BiggerPockets

I have been considering getting into real estate investments for some time now as I live in Houston and the population has exploded in recent years.

I will have a bit of extra cash later this year which I would like put to good use (10-20k roughly). Most likely more, but starting off small would work best for getting my feet wet.

I am leaning towards rental properties which would be basically move in ready. Basically move in ready meaning maybe it needs $5000 or less for any cosmetic fixes, new appliance(s), or the like.

Flipping doesn't seem like the route for me as I have no construction experience, therefore labor costs would offset most of the gains...or am I wrong?

Can anyone offer some insight on how much effort/time it takes to oversee a rental property vs. overseeing the flip of a house? I would think dealing with a rental would be less time consuming unless you have a bad tenant or a problem with the property itself. On the other hand, how much
money/time/effort does it take to deal with any legal matters associated with having lease contract drawn up, screening tenants, etc? I've read about people having a PM for all that, but haven't looked into the costs. Time is an important factor as I work anywhere from 45-60 hours a week.

I have heard/read somewhere that ideally someone investing in property would want to see returns no more than 2 years later. Any thoughts on this would be appreciated, 2 years seems rather short to me.

Specifically anyone in the Houston area who may be interested in mentoring, but all input will be greatly appreciated!

Can anyone offer some insight on how much effort/time it takes to oversee a rental property vs. overseeing the flip of a house?

They can both be done using a LOT of your own time or very little of your own time. The questions are how good are you, how much do you know, and how good at managing are you? In general if you are new both are going to take a lot of tie as you figure out the details of doing the business.

I have heard/read somewhere that ideally someone investing in property would want to see returns no more than 2 years later

This is NOT a common rule of thumb. I couldn't even tell you what it means. Does this mean that investors who buy and hold plan to be selling two years (probably too soon)? Is it referring to rehabbers want a job done in 2 years (way to long)? Perhaps it is supposed to mean that a property should generate positive cash flow within 2 years (I wouldn't tolerate that long)?

good luck - Ned

PS: I see it's your first post - welcome to BP

Michael, in answer to your original question, it's my opinion that that managing rentals yourself is not very time consuming once you've got everything set up. I work full time and manage my own rentals (sfrs) and have been doing so for the last 5 years and I find that the vast majority of my time is spent on (1) looking for new deals; and (2) fixing up the properties when I initially purchase them. Once the properties are fixed up, I find that they require very little of my time. (I'm up to 12 properties, and easily could do more). In terms of the amount of time I spend managing my rentals, I probably spend a few hours a month on them. (Again, though, it took me a while to set up my systems). Managing a rehab while working full time can be very time consuming so if you're just starting out, I would go for something not requiring a ton of work.

Haha @Chris Clothier. Thanks for the welcome and the compliments! Cheers to biz!

Hi Michael, great question! You know, I don't think it's a big difference. I've never done the math, although now I think I'm going to for the sake of now I'm curious what the actual numbers look like. In thinking about the market I'm most familiar with, Atlanta, I can give you a basic numbers guess (numbers from about a year ago, things there have changed a lot). \

You could buy a foreclosure for say $20k-30k, with about 18-22% cap rate after initial rehab costs. So the investor probably put in an additional $5k-30k in rehab costs, then rents it out which gives him an 18-22% return. Also in that purchase, the buyer had to find tenants and had to find property managers if he wanted one.

If you had bought a turnkey property, which is fully rehabbed with tenants and managers in place, the average purchase price was $55k-100k with 9-14% cap rates.

Also remember too- you can finance full purchase price of the turnkeys. With a foreclosure, you can only finance the purchase price (maybe) but not the construction costs. Construction loans usually only help with flipping, not holding, so that doesn't help much either for a hold. The important factor in how much you can finance, aside from if you only have a certain amount of cash to play with, is leveraging gives you a higher cash-on-cash return. So potentially that financed turnkey with lower cap rates could give you a higher cash-on-cash return than that foreclosure with higher cap rates!

My final answer? About a year ago in Atlanta, you're looking at an average of about a 8% difference on ROI between doing all the work yourself and having someone else doing everything for you.

My last final answer? I hate stress. Doing any of that work I mentioned really stresses me out, so I tell anyone who wants those extra 8% points to have fun with them because I don't want them!

I am going to put more thought into this so I can answer it more specifically. Keep an eye on the blogs as I foresee me being able to write one that answers just this.

Welcome Michael, have you looked into any Real Estate Investment Clubs in your area? Great way to get local contacts with like minded investors. Check out under Resources header at top of page. Also read, read, read there are a lot of paths, find the right one for you. best of luck, you made a great start by finding BP

Originally posted by Ken Hipp:
Welcome Michael, have you looked into any Real Estate Investment Clubs in your area? Great way to get local contacts with like minded investors.

Hi Ken. I looked at a few local investor club websites to see what they're about, but nothing more yet. I will follow up with that.

Oh, sorry @John Chapman. I didn't say that right. I don't mean you can finance the whole purchase price, but you can finance based off the full purchase price. If property is $100k, you can get a loan based on that whole amount (which would trigger a $20-25k down payment and then a $75-80k loan amount). If you spend the same $100k on a house that costs $50k to buy and $50k to rehab, you can only get the loan on the $50k purchase price (then your 20-25% down payment) and the $50k for rehab costs has to be covered usually in cash if for a buy-and-hold.

Originally posted by Robert Adams:
Welcome to BP! If you ever have any questions in regrds to the Las Vegas market please don't hesistate to ask.

Robert,
What does a modest rental go for in vegas, ballpark? I would assume anything there is fairly expensive. Turnkey would be of most interest to me.