When investing in real estate, you need to know what kind of an investor you are before you begin. This will help to limit your research and time requirements. Are you conservative or aggressive? Do you demand security or are you wiling to take a little risk? How will your decisions affect the financial independence of you and your family? How sophisticated of an investor are you? Have you made many investments in the past? Is your family comfortable with your investment plan?
You must also consider your time horizons, both for yourself and your goals. Do you know how long you will own the property? How many years till retirement, college, etc. Maybe you need different time horizons for different properties. Everyone will have different needs based on their individual time horizons.
What resources do you have available for investing in Real Estate? Will you have enough for a 3 to 6 month reserve? How committed are you to your goals? What do you qualify for?
One of the most important questions is why do you want to invest. Is it for retirement? Are you looking to accumulate wealth? Will you be facing college expenses? Perhaps what you want is financial freedom, caring for aging loved ones, etc.?
What do you want real estate to do for you? Are you looking for cash flow? Are you anticipating increases in value to grow your wealth? Do you have some income you wish to shelter from taxes. Perhaps you have a need for all three. In this case you need to combine several strategies.
I am going to talk in general terms for a moment. It will be your job to apply the following information to your own personal situation to help you determine what types of properties you should be looking for.
The best strategy I have found for choosing a property to invest in is too first determine what area to invest in. Hopefully you now have a good idea of where you want to look based on the information already covered. You will then want to do your research. Call some property managers in those areas and ask what the demand is for rentals in the area that you wish to purchase in. Whatever the vacancy factor, make sure you adjust for it when analyzing a property.
I always like to ask property managers what kind of properties are in demand. Are renters looking for 1, 2 or 3 bedrooms? Are they looking for apartments or houses? Who are my renters going to be? Where do they work? Are the industries that employ them going to continue? Are there military bases or Universities near by? Is the area maintaining or declining? Are there any new companies moving into the area? Get to know the market and how your property will fit in that market before you buy.
So what kind of property should I buy? Here is where I have to speak in general terms. If you are looking for capital appreciation, I typical recommend one to four unit properties. These are single family homes, duplexes, triplexes and fourplexes. You can usually get lower down payments loans that will allow you to use greater leverage. Your cash flow may not be as good, but if you are in your peak earning years, it may not matter as much to you. This strategy also works well if you are just getting started or you don't have a lot of capital to invest with. When you are ready to retire you can exchange your highly appreciating properties for properties with greater cash flow.
If you have a little more money to invest you may want to look for larger buildings or commercial properties that will cash flow better. They usually require more money down. Your capital will not usually grow as quickly, but you will more than likely receive greater income from it. It's important to buy properties that are consistent with your goals.