For “hands on” type investors like myself, I have long held the notion that the best type of real estate to buy, when you are just starting out, is something between rundown and ugly and a complete “junker”. The degree of rundown or ugliness will be mostly dependent upon how brave you choose to be. Personally, I think the braver you can be the less you need to spend with your first several acquisitions.
To start with, sellers of these kinds of properties are not in a position to be very picky about down payment. They can’t play “hard ball” with the price and terms like owners of higher quality, nicer looking properties. The main reason is because 95 percent of all potential buyers are “turned off” by the rundown condition and ugliness. Consequently, lack of buyer competition will greatly limit the owner’s ability to sell.
Another important reason to start out with this type of property is because it’s a good experiment for you. It provides you with an opportunity to learn what you can and cannot do. If you purchase a rundown house or small apartment building that’s already an existing eyesore when you buy it, ask yourself this question: How can I possibly make it worse? Even with very limited handyman skills, your efforts are still likely to make some worthwhile improvements. If you don’t do things exactly right the first time, so what! Who cares! No one but you will probably even notice. Simply do it over again until you get it right.
Finally, there is another important benefit you get which I rank about as high as the others. It’s called confidence in yourself. Once you actually experience positive money coming in, you begin to realize – “Hey, Its me! I’m really making good things happen”! Confidence in yourself is worth more than the money and strangely enough. Earning a little money in the beginning builds confidence faster than anything.