When pondering the purchase of a real estate income property, novice real estate investors always aim to purchase the “best property” in the “best location with the “best tenants” for the “best price. They prioritize the ‘pride of ownership’ over the ‘profit of ownership’.
What they are really saying is this:
- They want to own a property they would be willing to live in or better
- By ‘best location,’ they mean they want to buy something comparable to their own neighborhood, or better
- Finally, by ‘best tenants,’ they mean someone like themselves, or better.
The truth is that just as many fortunes have been made by investing in lower income areas as it has by investing in higher-end areas.
The best property in the best locations only rarely make the best real estate investment.
High-end properties demand high-end prices and as such the economics of operation are usually far less attractive.
As a new investor, buying a small building in an upscale area is probably out of reach for you and your bank account. Odds are you stretched your budget a bit (or a lot) when you bought your own home in the neighborhood in which you live. Trying to obtain a second property in the same neighborhood will probably just sour you on this kind of investing before you even get out of the gate.
But there is good news to be had; that lesser buildings located in your second or third choice for location will yield you a higher percentage return in almost every case. Those are the buildings to go after.
Here are the most important things to note about that middle of the road property in the middle of the road neighborhood:
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