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Your First Investment Property Should Be…

by Brandon · 40 comments

Perhaps I’m experiencing “writer’s block.”

I’m not sure, because I’m not actually a “writer.” I’m just a real estate entrepreneur who is looking to refine his skills, share his knowledge, and speak in third-person more often. So perhaps it’s writer’s block or perhaps it’s just the fact that my mind is 100% focused on my newest acquisition – a new home I am remodeling for my wife and I to move into (photos coming soon!)

Either way, writing has been tough over the past couple weeks. However, today I spent some time talking with a friend about how she should get into investing. She has watched me grow from a renter to an owner to a full-time investor and is eager to join the party. After this discussion, I realized the questions she asked me were the same questions you are probably asking yourself:

“How do I start?”

“What should I buy?”

“How can I make sure I don’t fail?”

Thus, the end of my writer’s block and the emergence of this post. Without further suspense, I want to share with you my opinion of the best type of property you should buy if you are just starting out and looking to find a better use for your time and money. The answer?

A Beginner’s First Investment Property…

These property types are everywhere. The city, the suburb, the country. They are found in high-income areas, middle-class, and low-income neighborhoods. They can be ugly, beautiful, large, small, new, or old. I’m talking, of course, about small multifamily properties. Specifically, I’m talking about duplexes, triplexes, and four-plexes. Just in case you don’t know:

  • Duplex = two units
  • Triplex = three units
  • Four-Plex = four units (also called a “quad”)

I believe these property types are the best investment for most beginners. Why would I make such a bold statement as this? Because there are so many benefits to owning small multifamily properties that I could write for a week about them. However, I’m going to sum up those benefits below to give you a good idea of why I’m such a fan of these property types and how you can add significant wealth to your life by investing in them.

Living Under A Bridge Is Not An OptionDon't Live Under A Bridge

 

“Your home is not an investment.”

-Robert Kiyosaki

If you are a “Rich Dad Poor Dad” fan (if not, you should be) you’ll recognize this quote. Most of us have grown up with the belief that “your home is the biggest investment you’ll ever make.”

However, as Rich Dad Poor Dad points out – your home is a miserable investment. It costs money every month to own, requires constant attention, and will probably never gain more value than the amount it costs you to hold each month. Think about it – if you are spending $1000 per month on a mortgage payment and another $100 on repairs – you are losing over $13,000 per year on that deal. Do you really think that home is gaining $13,000 per year in value, every year?

I’m not telling you that you need to abandon your dream of home ownership and take up residence under your local bridge. The simple fact is – you need a place to live. Whether you are renting a place (throwing money out the window) or own a nice house (also throwing money out the window), a personal residence is a necessity in life.

However, there is a way to have your cake and eat it too.

By purchasing a duplex, triplex, or four-plex you have the unique ability to combine your basic human need for a roof over your head with your desire for wealth building. You can live in one unit while renting the other units out for profit.

Early in my investing career, I purchased a small duplex in a middle-class neighborhood. The property contained two homes on one small lot. Two-weeks after closing on the home, my wife and I moved in to the smaller of the two homes and rented the larger home out. The rent from the larger home paid for the entire mortgage, taxes, and insurance allowing my wife and I to live for free. Later, we moved out and now hold both homes as rentals – loving the cashflow that pours in each and every month.

It’s All About The Benjamins (When Buying Your First Investment Property)

Perhaps you have a lot of money. Maybe you were born a Rockefeller or Trump. Maybe you are compulsive saver and have been setting aside 25% of your check for years (good for you!).

However, that wasn’t me when I began.

I didn’t have any money when I started and if you are just starting out you probably don’t either. However, I knew that real estate investing was going to be the tool I would use to retire by thirty years old. While most real estate investments require a 20% down payment – you can purchase your own personal residence for just 3.5% down with a FHA loan through most lenders. That means, if you buy a home for $100,000 you only need to pay $3,500.00 to do so (plus closing costs, which you can usually get the seller to pay for).

I don’t know about you, but $3,500 sounds a heck of a lot better than $20,000.

The great thing is – this 3.5% down payment applies to either a single family home or a small multifamily building up to four units. If you utilize the FHA 203K remodel loan – you can even incorporate repair costs into the loan. So, if you find a four-plex for $100,000 that needs $10,000 in paint and carpet, you can include those costs into the loan and borrow $110,000.00 for the home (less your 3.5% down payment on the $110,000).

Furthermore, lender’s are much more friendly to “personal home buyers” than investors and offer lower rates and easier qualifying standards. This means it is easier to finance a property if it is your own home. Clearly, purchasing a duplex, triplex, or four-plex combines the lending benefits of a personal home with the investment power of income-producing property. This. Is. Awesome.

Lower Your Risk = Thicken Your Wallet

I don’t like to lose. I doubt you do either. It’s in our human nature to strive to excel – so it makes perfect sense that you’d be nervous to jump into a real estate investment. Some people I know spend years talking about investing but never actually jump in. Maybe this is you?

Buying a small multifamily property not only makes financial sense, but is also the safest path you can take to make big money in real estate.

I’ll say that again: small multifamily buildings are the safest path you can take to make big money in real estate.

When you have more than one unit, the risk is spread. When one unit goes vacant, you still have the rent from another. If your expenses increase slightly, you can weather it. Furthermore, your ability to manage efficiently and effectively will determine your success, not the whims of the market or hopes and dreams.

That said, not every small multifamily property is a winner. I recently purchased a triplex for $60,000 that cashflows like crazy. I love that property and it would be a hard for me to screw that one up. At the same time, there is a listing on the MLS right now for a similar triplex (in a worse location, with less rent) for $150,000. Clearly, buying that expensive property might work out OK, but it’s not going to produce the cashflow you want. You need to ensure that your standards are high and defined. Your risk is determined almost entirely by the price you pay for a property.

On The Job Training with Your First Investment Property

By beginning your investment career with a small multifamily property you are able to gain first-hand knowledge of how the rental world operates. I’m not saying you need to be the one fixing toilets or knocking on doors – but I believe it’s important to gain the experience on these small properties before trading up someday to larger investments. Real estate investing is a business of people and the sooner you learn to effectively manage those people the better investor you’ll be. I believe property management has a role for many investors, but I believe you should manage your first property yourself.

Additionally, you will be able to use this first property as a launch pad for your future investments. This property will build your confidence as an investor and open doors that you didn’t even know existed. You will become an “investor” rather than just a dreamer. Perhaps you can even use this first property (because it’s your primary residence) to do a cash-out refinance and pull out money to buy other properties.

The possibilities are endless.

Investment Calculator and Summary PhotoMultifamily properties, if purchased correctly, can be a huge quick start jump into the world of investing for cashflow. If you are interested in learning more about how to evaluate a property and determine if it truly is a good deal, I created a spreadsheet calculator that you can download on your own computer and use for all your properties.

It’s only $19 and it goes toward a good cause – helping pay the bills on this site! :)  I don’t do much advertising on this site so I appreciate those who have already downloaded the calculator and thank you for your help in keeping this site alive! For more information on this $19 spreadsheet calculator, click here.

 

 

P.S. Looking for more real estate investing knowledge? If you are interested in a top-notch course to help you understand the nuts and bolts of creative real estate investing, I would like to recommend Ben Leybovich’s Cash Flow Freedom University. Ben is a close friend and has been my trusted adviser for years. He’s a smart guy and CFFU is pretty awesome. The course is waitlisted, but while you wait for an opening Ben will send you tons of FREE content. Seriously. Click here to check it out.

(yes, that’s an affiliate link!)

About Brandon

has written 199 Awesome posts in this blog.

Brandon Turner (G+) is the BiggerPockets.com Senior Editor and Community Director and owner of RealEstateInYourTwenties.com. He is also an Active Real Estate Investor (Flips, Apartments, and Buy-and-Hold), Entrepreneur, World Traveler, Third-Person Speaker, and Husband. Come hang out with him on Twitter!

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{ 40 comments… read them below or add one }

Charleen Larson July 20, 2012 at 3:17 am

Very timely information, thanks.

Of course, where we live (Silicon Valley) a triplex for $60,000 would be built out of cardboard refrigerator cartons. We’re looking at more like $1 million for a property like the one you bought, which makes the barrier to entering the market rather high.

While I’m sure there are folks who buy investment properties here and live in one unit, we see a lot more house flipping, which may be one way to build up enough of a nest egg to buy multiple family dwellings.

Anyway, I like your blog. Good job.

Reply

Brandon July 25, 2012 at 1:19 am

Hey Charleen,

A cardboard triplex doesn’t sound too appealing! It always shocks me just how much real estate prices differ from place to place. On the other hand, the triplex I recently got rents for around $500/month each – where I bet Silicon Valley is a wee bit higher ;)

But you are right- it is much tougher to start in those areas. I think flipping, if done correctly, can produce awesome profits in those areas.

Good luck and thanks for stopping by!

Reply

Joyce Del Rosario July 23, 2012 at 2:15 am

It’s a good news that you succeed in your investing career. Will you give me some tips on choosing the best type of property I should buy? Glad to be hearing brilliant opinions from you.

Reply

Brandon July 25, 2012 at 1:20 am

Hi Joyce!

I always recommend starting with small multifamily. Search for Duplexes, Triplexes, or 4-plexes. It is a great way to get your feet wet.

You can also start by wholesaling – where you find the deals and sell them to other investors. You can do that without spending any money.

Good luck!

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Rebecca July 31, 2012 at 7:17 am

Hi Branding,
I just found your site and really enjoy taking in all the information you give! I am one of the dreamers you mentioned my husband and I have always talked about flipping houses but have never had the nerve to try it, it doesn’t help that we don’t have credit or money saved to start! Well my ? To you is I have heard about wholesaling how would one go about starting that? Sorry for the ? that may require a long answer but maybe you already have an article on that? Or maybe you could write one? :) well anyways thanx for the awesome reads!

Reply

Rebecca July 31, 2012 at 10:35 pm

Hi Brandon you don’t have to answer that question i found the answers on bigger pockets! Thanx again for all the great info and my husband and I are excited to download the portfolio for Hard Money lenders thank you for giving me hope and confidence!

Reply

Brandon August 1, 2012 at 3:32 am

Hi Rebecca,

BiggerPockets is the place I go to as well when I need some great info. However, I’ll be posting some good stuff about wholesaling soon on this site as well. Check back soon!

Reply

Custodian Wealth Building August 2, 2012 at 3:19 am

For a new investor, investing in property can offer a tremendous opportunity to create wealth. New investor should have Commitment to learn investment strategies. Nice blog!

Reply

home-property-apartments for sale August 9, 2012 at 7:01 am

Thanks for sharing such a useful information. its really helpful for the new investors. very useful and informative points.

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Krrish Group August 28, 2012 at 11:46 am

Many thanks for providing such handy information. I seriously value your expert approach. I would like to thank you for the efforts you made in writing this particular post. I am hoping the same from you in the future as well.

Regards,
Krrish

Reply

Brandon September 6, 2012 at 9:27 pm

Thanks Krrish! Glad I could help!

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Reggie September 28, 2012 at 11:41 pm

Hey Brandon,

I love your website. Been reading a few articles so far and I have been diggin ‘em. I’m 24 years old and like Charleen, I live in the expensive state of California. I recently came up on some funds and want to invest it someway in real estate. How do you feel about investing out of state where it would be cheaper for me? If I were to buy a multi family out of state, I wouldn’t be able to live in one of the units and get that benefit. What would you recommend for someone like me?

Thanks!

Reply

Brandon September 29, 2012 at 4:18 am

Hey Reggie,

That’s actually a great question. Check out this post I wrote the other day for BiggerPockets with my thoughts on your exact situation:

Investing out of the area is not a terrible idea, but it definitely wouldn’t be ideal (especially at the beginning). You could always find partners who live in othr areas who would go in on it together.

Thanks for the question!

Reply

Chuck Norris' Beard April 26, 2013 at 4:10 am

Great post! Your blogs are so informative.

The spreadsheet looks great. Does it work on Google Docs?

Reply

Brandon April 26, 2013 at 6:32 pm

Thanks “Chuck Norris’ Beard” :)

I tried uploading to Google docs just now and Google doesn’t seem to handle uploaded spreadsheets too well. That said, maybe I’m just doing it wrong!

Reply

Chuck Norris' Beard July 3, 2013 at 10:45 pm

Thanks anyway!

One more question:

I’m interested in a couple of duplexes that are right next door to each other. Same floor plan. Same owner.

Can two adjacent duplexes be somehow bought as one fourplex using an FHA loan?

Reply

Brandon July 5, 2013 at 5:23 am

Honestly – I have no idea! I would assume “no” but there may be a way to make it happen. Might be a good question to ask over on the BiggerPockets Forums!

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Lindsay July 4, 2013 at 11:33 pm

Hi Brandon,

Just discovered your site by Googling “buying my first triplex” because I’m–wait for it–buying my first triplex! I’m planning to do exactly what you described here, living in one side and renting out the other two units. I’m guessing you live somewhere comparable to where I do, since this one is ~$50k and rent will be around $500 per unit, so I can’t wait to read the rest of your articles! The area where I’m buying is really cool and has a ton of community development involvement and plans, so I think it’s only going to get better. Plus, single-family homes that have been renovated are selling for $150k, but non-renovated for ~$40k. Can’t wait to try my hand at buying and renovating!

Thanks for your site, and like I said, looking forward to reading the rest of it!

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Brandon July 5, 2013 at 5:22 am

Thanks Lindsay! Your triplex sounds awesome! Congrats. Definitely let me know how it goes!

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Josh April 3, 2014 at 1:24 am

I found a triplex in the town I plan to live forever. The asking price is 59,000 and all of the units are currently rented. The gross monthly income in 1,300 with renters paying electric and gas. (I would be paying water and trash) I own a house so this would strictly be investment. Does this sound like a good investment from a professionals standpoint?

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Brandon April 23, 2014 at 4:58 am

Seems extremely enticing to me… I’d ask the question over in the BiggerPockets Forums and see what others think!

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Melissa Hasan April 23, 2014 at 4:41 am

Googling random multi fam investment info and came across your informative blog (pretty well written for a non-writer I must say) lol! I am reading on so many blogs re: purchase price that folks are paying between 40-150k for a tri or quad but these prices are no where to be found in the surrounding area of Portland, OR! any tips on finding amazing deals? Foreclosure listings seem to circulated in a secret society or by hacking multiple websites which I am not interested in lol, any thoughts ??

Reply

Brandon April 23, 2014 at 4:57 am

Hey Melissa, thanks! :) You could always come invest in my area (2 hours from Portland in Aberdeen, WA) or I hear Salem has MUCH cheaper prices than Portland. Usually within an hour or two drive of every expensive area you can find reasonable prices!

Also check out How to Buy a Small MultiFamily Property: A Step by Step Case Study over on BiggerPockets.com, where I spend all my time writing these days!

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Melissa Hasan April 24, 2014 at 1:50 am

Thanks for the input! I did read the step by step case study and it was fantastic reading! I would recommend it for anyone digging for useful info!

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shayna May 8, 2014 at 3:15 am

Hi Brandon,
What advice would you give someone who has no money, no job, not so good credit, and no good relationships with banks about getting started in real estate investing? I feel my only option at this point is hard money lenders until I can build revenue but I’m reading that they are very expensive. I’ve read as much information as I possibly can on the subject but I am still unsure about my approach and which property’s to go for. Such as foreclosures, short sales, motivated sellers, auctions,etc. Thank you in advance for your response, I really look forward to it.

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Melissa Hasan May 9, 2014 at 3:43 am

Dont do it! If something goes wrong you have nothing to fall back on. get a job, save some money then go from there. Sounds harsh but it’s true. You are setting yourself up for failure if you have no job and no money to begin with.

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Mo February 19, 2015 at 6:12 am

I don’t understand the fact that you can buy a multi-family property for ~$59000. Holy smokes !! thats awesome. Where i live i.e. Seattle, you won’t even find a single room for that amount.

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barbara February 28, 2015 at 8:36 pm

We bought 2 side by side identical duplexes 11 1/2 months ago and we have been renovating them and or repairing them with the cash flow. We have taken no money out and we still need to spend aprox $10,000 more in additional renovations which will take us another 5 months of cash flow.
We figure the property will have appreciated approx $118,000 when we are finished with the renovations
Does this sound like we have done well?
We also should have an appreciable tax loss for last year.
We are trying to buy another Duplex but it is very difficult to find one in our area. We are self managing these 2 properties.

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She March 4, 2015 at 5:18 am

New fan here! Been searching for some articles about Real Estate investing and stumble upon your site. I’m not an investor, but a Virtual Assistant of a RE investor, and I’d like to have a deeper understanding of his business and of what he does in the investing world. Very helpful info I found here, will surely be coming back. Thanks! :)

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Jose August 12, 2015 at 10:13 pm

Hi im 17, and my dream is to be an investor , I will start saving up money when im 18. Thanks for this tips, helps me a lot and now I understand more about it. Thanks a lot!

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Brian L. October 5, 2015 at 3:18 am

Brandon,

I’ve done a few flips and am quickly realizing that buying longer term investment properties is the way to build wealth and accomplish my goal of retiring by the age of 40. I like your article and it aligns with my strategy of buying a 4 plex as a first rental property. I live in Dallas Fort Worth and have been searching outside of the city to find deals with better cash flow. What characteristics do you typically look for in an area that you buy rentals?

Great article!

-Brian

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Peter December 19, 2015 at 11:09 pm

Help I was looking at a four Plex
The guy wants 168000
There paying 535 a month and is 50% full

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Dream July 11, 2016 at 8:32 pm

Hi Brandon,

I have now been in my home 3 years, and finally have open my eyes to spec homes or Duplex/Triplexes..I have now split off my lot next to my home and own it free and clear. I in Asheville NC.. very good place far as market value and expensive also.

I have gotten a new quote on a duplex.. 265,000 and triplex at 315,000
I feel i should shop around more for better deals..
What are your thoughts ?

Reply

Julia E. August 19, 2016 at 6:20 am

Literally LOL’ed at “do you really think your home is gaining $13,000 per year?” YES. Where do you live? Clearly not in Vancouver or Toronto …but that may be a good thing! :)

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Julia E. August 19, 2016 at 6:26 am

Where are you buying homes for 50K? A parking spot in my condo now costs $50,000. I bought 2 at $25,000 each pre-construction. They’ve appreciated more (doubled!) than the condo itself. Forget real estate, let’s all just start buying up parking spaces :)

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Jeff Redman September 26, 2016 at 10:52 am

I agree with the saying, “Your home is not an investment”. Though you may consider buying property as an investment, it happens only when you rent out the property or generate further revenue from it. So its a great idea to look for duplex homes when you buy your first property.

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Patrick Freeze October 5, 2016 at 3:30 am

I think you make an interesting point about your own home being a drain on resources. I think for many people who want to start out in the rental property business there is a desire to find unique ways to get started when it comes to financing, property types, and business management. I also think that experience will help new property owners become better property owners down the line, though many do not have the time or expertise to handle such things. Luckily, there are quality property management companies that can handle the bulk of property management for them. And, if they are a reputable company, they will be able to guide the property owner through every step giving them “experience”.

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PART Realty October 7, 2016 at 4:50 pm

There are numerous people that want to dive into investment properties but don’t know where to get started. You make several good points for why small multifamily homes are the place to begin. They’re a safe investment and generally easier to maintain. Thanks for sharing Brandon!

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Elisa October 13, 2016 at 12:58 am

VERY helpful article. This is actually my first article read of investing and it’s something I’ve always wanted to do, but put no action into it. I must be honest, I don’t have much of any money saved, but I do have A1, excellent credit. Do u think it’s possible to get started on these type of conditions? This is something I’m extremely interested in doing.

Thanks

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Anna November 2, 2016 at 6:56 pm

The house I currently live in is in a living trust and is being sold. My inheritance is 150k. I found a town home I like for 280k (normal in my area). I make 70k a year (it’s a new job I was making 50k). I have 30k in savings. I could put down a large down payment and have a smaller mortgage or I could get an FHA and put 50k down on the townhouse and put 50k down on a similar priced two family home near by and use the investment home to pay my mortgage. I am a single mother of 1 10 year old who I pay for on my own. Not sure if this is very risky for me. I have never done anything like this before. I’m 37 and live in NY Suberb if that helps.

Reply

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