How to Start Investing In Real Estate

For first time investors I have a fairly simple plan of attack. Everyone you meet that is involved in Real Estate investing seems to have a fairly differing opinion on what is the correct way to make money in Real Estate. The truth is that there isn’t just one-way to Invest and do better than others. There are several different ways and some work better than others with some dependence on current market conditions. Here is an Idea for the first time investor.

Duplexes offer a great opportunity for investors. I find several advantages to owning a duplex versus a single-family home as an investment. The first and largest advantage to owning a duplex is that you have two rental units paying for one mortgage versus the home where you rely on one. If you have a vacancy in a home you have zero income. In the case of a duplex you will hopefully have at least half of your normal income coming in to pay the mortgage. To make a comparison in Minneapolis the average rent for a 3 bedroom duplex (1 of 2 units) is around $1,200. A single-family home (3 bedrooms) in the same area would rent for around $1,500. In most cases duplexes do not sell at a high premium versus a single-family home. In Minneapolis a 3 bedroom/3bedroom duplex will sell on average for $275,000 in the same neighborhoods a 3 bedroom home will sell for $225,000 on average. Once again an investor has an advantage with the duplex because the amount of rental income to mortgage costs favors the duplex.

Another advantage to the duplex is that if tenants from one of the units are destroying the place or having visits from the Police the other tenants will usually make you aware of it. With a single-family home you don’t have that kind of help.
Another advantage to the duplex is that you own two units and have the maintenance at the same location. If you own two separate homes you will usually have a fair distance between them and you will have two roofs to repair, two yards to maintain etc.

Finally, don’t be afraid to start your investing by buying a duplex and live in it initially. I started investing this way and it gives you a great feel for the business and the building in particular. It may not offer you as free a feeling as living in your own home, but it is a low risk way to get started in the business. You can always move out or sell the property when you want to get your own place. Living in a duplex can often keep your costs much lower than living in a single-family home. This allows you a better life-style, and/or more money to invest in the next property.

I would be cautious about buying a duplex that does not have separate electricity and heat. If you can obtain a building that has both utilities separated then you add a level of protection to your pocket book. Why should you pay for your tenants’ utilities? The scary part of paying them is that some tenants stop caring about turning lights off and keeping the air conditioning or furnace running at a reasonable level when they aren’t paying the bill. Water and sewer are generally not separated in a duplex however, this is a nice plus if it is. Duplexes that have separate utilities will sell for a premium versus properties that do not have separate utilities.

Technorati Tags: