Starting Out in Real Estate Investing

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There are many options when it comes to investing in real estate. You have single family rentals (SFR), small multi-families (2-4 Units), and apartment complexes. That doesn't even begin to touch on the other options; notes, syndications, trailer parks, self-storage, industrial units, retail..

It can get overwhelming. I believe that’s why most people don’t get started in real estate investing. There are so many options that it’s hard to know where to begin. While I don’t believe there are any wrong ways to invest in real estate, I do believe there’s a best way for the average person. By that I mean anyone making around a median wage in their respected area.

That way is small multi-families (2-4 Units). They allow you to by your first home and first rental property at the same time. While also having more tax benefits than single family homes and requiring less money upfront than apartment complexes.

The average person is still putting 3.5% down on their first home. Then having majority of their paychecks going towards their mortgage payment. Keeping that person from future investments. They either must wait for a raise or work another job to have enough money to invest. It’s no wonder most people don’t get started.

Small multi-families only require 3.5% down like that first house and now you have 1-3 renters paying majority of your mortgage or you’re possibly making money. Then at the end of the year you get to write off a portion of your property. As always – Check with your CPA on current tax laws.

But then after one short year of living in your multi-family you’re able to move out and buy a single-family home if you really wanted to. And in most cases, you can put 3.5-5% down again if needed. Now you have the single-family home you wanted and a 2-4-unit multi-family that should be cash flowing, and providing you more tax benefits. If you don’t move out after a year you’re still paying less per month and freeing up that cash to pay down debt or look for more investments.

Now the first argument I get when talking about this strategy is that the average person doesn’t want to manage property, and my answer to that is simple – hire a property manager. Even if you’re living there. You’ll pay anywhere from 8-12% depending on your area of the gross rent you’re collecting to the manager and now you don’t have to worry about it. You don’t even have to tell your tenants that you own the building. To them you can just be their neighbor.

There’s always going to be an excuse not to get into real estate investing but if you have the slightest inclination of doing it and/or looking at buying your first house I will always recommend looking at small multi-families first.

I am a little biased because that is how I got started but it has freed up so much cash flow that I’m not stressing over that monthly payment and it’s allowing me to look at a wide range of investment opportunities.

Let me know how you got started and if you think there’s an easier way. Like I said, I don’t believe there’s a wrong way, any investment strategy can lead you to financial freedom!

Michael,

I agree, this is a great way to get started.  I did this with a duplex starting out, then bought the duplex next door when it came up for sale.  This was a cheap way to get in, learn the property management ropes gently, since I lived on site.  I fully recommend it.  

This can also work with single families or even condos as a house hack.  I heard a BP podcast where a guy started out by doing this in a 3 br condo, renting out the other rooms to 2 college students for $400 per room.

Thanks!

Chris

Chris,

 That’s great! Learning the property management side can seem intimidating for most and I believe an invaluable skill to have. 

  Did you have to put 20% down on the second duplex or was there some creative financing involved?

  And completely agree that house hacking is another great way to get started if you don’t mind roommates. 

 Thank you!