to reach out to us.
Thank you for reading,
Syd Chase (MrNoBull)
Web | www.sydchase.com
Facebook | https://www.facebook.com/TheSydChaseGroup/