What is the best property to start with as a Real Estate Investor?

Question

I'm 24, and just looking to get started in real estate investing. I've read some good books on Real Estate Investing and am thinking I should start with a college rental in the town I went to school just because I know the market and that's the property I could best afford. However, I've also heard that it's not a bad idea to start with commercial/apartment using some creative financing. What do you think the best type of property is for a first real estate investment purchase? If it helps, I'm living in Falcon Heights which is in the Twin Cities area of Minnesota and the college town I refer to is Duluth.

Raj Gandhi · Answer

Start with what you know and something close.  College rentals have increase risk of tenant issues so I'd probably avoid that.

Ideally, I'd suggest starting with a simple duplex, owner occupy one half and rent-out the other.   If you have extra cash available then do a 4-plex instead.  Financing more than 4-units is complicated.

Matt J. · Answer

I completely agree; I have a lot more to learn before pulling the trigger. Do you have any recommended books on different types of real estate financing? I know I saw Brandon Turner came out with one on creative financing and that's definitely on my list.

Jay Hinrichs · Answer

Bill Gulley

with student rentals you need to get PG's from the parents. and qualify the parents.

Bill Gulley · Answer

Already addressed these ins and outs before in other threads on student housing, can't address all the aspects in every thread every time they pop up, folks interested in SH should do some searching here as the topic has been covered.

Only really had damage once, by students, it was the carpet. Called the kid's doctor dad who had given the guarantee and he said replace it and just send me the bill. Pretty simple. :)

Bill Gulley · Answer

I wouldn't touch a condo if it had a 29% cap rate, without 51% ownership of the entire project, they can just vote you out of the rental business and many if not most do.

A SFD, 1-4 is the best place to start, especially if you're not a fix it guy.

Buying your own home first can be the best move, it gives you something to leverage at much better financing opportunities, but can't say always for everyone.

Students are a great market, but you need some personal leadership styles to bring authority and to young folks who get out on their own for the first time, a bit like being a frat brother and dad at the same time. Grad students are the best, IMO. Need strict Animal House rules. :)

Bryan L. · Answer

I didn't read all of the responses, so someone else may have already said this - but the best first investment is a house for you to live in.  Period.

Pat L. · Answer

Would anybody recommend a turn-key investment to Matt for his first investment? Why or why not? Just curious.

Thanks!

David Moore · Answer

@Matt Jennissen

Here is how I played it, for an example.  In my situation, I learned of a great little market quite by chance, and I learned all I could about it.  Now I'm quite familiar with the best place to rent, best area to flip, etc.  I have a team down there who handles all repairs and maintenance.  In the Twin Cities, I cannot even get an electrician to come to my house for less than $500.00.   The cost of doing the same business here is expensive.  Doesn't mean it won't work for you.  It sounds like you don't know the suburbs....where to invest, where to avoid.  Find your backyard, like J. Scott says, and concentrate your investments there.

A portfolio lender is a community bank.  It will be a small branch.  The easy way to find them is to call a realtor or another investor, and ask them if they have one.

Matt J. · Answer

@David Moore we do have jobs, not necessarily high-paying at this time. I know nothing about portfolio lenders, I'd love to learn more about that! I'm not sure what it tells me, probably that I have a lot to learn and decide more than anything else. My biggest goal with all of this is to have a non-traditional work schedule and financial freedom...

David Moore · Answer

@Matt Jennissen

Welcome Matt.   I live in the Twin Cities, and I invest in southern Minnesota.  I think your instincts about Duluth are good.  From your own words, you know the market.  I think that UMD is a big plus, though I don't invest in Duluth.   You left some key data out.  Do you and your wife have good paying jobs.  Good paying jobs and good credit are important to lenders.  Investing in Duluth, however, could snag you a portfolio lender, who does not resell the loan you get to a secondary market, but holds the loan.  And I've seen some of the prices....not too bad.   I've found the primary lenders in the Twin Cities have sky high application and loan processing fees, and sky high closing costs (Wells Fargo).    But I have a portfolio lender in Southern Minnesota.  Approval of the loan is not even considered, really.  I just contact them and let them know I'm buying x # of houses in the next few months, and they are like, ok, let us know.  Very different from US Bank, Wells Fargo, etc.  Plus my loan officer is the same guy.

Now, your asking about suburbs around the Twin Cities.   What does that tell you?  I like J Scott's book on Flipping Houses.  It is not only about flipping.  It describes the importance of locating your own 'back yard'.   A lot of good tips.

What is the best property to start with as a Real Estate Investor?

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