What would you do? Newbie investor trying to get started!
I am about a month in on my REI education - I've been reading a ton of books, listening to podcasts, studying markets...
Curious, how long did it take for you all to pull the trigger and purchase your first investment property? I have been back and forth with SFHs, MFHs, STRs, turnkey properties...at this moment I am focused on small multi-family properties or SFHs that I can use for STRs.
Here's where I could use some advice. I have $60K liquid that I want to use to fund a down payment, any rehab, and still have some left in reserves. So I am looking at a ceiling of around $225K. Not a whole lot of markets that I have found so far where $225K will break you into the multi-family niche.
I would also prefer to purchase something local (St Louis) so I can learn the ins and outs of property management - i think that is very important in reducing costs and improving cash flow, at least at the beginning. Although I am not opposed to investing out-of-state if the deal is right.
I also have a primary residence with approx $60K in equity. Househacking will not be an option at this point.
What would you do with $60K and a strong desire to get into real estate investing? Need a little help focusing and straightening my path! Thanks to all of you.
I should also mention that I'm in my early forties and my goal is to be financially FREE within 5 years. I am ready to live a life free of a W2 job. Aren't we all? :)
Man props to you on the education and the savings. You’ve got a great “financial runway” as Scott Trench put it so well.
It took me about a year once I decided I wanted to invest. I managed to get a place on a 3% down with a conventional loan, from the mls but with a -$37k price reduction in my favor. That is the power of using owner occupied loans in REI. If you move out to rent it or flip it.
I’d suggest purchasing with liquidity growth in mind. Burning that $60k on a downpayment might stagnate your liquids.. what if a house is empty, someone doesn’t pay. Whatever. You get it. Really you don’t have $60 you’ve got $50 tops if you want healthy reserves.
One rental won’t change your life financially. Neither will 2 or 3 or 4… ask me how I know :) I see so many people so excited to get ONE deal and then 5 years later they did that… ONE deal…..
what will change your life is a blend of rental cash flow + liquidity growth. It’s REALLLLLLLLY why brrrr is king of the hill for me. flips are a close second. Imagine doing a brrrr and in 7 months it’s rented and you do your refi and when done you’ve got $70k instead of $60, because you did such a gosh darn good job getting all that capital recycled back out, and your value was so worthwhile that the appraisal comes in above what you expected. You now still have the $60k and you’ve got $200-500 per mo net cash flow and… you can do another… and… another… and….
If uncomfortable with that and not wanting a major project a STR could be good but I personally haven't done one (yet!). They seem to favor folks who want MINOR cosmetic upgrades and that's something I suggest when starting out - not a massive gut job level rehab (ask me how I know 🤪). They do seem to also favor those who are wanting to self manage, and give them self a second job…
I’m cheering for you and hopefully the friendly suggestions are well received.
I've invested a lot in St Louis over the years and the pricepoint is helpful. Househacking is the best way because of the low interest rate and down payment required. Is it still off the table if you move into a nice duplex with 3 bedrooms on each side?
STR can work, but I wouldn't do it locally. Maybe Branson or the Ozarks. The benefit of STR is you can put just 10% down which helps your pricepoint.
BRRR is a fantastic idea but its definitely not for newbies. If you go to local meetups and partner with someone experienced you can do a few together before you venture on your own. You could be the money guy.
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@James Hamilton, I like your thoughts and @Nate Sanow advice is spot on. The only caveat is I would look for a 2 bedroom 2 bath duplex or a 2 bedroom 1 bath duplex. Even if it cost a hair more get it over a SFH, POSITIVE CASH FLOW is KING! I am a big duplex fan, read my profile. Cheers!
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Join local investment groups and learn more about your local market.
Quote from @James Hamilton:
It took me a few months. I was a real estate agent and property manager. I understood the basics of how to buy property and how it could benefit me, but seeing people with 30+ rentals was completely foreign and I assumed (wrongly) that they must be super smart and super wealthy. That could never be me.
I just started by listening to podcasts, reading the forums, and looking at the market. After a few months, I realized a basic truth: people that invested in 1970, 1980, or 1990 did not have access to all the information we do and they still made it work by holding on long-term. That's still true today. I can stick my finger on any property in any city today, buy whatever I land on, and I will make money in the long-term. Real estate investing is very forgiving of timing and mistakes.
So I bought a hoarder house for $57,000 which was really cheap for my market. I fixed it up, rented it, and then thought I could do it again. As I continued to read and interact with investors, my mindset changed and I realized I am capable of far more than I thought. Six years later I have 33 rentals, 150 storage units, making some serious cha-ching, and I paid $0 in taxes for 2021.
You'll accelerate with multi-family, but you can also do well with SFH, STR, commercial, storage, or even vacant land. Just find a niche, focus, and invest. You can always switch things up as you grow/learn.
It took me a year attending REIA meetings and watching others before I felt like I knew enough to get started. My background was construction so I felt I understood rehabs fairly well. My first project was a SF BRRRR, I didn't find out about BRRRR or bigger pockets until later after I had done a few. I had a full time W-2 so time was limited. I met private lenders at those REIA meetings and had built solid relationships over that first year. I put a house under contract for $85,000, a 3/1 and asked one of the private lenders if he would fund it. It took 3 private lenders on that first deal. I paid for the rehab ($17,000) and hired a contractor and oversaw the project. Project went well. When I refinanced, I got all my money back except for $2000. Within 6 months I had recouped all of my money and had a cash flowing project. After that I was off to the races. Probably have done 20 BRRRR's 6 flips or so and bought a STR at beach vacation area. My goal was to create generational wealth for my family and have solid income during retirement. A lot of SF, 2 unit, 4 units. I stayed in the area I was comfortable with. I loved sf. They were fairly easy to get, rehab and refi. If I wanted to sell one they weee easier then multi units. Renters were typically families and stayed multiple years. I self managed so I could learn the ins and outs in case I was going to turn it over to a pm. I felt by managing myself, I would be better equipped to manager my pm, since I had experienced many things by managing myself. It's been a great experience. Not all of it has been smooth, but it was definitely worth it. I continue to look for good projects to invest in.
Quote from @Kenneth Garrett:
It took me a year attending REIA meetings and watching others before I felt like I knew enough to get started. My background was construction so I felt I understood rehabs fairly well. My first project was a SF BRRRR, I didn't find out about BRRRR or bigger pockets until later after I had done a few. I had a full time W-2 so time was limited. I met private lenders at those REIA meetings and had built solid relationships over that first year. I put a house under contract for $85,000, a 3/1 and asked one of the private lenders if he would fund it. It took 3 private lenders on that first deal. I paid for the rehab ($17,000) and hired a contractor and oversaw the project. Project went well. When I refinanced, I got all my money back except for $2000. Within 6 months I had recouped all of my money and had a cash flowing project. After that I was off to the races. Probably have done 20 BRRRR's 6 flips or so and bought a STR at beach vacation area. My goal was to create generational wealth for my family and have solid income during retirement. A lot of SF, 2 unit, 4 units. I stayed in the area I was comfortable with. I loved sf. They were fairly easy to get, rehab and refi. If I wanted to sell one they weee easier then multi units. Renters were typically families and stayed multiple years. I self managed so I could learn the ins and outs in case I was going to turn it over to a pm. I felt by managing myself, I would be better equipped to manager my pm, since I had experienced many things by managing myself. It's been a great experience. Not all of it has been smooth, but it was definitely worth it. I continue to look for good projects to invest in.
Great story Kenneth! I wish I had more knowledge in the construction side of things, i'm a little scared of figuring out the rehab aspect of the BRRRR strategy. I think with more networking, I'll be able to meet with contractors and form relationships. I plan on attending our local REIA meetup on a monthly basis, so hopefully I'll meet some contractors or at least get some good referrals. Thanks for sharing!
@Kenneth Garrett
Quote from @Nathan Gesner:
Quote from @James Hamilton:
It took me a few months. I was a real estate agent and property manager. I understood the basics of how to buy property and how it could benefit me, but seeing people with 30+ rentals was completely foreign and I assumed (wrongly) that they must be super smart and super wealthy. That could never be me.
I just started by listening to podcasts, reading the forums, and looking at the market. After a few months, I realized a basic truth: people that invested in 1970, 1980, or 1990 did not have access to all the information we do and they still made it work by holding on long-term. That's still true today. I can stick my finger on any property in any city today, buy whatever I land on, and I will make money in the long-term. Real estate investing is very forgiving of timing and mistakes.
So I bought a hoarder house for $57,000 which was really cheap for my market. I fixed it up, rented it, and then thought I could do it again. As I continued to read and interact with investors, my mindset changed and I realized I am capable of far more than I thought. Six years later I have 33 rentals, 150 storage units, making some serious cha-ching, and I paid $0 in taxes for 2021.
You'll accelerate with multi-family, but you can also do well with SFH, STR, commercial, storage, or even vacant land. Just find a niche, focus, and invest. You can always switch things up as you grow/learn.
Amazing Nathan! How did you determine your market? Was it local or out-of-state?
@James Hamilton Good post and interesting topic. Do you have children? Any bad debts holding you back? These things limit what you can sacrifice to get the REI journey going. You're in a good market. Shopping in your backyard is the most effective plan. You're in a position to discover a strategy. Take advantage of your market knowledge to find/buy/create an opportunity.
When I started my journey I moved from an expensive neighborhood to a cheaper one. That was sacrifice #1, my #2 sacrifice was getting debt free. I made a clear runway to jump into investing. If I had changed nothing (given my income) I'd be house poor and have 0 rentals.
Quote from @Zeona McIntyre:
I've invested a lot in St Louis over the years and the pricepoint is helpful. Househacking is the best way because of the low interest rate and down payment required. Is it still off the table if you move into a nice duplex with 3 bedrooms on each side?
STR can work, but I wouldn't do it locally. Maybe Branson or the Ozarks. The benefit of STR is you can put just 10% down which helps your pricepoint.
BRRR is a fantastic idea but its definitely not for newbies. If you go to local meetups and partner with someone experienced you can do a few together before you venture on your own. You could be the money guy.
Not completely off the table, Zeona, but it will take a lot of convincing! We are only a year and half into living at our "forever" home, but hopefully that will change after I come up with a solid gameplan. I am thinking the same as you as far as STRs - we have Branson and Ozarks close by which have lots of possibilities. Entering that market may require more capital than I have at this moment, but down the road will definitely work. Thanks for your reply.
#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
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#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
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I would go out and start taking action
Quote from @James Hamilton:
It was local. I just told everyone I spoke with that I was in the market for an investment and to let me know if they hear of anything. Specifically, I told them it had to be a cheap fixer-upper, single-family, under $100,000. Three months later, someone brought me a deal that was off-market and the rest is history.
Stay local. Good luck.
Hello @James Hamilton,
I would start with your financial goal and work backward. For example, suppose $5,000/Mo. would set you financially free. If each property generates $300/Mo. net cash flow after all expenses, the number of units you need to reach your goal would be:
$5,000/$300 = 17 units
The most important factor for a dependable passive income is a dependable tenant. A dependable tenant is someone who:
- Has stable employment in a market segment that is very likely to be stable or improve over time
- Pays all the rent on schedule
- Takes care of the property
- Does not cause problems with neighbors
- Does not engage in illegal activities while on the property
- Stays for many years
There are many tenant pool segments in each market. Each segment has different characteristics. The segment that stays the longest is the one you want. Talk to property managers, investors, anybody with experience. Once you've identified a segment, find out where and what they currently rent. Then purchase comparable properties, which could be SFH, MF, condos, etc. Important, the tenant segment defines the property type, not you.
I hope this helps.
Quote from @Eric Fernwood:Eric, thanks for the post! I've been learning quite a bit on these forums. Living in the St Louis area, there are a bunch of different options of how to start which makes it challenging. I'm trying to always think of why i want to do this, which to create enough passive income to live on. I don't necessarily believe focusing on one property type only...which is your point. There is also an area across the river on the Illinois side, which has an Air Force Base and is within 20 miles of St Louis. This area sounds promising for SFR without question. Anyone invest in the Scott AFB area?
Hello @James Hamilton,
I would start with your financial goal and work backward. For example, suppose $5,000/Mo. would set you financially free. If each property generates $300/Mo. net cash flow after all expenses, the number of units you need to reach your goal would be:
$5,000/$300 = 17 units
The most important factor for a dependable passive income is a dependable tenant. A dependable tenant is someone who:
- Has stable employment in a market segment that is very likely to be stable or improve over time
- Pays all the rent on schedule
- Takes care of the property
- Does not cause problems with neighbors
- Does not engage in illegal activities while on the property
- Stays for many years
There are many tenant pool segments in each market. Each segment has different characteristics. The segment that stays the longest is the one you want. Talk to property managers, investors, anybody with experience. Once you've identified a segment, find out where and what they currently rent. Then purchase comparable properties, which could be SFH, MF, condos, etc. Important, the tenant segment defines the property type, not you.
I hope this helps.
Rule #1: Join your local REIA and volunteer to work there. Get to know the established investors verses the wanna bees.
#2: Read everything you can and ask the establishes investors what they read and who has a worthwhile course.
From my viewpoint there are too many gurus selling recycled information something they learned from someone else. You should look into Lou Brown's Whole Enchilada. It is a tad expensive but a less than 1/5 of the price of these weekend guru programs and it covers 100% of the real estate investor info you will need starting out.
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Quote from @George Skidis:I joined the STLREIA last month and plan on going to the in-person meeting on Tuesday. Is there an REIA around Belleville or Scott AFB? I'd love to connect with you to discuss investing in the metro East area!
Rule #1: Join your local REIA and volunteer to work there. Get to know the established investors verses the wanna bees.
#2: Read everything you can and ask the establishes investors what they read and who has a worthwhile course.
From my viewpoint there are too many gurus selling recycled information something they learned from someone else. You should look into Lou Brown's Whole Enchilada. It is a tad expensive but a less than 1/5 of the price of these weekend guru programs and it covers 100% of the real estate investor info you will need starting out.
Congratulations on getting educated and the savings and taking that first step! Lots of good advice on here. I became an investor by renting out my SFH in Indianapolis metro area instead of selling it when I moved to California. I have a property manager who took care of everything, screening tenants, writing up the lease and collecting payments. I pay him 10% property management fees, although I was told the range in Indiana is 8 to 12%.
Property #2 is local (San Francisco Bay Area) and I did major renovations to it. It went over budget so I wound up taking out an equity line to help pay for the renovations. I used Figure Lending - it's a combination of an equity loan and a HELOC, fixed 30 year payments but I can re-draw more money in the future (at current higher interest rates) as I pay it down. Some people don't like Figure but it worked for me (you can't use Figure on a multi-family only SFH). I have a tenant in and am self managing it but trying to get roommates in to maximize cash flow. I'm not sure if taking a small equity loan or HELOC is an option for you if you don't want to dip into savings.
I'm also looking out-of-state, another Indiana property, Ohio (Columbus), Missouri (Kansas City area), Tennessee (an hour outside of Nashville or Memphis), Florida Panhandle (why are so many people moving to Florida?). I'm also afraid of rehab costs since I just did a renovation so I'm thinking buying turnkey out-of-state or something with light rehab (cosmetic work).
Other considerations are Class A, B, C and D properties and neighborhoods. I've heard different opinions about this: Class B is more recession proof, you'll cash flow more with Class C, etc. Other investors have told me: buy close to the $200,000 price point because property values are unlikely to take a huge drop (not as far to fall) unlike buying a $400,000 (or more) property but buying the more expensive property you'll less likely have tenant management issues (e.g. someone paying $2500 in rent will less likely destroy your property than someone paying $800 to $1000 rent). I'm taking lots of time to analyze properties and geographic areas. Good luck!
Quote from @Becca F.:
Congratulations on getting educated and the savings and taking that first step! Lots of good advice on here. I became an investor by renting out my SFH in Indianapolis metro area instead of selling it when I moved to California. I have a property manager who took care of everything, screening tenants, writing up the lease and collecting payments. I pay him 10% property management fees, although I was told the range in Indiana is 8 to 12%.
Property #2 is local (San Francisco Bay Area) and I did major renovations to it. It went over budget so I wound up taking out an equity line to help pay for the renovations. I used Figure Lending - it's a combination of an equity loan and a HELOC, fixed 30 year payments but I can re-draw more money in the future (at current higher interest rates) as I pay it down. Some people don't like Figure but it worked for me (you can't use Figure on a multi-family only SFH). I have a tenant in and am self managing it but trying to get roommates in to maximize cash flow. I'm not sure if taking a small equity loan or HELOC is an option for you if you don't want to dip into savings.
I'm also looking out-of-state, another Indiana property, Ohio (Columbus), Missouri (Kansas City area), Tennessee (an hour outside of Nashville or Memphis), Florida Panhandle (why are so many people moving to Florida?). I'm also afraid of rehab costs since I just did a renovation so I'm thinking buying turnkey out-of-state or something with light rehab (cosmetic work).
Other considerations are Class A, B, C and D properties and neighborhoods. I've heard different opinions about this: Class B is more recession proof, you'll cash flow more with Class C, etc. Other investors have told me: buy close to the $200,000 price point because property values are unlikely to take a huge drop (not as far to fall) unlike buying a $400,000 (or more) property but buying the more expensive property you'll less likely have tenant management issues (e.g. someone paying $2500 in rent will less likely destroy your property than someone paying $800 to $1000 rent). I'm taking lots of time to analyze properties and geographic areas. Good luck!
Hi Becca! How are you going about investing out-of-state? I would like to learn your analysis strategies. I see a bunch of turnkey companies that seem enticing, but I am afraid I won't learn enough about the business going that route. So many things to consider! But it's fun. I can't wait to post my first investment property on here!
Quote from @James Hamilton:
Quote from @Becca F.:
Congratulations on getting educated and the savings and taking that first step! Lots of good advice on here. I became an investor by renting out my SFH in Indianapolis metro area instead of selling it when I moved to California. I have a property manager who took care of everything, screening tenants, writing up the lease and collecting payments. I pay him 10% property management fees, although I was told the range in Indiana is 8 to 12%.
Property #2 is local (San Francisco Bay Area) and I did major renovations to it. It went over budget so I wound up taking out an equity line to help pay for the renovations. I used Figure Lending - it's a combination of an equity loan and a HELOC, fixed 30 year payments but I can re-draw more money in the future (at current higher interest rates) as I pay it down. Some people don't like Figure but it worked for me (you can't use Figure on a multi-family only SFH). I have a tenant in and am self managing it but trying to get roommates in to maximize cash flow. I'm not sure if taking a small equity loan or HELOC is an option for you if you don't want to dip into savings.
I'm also looking out-of-state, another Indiana property, Ohio (Columbus), Missouri (Kansas City area), Tennessee (an hour outside of Nashville or Memphis), Florida Panhandle (why are so many people moving to Florida?). I'm also afraid of rehab costs since I just did a renovation so I'm thinking buying turnkey out-of-state or something with light rehab (cosmetic work).
Other considerations are Class A, B, C and D properties and neighborhoods. I've heard different opinions about this: Class B is more recession proof, you'll cash flow more with Class C, etc. Other investors have told me: buy close to the $200,000 price point because property values are unlikely to take a huge drop (not as far to fall) unlike buying a $400,000 (or more) property but buying the more expensive property you'll less likely have tenant management issues (e.g. someone paying $2500 in rent will less likely destroy your property than someone paying $800 to $1000 rent). I'm taking lots of time to analyze properties and geographic areas. Good luck!
Hi Becca! How are you going about investing out-of-state? I would like to learn your analysis strategies. I see a bunch of turnkey companies that seem enticing, but I am afraid I won't learn enough about the business going that route. So many things to consider! But it's fun. I can't wait to post my first investment property on here!
Hi James! I've been really busy getting financing together to prepare to put 20% down on a rental (pulling equity out of existing property). I'm talking to my realtor in Indiana. My property manager also keeps me update to date. On a surface level analysis, using the 1% rule, it's difficult to get that. For example if I were to buy a $200,000 SFH, it would be difficult to get $2000 a month rent (1% of the purchase price). I might be able to get $1500 to $1600 rent in Indianapolis metro area. Buying in nice suburb with good schools, my realtor said I'm looking at $300,000 or more home prices, could get $1500 to maybe $1800 rent for a slightly larger home. I really like nice suburban Class A properties but I don't want to be in a negative cash flow so that might not be the best financial purchase. The home prices seem to not be rising and houses are sitting a bit so maybe sellers are willing to give concessions (help with closing costs) since they're not getting 20 offers above list price like 6 months to a year ago.
I'm looking an hour outside the hot Nashville Tennessee market, looking at what industries are in the area, job growth, population growth, proximity to shopping, restaurants, median incomes, etc. One investor and one realtor said buying 2 hours out in a rural area might be difficult because my tenants won't have high salaries that people have closer to major cities. Properties would be cheaper though.
I started using this calculator but I can't download a pdf spreadsheet. There are limitations but it's free. Here's the rental calculator: https://www.calculator.net/ren...
It also shows you the breakdown over time if you hold the property for 10, 20 and 30 years.
Here's another free one: https://sparkrental.com/rental...
I bought 2 spreadsheets for $24. I haven't used it yet. It's from an investor who quit her full time job just 2 years after she started investing. She uses private lenders, which I haven't done (using Other People's Money that some people do). I'll send the link soon once I start plugging in numbers.
I have the basic Bigger Pockets membership so I didn't want to use up my 5 free rental calculators yet and start paying for upgraded membership. Have you looked in Kansas City, Missouri yet? I know a California investor who likes that area.