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Buying Your First Investment Property

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By : Jon Swire    99 or more times read
Are you finally ready to take the plunge and buy your first investment property? Have you finally saved enough money to start investing in real estate, but donít know where to begin? If so, youíre going to want to read these tips on what to buy and where to start to maximize your investment.

For most first-time investors, the choice is usually between a Single Family Home or a 2-4 unit property, commonly called Duplexes, Triplexes and Fourplexes. There are large differences between both and you should fully understand them before plunking your money down. In this segment weíre going to focus on Single Family Residences or SFRs for short.

SFRs provide an investor with the greatest leverage possible, meaning you can put the least money down. Itís not unusual to buy these types of deals with 10% down, meaning on a $150,000 home, youíll only need to come up with $15,000 plus closing costs. This makes these types of investments very affordable for most young investors who donít have a lot of capital to begin. Be prepared, however, to feed the alligator every month, because these properties typically donít debt cover, which means the rent you collect every month probably wonít be enough to cover your mortgage payment, tax bill and any other expenses you have.

Most often these properties are purchased as pure speculation or appreciation plays, meaning the goal is to create equity over time. For example, if you bought a property for $150,000 with 10% down, and were able to resell it in 3 years for $175,000, youíd earn $25,000 on your $15,000 investment, which equates to a 167% ROI over a 3 year hold!

Not bad, but be careful when buying these types of deals, because your goal is to come as to close to breakeven as possible, so you donít have to come out of pocket. And remember, if youíre tenant moves out for any reason, you wonít have any money that month to cover the mortgage or expenses, so make sure you have 3 months of mortgage payments in reserve for a rainy day.

And remember, the more SFRís you own, the more tenants and properties you have to manage. Itís easier to own a 10-unit apartment building than 10 SFRís since you only have 1 roof and 1 lawn to mow, versus 10 roofs and 10 lawns. Finally, as soon as youíre able, take your equity gains from the SFRís and 1031 into properties with multiple units so you can begin your climb up the Property Ladder.
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