Best out of the gate strategy

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Best out of the gate strategy

Rich C
NY · Member since 2012 · 5 posts · 0 votes

If you had 50k to invest and no properties or real estate experience, but only knowledge, how would you choose to begin your real estate career?

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Mark UpdegraffBusiness Member
Real Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 701 votes
14y

Do you have 50K or is this hypothetical?
If you don't have it (which it sounds like by your wording of the question), then in order to get out of the gate you need to learn how to save money. And not, "look I saved 10% on my car insurance by switching to the lizard" You need to start a saving account and "pay yourself first." Once you start to build it up you'll realized how careful you need to be about preserving it and making it work for you. I would start there. Not "what would you do with 50K"

Learn to save and investing will follow,
Mark

Podcast Guest on Show #112
Updegraff Group Realty4.746 Reviews
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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    14y

    LOL, experience is gained by doing, not just knowing. What can you do? I'd need more information about you to say. Any construction, management, sales, public relations, political, financial or legal experience, since real estate takes in all of these aspects, go with your strengths.

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    14y

    Invest in a REIT and go to work for an investor

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
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  • Arthur Garcia
    Specialist · San Dimas, CA · Member since 2011 · 350 posts · 122 votes
    14y

    I agree with Bill Gulley, we need a little more info on what your goals are. Once we have that we can make a few suggestions...

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  • Ed L.
    Residential Real Estate Agent · Hattiesburg, MS · Member since 2011 · 475 posts · 141 votes
    14y

    Jump in and get your feet wet..

    I leverage my cash and use other peoples money as much as possible...

    My last deal I literally had $0 invested of my own funds.. I even received a sales commission back when I purchased the property on the front side...

    It may be crazy, but it's worth 5% interest to have my cash on hand in case something big comes up that I need a large down payment for..

    0Reply
  • Mark UpdegraffBusiness Member
    Real Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 701 votes
    14y

    Do you have 50K or is this hypothetical?
    If you don't have it (which it sounds like by your wording of the question), then in order to get out of the gate you need to learn how to save money. And not, "look I saved 10% on my car insurance by switching to the lizard" You need to start a saving account and "pay yourself first." Once you start to build it up you'll realized how careful you need to be about preserving it and making it work for you. I would start there. Not "what would you do with 50K"

    Learn to save and investing will follow,
    Mark

    Podcast Guest on Show #112
    Updegraff Group Realty4.746 Reviews
    WebsiteView Page
    3Reply
  • Arthur Garcia
    Specialist · San Dimas, CA · Member since 2011 · 350 posts · 122 votes
    14y

    Mark Updegraff - great point! If you don't know what to do with 50K, then you need to learn which strategy best mirrors your lifestyle and objectives.

    BTW - I just about fell out of my chair regarding your "lizard" comment lol!

    1Reply
  • Louis Jeffries
    Lender · Chicago, IL · Member since 2010 · 149 posts · 127 votes
    14y

    First we need to know your goals and your background. Each investor is different. You may be handy and a fixer upper is for you. You may be in an area where $50,000 is not a lot of money or in another area where $50,000 can buy and rehab multiple properties. I would look for a local mentor that you can trust, and begin to learn a market and the type of properties you want to invest in.

    0Reply
  • Rich C
    OP
    NY · Member since 2012 · 5 posts · 0 votes
    14y

    Thanks for your responses. I am not handy and have never owned property, I want to capitalize on the current low prices and mortgage rates with the money I've saved. For around 3 months now, I have read several multi family investing real estate books, this forum, other Landlording websites and done very basic online research (Craigslist, Loopnet, Trulia) on available properties to test different markets and what I've learned so far. My goal is to buy and hold income producing rental properties that return 15 to 25 pct of invested capital, and sell when either prices appreciate or enough equity is built up to allow the purchase of a larger property twice the value of the previous purchase. I'm having a hard time getting started with this idea. Also, I need to buy out of market because metro NY is totally unconducive to my goal, so that means hiring a property manager which I understand adds another layer of complication. I've been thinking Raleigh, Savannah, and Rochester so far but what I've found isn't impressive. I'm thinking brokers are the best source of properties because they want to do the best deals without ever listing the places to collect double the commission, am I right? I have yet to call them because I want to get more educated first so I come off as pro as possible. Where can I find some good properties that might allow me to fulfill the aforementioned goal, am I going in the right direction?

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    14y

    Getting 25% on your cash with a management company in the mix may be tough to accomplish, that's skimming about $1,100 a month on 50K. More like 10 to 15%.....

    I'm not familiar with the markets in those areas, I'm sure there are folks close by that can provide guidance.

    Sounds like you'dbe interested in a 1031 exchange down the road and that can work fine, doubling your money in 10 may be another tough one, but you can finance the difference, so the sky is the limit I guess.

    As to better properties being off the market due to Realtor greed, not really, most owners don't want it known that the property is for sale, many think tenants will bail out if a new owner shows up so it's a quiet deal. IMO, most places are for sale, the owner just hasn't been motivated and offered an interesting price yet.

    I'd suggest you study some more and bring the goals within a more realistic view. I'd also be reading about property management companies, it may not be for you.

    I'd suggest you find a niche that you could do locally, within an hours drive.....

    2Reply
  • Michael Lauther
    Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes
    14y

    I probably sound like a broken record (do records still exist?) to those who have read my posts, but I invest in Dayton Ohio and while I dont want to invite too much competition you could probably buy 2 properties in Dayton with rehab completed.

    The properties would be small easily managed 2 or 3 bedroom single family properties with rental income of $550 to $625 per month. If you apply the 2% 50% rule you will find that you will net 275 to 312 dollars monthly which would be almost a 15% return on investment per year without considering appreciation.

    These numbers would be conservative for the first few years because we are talking about intelligently rehabbed properties. Txes are around $1000 per year and insurance around $600 per year. The maintenance should be minimal but the challenge is decent tenant selection and vacancy

    The 2%+ of purchase price in rent comes with additional challenges as this is a c class neighborhood but these prices have been beaten down even before the economic downturn occurred for the rest of the nation.

    Market appreciation has been limited because these homes that once sold for $50K to $65K are now being bought by cash buyers who are Paying from 17K -25K . The downward pressure has been increased because there is no lender who will consider small mortgages which will tend to squeeze out any retail purchasers. The market is predominantly investors holding rental properties.

    As the economy recovers and unemployment subsides I anticipate this market will pick up faster than the overall market. If your holding time is 10 years you could see the retail market return and prices escalate at a good pace once mortgage money is available.

    0Reply
  • Rich C
    OP
    NY · Member since 2012 · 5 posts · 0 votes
    14y

    Bill - have you acquired properties by simply getting in contact with an owner and making an offer even though the property wasn't listed? The areas I looked at were based on vacancy rates, employment rates and price to rent.

    Michael - I've read many of your posts about your investments, thank you for your suggestions, they sound great. Do you use a property manager? Interesting how no lender is considering mortgages that small, definitely see how that scenario is perfect for a rental investment environment. I imagine there are probably many other areas of the nation like this as well, I'm thinking a search of land values and then googlee maps and demographics data would yield some good info.

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    14y
    Originally posted by Rich C:
    Bill - have you acquired properties by simply getting in contact with an owner and making an offer even though the property wasn't listed? The areas I looked at were based on vacancy rates, employment rates and price to rent.

    Absolutely! Make friends, have a good network, keep your ear to the ground and talk to landlords/property owners and listen, read between the lines and when they seem to be dissatisfied with a property ask if they would sell, heck, if it sounds like they are satisfied, ask anyway!

    Imight be in an unusual location, near Branson, Mo. most everything is for sale but not listed, lots of mom-pop places where they found it's harder than they thought, especially motel/resturants.

    Last Friday I bumped in to an old timer who has a office wharehouse and we talked about it. It's cash flowing without any debt service and he said after the lease he might sell. His comments about the gains on the sale and taking a tax beating is a usual comment, what that means is he will take a down and carry the note. I'll be back with him before the lease is up.

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  • Michael Lauther
    Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes
    14y

    Good morning Rich C, I have had experience with a few property managers that have been less than satisfying. Ultimately I will need a manager but for now I am using a handy man who is filling in as a manager and I pay him for his time either to sign a lease , pick up rent when necessary and do repairs. The biggest issue I face with property managers is the prices I get for repairs. It feels as though they are overcharging in most cases and taking advantage of the fact that I invest out of my area.

    0Reply
  • Jeff S.
    Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    14y

    Michael,

    While I like the price structure where any profit is a good return, my concern is the % of expense in relation to the income.

    "These numbers would be conservative for the first few years because we are talking about intelligently rehabbed properties. Txes are around $1000 per year and insurance around $600 per year. The maintenance should be minimal but the challenge is decent tenant selection and vacancy"

    I have a property that brings $1065 per month, taxes are $1264 and insurance is $600, and vacancy is basically zero. My repairs should be about the same as yours as this house is older too. If you have turnover then your maintenance will be higher than mine. Other expenses should be comparable.

    Including a rehab in your purchase price makes sense but it is just a countdown until the next rehab.

    If you get 15% on $19,000 it is still not a lot of money for same effort. I wanna believe but having a hard time.

    Not critical, just need to understand how this plays out. If appreciation play then all is well.

    0Reply
  • Michael Lauther
    Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes
    14y

    Jeff: i will use the most recent purchase of a sec 8 property purchase price plus repair and closing come to 20,000. the new rent after recent increase is $625 monthly (was 588) taxes are just under 900 and insurance is just under $600.( these are ballpark numbers did not look up exact) Income is $7500 taxes and insurance are 1500 which nets $6000 before maintenance etc. that translates to a 30% return. I would be foolish to think that this will hold but my tenant is a young mother with children in schools and is working hard to get off of sec 8 and would like to buy the property is she becomes successful. It is a good neighborhood but yes it is poor. I say a good neighborhood because many of my tenants have family close by and a support system. This is an area that I believe can recover nicely.

    I will recover my investment in less than 4 years and if I need a new roof in the next 5 years than add a year. Vacancy and unanticipated repairs can eat into this return so I use more conservative calculations to evaluate long term results.

    My other property's have similar numbers but I have one that is problematic because I had made an unfortunate choice of tenant and an equally unfortunate choice of Property manager. This has been rectified so the prospects have improved.

    0Reply
  • Mark UpdegraffBusiness Member
    Real Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 701 votes
    14y

    Rich C I would scratch Rochester off your list unless you're managing it or you can get into a GOOD location. Kodak = chapter 11, xerox = sinking ship, ITT = moving to DC... There are cash flowing properties in war zones, but tenant damage, vacancy, and eviction will eat up your money and your sanity. If you do go for the ol ROC stick near the universities. The 19th ward is the current 'gamblers' area. I personally don't think the 19th will take off for another 20-30 years IF enrollments at the UofR keep increasing. Given the student loan crisis, the recession, and washington.... I'm not buying there yet :D The marcellus shale play on the other hand, severely undersupplied! If NY lifts the hydrofrac ban, I would be down in the southern tier in a heartbeat!

    Best,
    Mark

    Podcast Guest on Show #112
    Updegraff Group Realty4.746 Reviews
    WebsiteView Page
    1Reply
  • Michael Lauther
    Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes
    14y

    Mark : thanks for the insightful observations about About Rochester. I have been looking at that area and was up there last year. Can you elaborate on the Marcellus shale play and the area being under supplied? And Yes Mark I do have $50,000 to commit to the area.

    Ok Mark I do digress, this is a bit of sarcasm on my part but your prior post came off as a bit intimidating which was made up for by this recent post which has some real useful information.

    0Reply
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