My wife and I currently own and live in our townhome in OC. Estimated 300k in equity currently. Would like to dip my toe in investing in rental properties. We would like to move into a bigger, forever home in the very near future as well and keep current property as a long-term rental. I bought the townhome knowing I'd eventually turn it into a LTR. I'm guessing we'd be spending $1mm-1.5mm+ easily on our new home living in OC.
My parents live in Peoria, AZ so always thought of the idea of investing in AZ. Don't have a ton of capital currently on hand. Looking for ways and strategies to get started. Thought of a HELOC on current townhome to cover investment property down payment costs, but not sure how that would be affected if we moved out of the townhome in a couple years. Would love to hear some feedback!
@Tim Alhanati You could keep living in the townhome and buy rentals out of state and build up a cash-flowing portfolio if the local market doesn't make sense or move out of the townhome and make it a long-term rental and buy another owner occ deal.
@Tim Alhanati Hello Neighbor. I would sell your primary home for tax reasons. If you sell it then you can use the 131 tax exclusion of $250K for you and another $250K for your wife. I would then find your forever home and buy that first. After settling in then you should start looking for your buy and hold in AZ.
I would do a HELOC. You can use it as a DP or use the BRRR method to pay back the HELOC. Flipping is another option. Either way having 300K in equity is a great start. Before doing anything find what strategy and area you want then build a team to support that.
@Tim Alhanati Have you thought about getting a second home as a house hack? Renting out your first fully to get yourself in position to get 2-3 rentals in the next 2 years with HH! I do it now in Redlands and I close on another in SD!
What are the goals you want to achieve? That's the first place to start. You're in a good position with that much equity. Can your current house cash flow as a rental? Can you buy a small multifamily and house hack for your next property?
Remember that you probably can't access 100% of the equity you have without selling. Most banks will only let you go up to 70-80% of actual value. There may be some exceptions, but you'll have to really shop around to find them.
Long-distance investing is a little trickier, but is done all the time. I would look for the option to increase your unit count as fast as possible while avoiding negative cash flow. Thats just my strategy though!
2. Get your finances in order. Get rid of debt, build a budget, and save. The idea that you can build wealth without putting any money into it is a recipe for disaster and the sales pitch of gurus trying to steal your money. A wise investor will not try to get rich quick with shortcuts. If you can't keep control of your personal finances, you are highly unlikely to succeed in real estate investing. Check out my personal favorite, Set For Life by Scott Trench , or The Total Money Makeover by Dave Ramsey.
3. As you read these books, watch the BiggerPockets podcasts. This will clarify and reinforce what you are reading. You can hear real-world examples of how others have built their investment portfolio and (hopefully) learn to avoid their mistakes.
4. Now you need to figure out how to find deals and pay for them. Again, the BiggerPockets store has some books for this or you can learn by watching podcasts, reading blogs, and interacting on the forum. There is a handy search bar in the upper right that makes it easy to find previous discussions, blogs, podcasts, and other resources. BiggerPockets also has a calculator you can use to analyze deals and I highly recommend you start this as soon as possible, even if you are not ready to buy. If you consistently analyze properties, it will be much easier to recognize a good deal when it shows up. Find Brandon's videos on YouTube for the "four square" method of analyzing homes and practice. It doesn't take long to learn how to spot a good deal.
5. Study the market. You can learn to do this on your own or get a rockstar REALTOR to lead the way. I highly recommend a well-qualified REALTOR that works with investors and knows how to best help you.
6. Jump in! Far too many get stuck in the "paralysis by analysis" stage, thinking they just don't know enough to get started. The truth is, you could read 100 books and still not know enough because certain things need to be learned through trial-and-error. You don't need to know everything to get started; you just need a foundation to build on and the rest will come through experience and then refining your education.
You can build a basic understanding of investing in 3-6 months. How long it takes to be financially ready is different for everyone. Once you're ready, create a goal (e.g. "I will buy at least one single-family home, duplex, triplex, or fourplex before the end of 2019") and then do it. Real estate investing is a pretty forgiving world and the average person can still make money even with some pretty big mistakes.
I'd recommend that you keep/start learning! This can be done through Podcasts, Books, and Mentors you find by networking.
I'd pick up a copy of Set for Life by Scott Trench as it has a good framework for financial independence, especially for a newer investor. Real Estate is just a part of your total financial picture so don't become too focused on just real estate. You'll want to learn more ways to increase your income now and in the future, keep your expenses low, and take the difference to invest into assets, real estate/business.
As already mentioned above, a house hack will probably be one of the best strategies for you to get started and take action while giving you a great return because of the low % down needed to get started. Once you get to this point, make sure to run your numbers for both while living in the house hack (lowering your living expense to less than what it would be to rent in your area) and post move out where you need to be at least break even after accounting for your monthly payment + maintenance, capex, vacancy, property management.
You don't have to stay there forever and can be done multiple times until you finally get to that bigger, forever home. Best of luck getting started! Here for you with any questions you have along the way!
@Tim Alhanati You could keep living in the townhome and buy rentals out of state and build up a cash-flowing portfolio if the local market doesn't make sense or move out of the townhome and make it a long-term rental and buy another owner occ deal.
Hi Tim, One of the easiest ways of scaling in real estate today is to invest in turnkey properties out of state. If you have a busy 9-5 routine but have the money to get started and don't have enough time, turnkey companies provide some of the best resources to scale your portfolio. I have used that strategy so feel free to reach out if you want to discuss.
We think the Midwest is a GREAT place for OOS investors to consider!
YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cities & neighborhoods: https://www.biggerpockets.com/... (links also available @ our website)
Your biggest question shouldn't be WHERE to invest, but HOW you will invest!
Many OOS investors set themselves up for failure because they don't truly take the time to understand:
1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.
2) The Class of the PROPERTY they are buying - which is relative to the overall area.
3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.
4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.
5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.
6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.
7) That OOS property Class rankings are often different than the Class ranking of the local market they live.
8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.
9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.
10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.
11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.
Hi, I would house hack a second house or use some of the equity from a heloc and use a 10% second home loan and get a short term rental close by. Maybe Joshua Tree, Big Bear or Palm Springs.
My wife and I currently own and live in our townhome in OC. Estimated 300k in equity currently. Would like to dip my toe in investing in rental properties. We would like to move into a bigger, forever home in the very near future as well and keep current property as a long-term rental. I bought the townhome knowing I'd eventually turn it into a LTR. I'm guessing we'd be spending $1mm-1.5mm+ easily on our new home living in OC.
My parents live in Peoria, AZ so always thought of the idea of investing in AZ. Don't have a ton of capital currently on hand. Looking for ways and strategies to get started. Thought of a HELOC on current townhome to cover investment property down payment costs, but not sure how that would be affected if we moved out of the townhome in a couple years. Would love to hear some feedback!
Hey Tim, when you picture your ideal scenario as far as your next move, what do you see?
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