The biggest risk of all is not taking one.

— Melody Hobson —

One of the most asked questions I get from investors when starting out - what type of investment should I purchase? Single Family flip? Multi-unit rental? Short term rental? Should I house hack? Should I syndicate a large apartment deal? There are a lot of options and to make it harder, opinions from experts will send you in every direction resulting in what we know as “analysis paralysis” and you end up more confused than when you started.

The answer to this question is not a one size fits all response. It starts with answering a few things about yourself and your goals, to make a sound investment decision on your first purchase. Start by asking yourself some key questions:

What is my financial situation?

Not all property types are accessible to all investors based on your individual situation. It’s true that unless you intend to live in the property, you’ll likely need 20-25% down to make a purchase. This factor is the biggest blocker for most early investors. They hear about the cost to purchase and immediately throw in the towel. Don’t let the financing hold you back - thinking outside the box and getting creative on financing is part of the investment journey. There are tons of options to consider - seller financing, private money, syndication, partnerships, and more. You can start with determining how much you have saved and are comfortable putting into an investment. If you find you do not have the 20-25% saved to make a purchase but you’re open to creative strategies, speak with a coach or industry expert to discuss your options. If traditional lending is the right option for you, connecting with a credible lender who has experience with investment properties is a must.

What items do I need to consider regarding my personal situation?

Spending time to really think about your personal situation and what is realistic can be a key indicator of what type of property is best for you. If you work a demanding full time position, you may not have time or energy to put into managing a large flip project, and a buy and hold rental might be a better fit. On the other hand, you may have the willingness to spend your nights and weekends on investing or you have a flexible job that allows you the ability to put forth time to an investment side-gig. No matter your situation, ask yourself the following questions:

Is my partner or significant other on board for this purchase? What are they comfortable with?
How much time do I have to commit to my search and / or investment on a weekly or monthly basis?
What am I looking to get out of an investment purchase? A place to live? A cash flowing rental property? To gain experience? Grow my net worth? Invest for my children and families future?
What experience do I have? Do I know how to renovate a home and to what extent? Do I know how to rent out a property and/or be a landlord? If not, where and how can I learn about this or get coaching to help me through the process

What are my investment goals?

Having a plan for your real estate investment journey is essential to make that first purchase. I hear from clients often, “I’ll buy anything as long as it’s a good deal!” That sounds great in theory, but it fails to give you or your realtor, lender, coach, consultant, or whoever else may be helping you through your investment journey, any direction and leaves you looking at everything instead of focusing on the specifics. Some goals that early investors work towards might look like:

Purchase 3 rental properties within the next 5 years and cash flow at least $300 / month / property
Purchase 2 short-term rental properties within the next 12 months earning gross income of at least $3000 / month / property
Purchase an owner-occupy (house hack) property and live for less than $1000 / month. Purchase a 2nd owner occupy property after 2 years, and cash flow at least $500 / month on the original investment. Continue to do this until I have 3 cash flowing rental properties netting $1500/month in total cashflow.
Flip 1 house in the next 12 months (purchase to sale) and earn at least $20k of net profits.

You’ve answered the questions and know the framework, now what? Next up, learn about the different investment properties and determine which is best for you.

Looking for a real estate consultant to help you make a smart investment decision on your first (or next) purchase? West Edge Investments provides solutions for all investors.

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