Have you heard that real estate investing is the path to financial security? Maybe you’ve watched those house flipping shows and decided that seems like an exciting and lucrative career. Perhaps you’ve even been to a real estate investing seminar and have taken steps to start your new path to financial freedom.
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If you are brand new to real estate investing, you don’t need to start with a huge apartment building, or even a large property. Your first investment can be your first home. Here are some tips for turning your first home purchase into the beginning of your property investment empire.
Which property to buy?
When you buy your first home, you’ll quickly learn all the extras you end up paying for. Interest, taxes, insurance, possibly an HOA fee, increased utilities because of more space or drafty older construction, maintenance like landscaping, painting and HVAC/furnace cleaning, and, often, an endless line of repairs and renovations.
A very large property – and certainly an apartment building – will compound these maintenance, repair and renovation issues. For a first time buyer, simply sourcing the contractors to do such work or estimating the amount of time you’ll spend doing it yourself is overwhelming. If you’ve not yet had a chance to find the most cost-effective way to get supplies or to form relationships with repair people, you may even lose money on your investment.
If, however, you buy a smaller multi-family home, such as a duplex, triplex or four-plex (quad), you can likely have the best of both worlds. If you choose to live in the smallest unit, if applicable, you’ll reap the benefit of being able to charge more for the larger unit(s) while not having much more in maintenance costs than you would with a simple single family home. Living on the property also allows you to respond to your tenants more quickly than if you lived off-site, creating a better experience for them and hopefully leading to some long-lasting residents.
How the finances work
When you purchase a smaller multi-family property, your mortgage, insurance, taxes, maintenance and renovation costs will be less than a larger property, but not much more than a single family home. If you also live in a neighborhoods where buying is less expensive than renting, you may be able to rent out the additional units on your property and make enough to cover all or most of your costs. Because of this, you can save money to put towards your next investment property, helping to build your real estate empire.
Additionally, you can get better rates and financial assistance when you live at your investment property. For example, with most large investment properties that are not your primary residence, you will need to put down at least 20% equity as a down payment. When you are buying your primary residence, you can put down as little as 3.5% with an FHA loan, leaving much of your cash liquid and freeing it up for property renovations or additional real estate investments. You can also likely qualify for first time home buyer benefits through the city of Philadelphia or state of Pennsylvania, which would normally not be extended to investors.
How to find the best first-time investment property
You should also look at help investigating the market in the neighborhood in which you choose to buy your first time investment property. You will want to make sure you’ll be able to charge enough in rent for the investment to make sense for your financial goals.
Of course, If you need an experienced real estate agent with experience leading first-time investors through the process, please don’t hesitate to contact me. And remember: friends don’t let friends buy homes without Agent Lady!
About Agent Lady: Cherise Wynne is a leading real estate agent in Philadelphia, helping home buyers and sellers navigate the City of Brotherly Love, with a special focus on first time home buyers. To chat about getting started with your first time home buying experience, click here.
