What's the best, first investment property?

I'm in the process of saving up a downpayment to get into buying places to rent out. There are a few different routes I was thinking of taking, which do you think is the best?

1) Have me and a friend each save up for a downpayment on a 3 or more family building and rent them all out.

2) Have the 2 of us save up and buy a 1 or 2 family place to rent

3) If my friend isn't able to save up the money just buy a duplex and live in half with my girlfriend.

and as a side question, whats the difference in insurance for owner occupied and non owner occupied?

The prior answers to your question are admirable and quite informative, but, they do no take into consideration what may be, or should be your main goal, making a profit on these investments. Investments, in order to be profitable,need to have a plan or timetable. Were you looking to turn these investments over (sell) for a profit quickly or in the near future, or ar you looking to hold on to them long-term?The answer to your question ultimately lies in the answers to the previously mentioned questions in my answer.

The prior answers were correct in assessing the advantages of "owner-occupied" when financing and insuring the property, as well as warning of potential problems with partnerships that are cost-effective initially but may turn into very costly non cost-effective investing practices. However, they did not mention the potential pitfalls of property management. It is extremely difficult to find the "perfect tenant" who not only pays on time, but who cares for your property in the same manner you do. Evicting non-paying tenants or "nuissance" tenants is a whole other ball-game.

Whatever you decide to do, investing is always a good idea. You should: a) take two (2) courses at your local college both in real estate investing and landlord-tenant so that you can better familiarize yourself with the legalities and terms, b) save at least 20% as and for a down payment to avoid PMI, c) purchase only properties that cover all expenses and hopefully put some dollars in your pocket and never buy the best-looking most expensive house on the block, rather always the least expensive, no matter how it looks!!! Educating yourself should always be the most important factor!!!


Good Luck and please feel free to ask any questions and let me know how it turns out!!

You've clearly got a lot of ideas going on here. After reading some of those ideas, I believe the best one is to purchase a duplex with you living in one half and renting the other half. A word of wisdom to you would be: never, under any circumstances go into a partnership with a friend, especially when buying/selling real estate. Trust me, it doesnt work. It's far better for you and your girlfriend to own the duplex. It's lots less hassle with partnerships (who may, at the drop of a dime, want out asap). More often than not, the rental from the other half of the duplex will almost cover your entire mortgage.

With reference to your question concerning insurance, here's the answer. Insurance is significantly less for owner occupied versus rental situations. Also important to consider is the reality that most mortgage banks will not grant a first time home buyer a mortgage without the absolute commitment that the buyer will be living there. You might think you can make them think this, but, let me assure you, should something happen with or to the property, the lender will be right there at your front door to 'call' the mortgage due and payable immediately upon notice. That's the law.

Option 3 is your best choice. Stay away from partners UNLESS you have no choice. It can lead to problems and ruin relationships, esp if you are young (under 30'ish)

Work on raising your credit score and saving for a down payment. At least 5% and 10% or more is better..You will get a better loan. Do not get in over your head. If you cannot comfortably afford the payment, consider waiting.

DO NOT expect appreciation to bail you out. Have that be the bonus. Understand your loan options and try to qualify for at least a 10 YR ARM or 30 YR Fixed. STAY AWAY from negative amortization loans.....

Insurance coverage is similar in price, depending on coverages and deductible. You do not need personal property insurance for your tenants, just fire & liability to the coverage that your lender requires.
You WILL get a better loan if you are going to live in the property. GOOD LUCK