I'm just getting started in the world of RE investing in my 40s, and would love some advice or insight into out of state opportunities to open up more possibilities and flexibility for portfolio expansion. I've read multifamily millionaire, and i'm currently reading Long Distance Real Estate Investing. I know that house hacking is a very common first step into investing, but from what I understand so far, that's not possible for out of state opportunities due to occupancy requirements of the various low/no money down loans such as FHA or the VA loan (which I can get). Due to that fact, one would need a pretty significant amount of cash for a down payment to secure a more conventional loan...which I don't really have.
Is out of state investing not really in the cards for me right now? Should I look more into more creative financing such as subject to? Should I just suck it up and house hack in CO for awhile, despite really not wanting roommates or similar (I know, boo hoo)?
@Judd Meng I think the best strategy for you to pursue depends on your goals. Without knowing those, here is what I would say...As others have mentioned, you have options for trying to creatively finance an out of state deal due to your limited capital, but this is going to be difficult and take time. Pursue this, but also pursue an easier investment strategy at the same time so you don't miss out on valuable time IN the market. Maybe just start simple and try to get a good deal on a new primary residence, maybe even one you can add value to, that you can rent out in the future.
I agree with @Joe Garretson that house hacking is not a catch all solution as it is not a good fit for everyone, however, it is one of the simplest and most effective ways to get started. If there is one thing I have learned during my investment journey, it is that sacrifices yield results. I have grown from 1 unit to 12 units in the Springs over about 4 years. I didn't do anything special, I was just willing to move every year and house hack in different ways. Doing these things wasn't easy or convenient for me or my family, but we're doing it now so we can reap greater rewards in the future. My personal goal was to soft retire before I turn 30, so that is why I made the sacrifices that I did. I don't know what your goals are, but if they are aggressive, then you're going to need to take an an equally aggressive approach and step out of your comfort zone.
Hi @Judd Meng! If capital is what’s preventing you from getting started you could find some creative financing opportunities (subject to or seller financing), or find a partner that brings the down payment funds.
Getting started is difficult, but if you find a good deal, have a team and plan in place to operate the property and you manage the asset, there are people that will put up the down payment funds so they don’t have to do any work.
Hey @Judd Meng, fellow 40's guy here getting started. It would have been great to get started younger but time to stop "shoulding" all over myself...
I'm in Castle Rock up the road from you and the market along the Front Range is expensive. I've been looking south into Pueblo and maybe the fringes of the Springs but I may end up going out of state for my investing. I've got two areas of interest based on family and the company I work for that will provide a lower price barrier so the capital requirements are significantly less.
House hacking is a non starter for me as I've got a 13 and 14 year old in school here in town and I can't justify the upheaval my family would go through for getting a rental property. Quite frankly, I get annoyed at how house hacking has become the de facto answer for getting started. It's not the silver bullet solution many throw it out there to be.
Some things to consider. Are you saving every last penny you can? Do you know where all your money goes right now? Do you own a primary home? You rent? Drive a fancy car? Have an expensive cable budget? Pushed a for raise at your job? You can probably scrape together more capital than you think by cleaning up your financial house. Start there. Budget. Stick to said budget. See what you'll be able to save by when and you'll be on your way.
I would house hack with Duplex's or triplex's. I run into a lot down in Colorado Springs and there you won't really have a roommate. You each have essentially a separate house to live in while getting the benefit of FHA loans because you live in the property. Then you can do a few of those and by the time you have them, you will have built up enough cashflow and equity to not have to house hack anymore.
@Judd Meng I think the best strategy for you to pursue depends on your goals. Without knowing those, here is what I would say...As others have mentioned, you have options for trying to creatively finance an out of state deal due to your limited capital, but this is going to be difficult and take time. Pursue this, but also pursue an easier investment strategy at the same time so you don't miss out on valuable time IN the market. Maybe just start simple and try to get a good deal on a new primary residence, maybe even one you can add value to, that you can rent out in the future.
I agree with @Joe Garretson that house hacking is not a catch all solution as it is not a good fit for everyone, however, it is one of the simplest and most effective ways to get started. If there is one thing I have learned during my investment journey, it is that sacrifices yield results. I have grown from 1 unit to 12 units in the Springs over about 4 years. I didn't do anything special, I was just willing to move every year and house hack in different ways. Doing these things wasn't easy or convenient for me or my family, but we're doing it now so we can reap greater rewards in the future. My personal goal was to soft retire before I turn 30, so that is why I made the sacrifices that I did. I don't know what your goals are, but if they are aggressive, then you're going to need to take an an equally aggressive approach and step out of your comfort zone.
Thank you very much for taking the time to respond with some ideas and advice, I really appreciate it. I agree with all of the inputs...saving up even more, sacrifice a bit more, think more seriously about house hacking, etc. I was also looking into a SFR with the ability to build a (I can't remember the acronym) mother in law suite or separate dwelling. Do any of you go to any of the local meet ups?
Hi @Judd Meng Jordan Malara and I host a real estate meet up in Colorado Springs that has a ton on real estate investors come to connect and talk real estate. We typically are at Goat Patch Brewery the 2nd and 4th Thursday every month from 6:30 - 8:30 PM.
Our next one however we are inviting all investors to check out a multi-family unit turned into several STRs that Renjoy Short Term Rentals converted.
@Judd Meng I'm very familiar with the ADU/Mother-in-law suite house hacking strategy. I have done 2 integrated ADU conversions and constructed 2 detached ADU's as well. The details behind their feasibility on a plot of land is pretty in-depth so I'll PM you and we can find a chat about this specific strategy in more detail.
I also host a meetup twice a month in the area that you're welcome to attend. We traditionally meet at Goat Patch Brewing on the 2nd and 4th Thursday of the month at 6:30 PM. This next week (Feb 9th) we will be at an alternate location. You can find more details under "Network"->"Meetups"->then search for events in Colorado Springs.
For house hacking my criteria consists of a couple things. First, it must allow you significantly reduce your living expenses while you live there. Second, It must have a good exit plan to cover most of your mortgage after you move out and do your next house hack (if your goals are to scale).
Here is what I look for to make that happen:
1. An easy way to split into multiple units: a walk out basement, an ADU, or a garage that could be converted to an apartment, multifamily - this allows for airbnb or more rental income when compared to a long term tenant
2. 4 or more bedrooms (or 3 bedrooms with the potential to easily add more) - you could get about $650-800 a bedroom in Colorado Springs
Yeah, a bit of a pickle. I'm 41 as well and here in Colorado Springs as well. We work with a lot of house hacking investor types, but to be honest, most are in their 20s and 30s. If you can stand it, then yeah, go for the rent-by-the-room house hacking. You can do it in your own house, get hands-on landlording experience and benefit from low-downpayment options. But again, I'm your age and I'd never want roommates. My wife and I have other priorities than squeezing the last drop out of the lemon. We'll take our small cash flow on our Denver and Colorado Springs investments and hold for the long-term appreciation.
That said, what about a home with a basement apartment or -- better yet -- a carriage house? Best of both worlds, possibly. You still get your rental, you get your downpayment and you get your privacy.
Yeah, it sounds like you have a similar thought process. I'm not entirely sure the juice is worth that squeeze...unless it was an excellent opportunity! I agree, I think i'm leaning more towards a basement apartment or an in law suite or detached dwelling unit! Thanks for that idea. I just started looking into the STR rules within the Springs, so we'll see how that one goes! Thank you again.
Colorado Springs allows for STRs in your primary residence and considers a mother-in-law suite, a basement apartment or even the other side of a duplex to be in your primary residence.
@Judd Meng, a lot of what you are asking is highly dependent on factors we don't know about you and your situation. I'm assuming from your post that you are renting right now and do not own a home. I would highly recommend buying a house hack of any asset class to get started. Your largest expense right now is your housing (rent isn't getting cheaper in CO or anywhere else really). If you can replace that with a mortgage and rent out the bedrooms or units, this can create a substantial amount of savings for you.
If your rent is $2000 for a 3 bed/2 bath home, and you buy something and the mortgage is $3,000, but you can rent out 2 bedrooms for $600/each, your net payment of $1,400 is equivalent to a $600 raise from your job. Take that $600 and do not touch it and continue to live as if you are making a $3,000 payment. Automating your savings to create good financial habits. Plus you'll have incredible tax write offs, depreciation, appreciation, and principal paydown and growing your equity that you can use down the road to buy another property.
Yes, you can only use FHA or VA loans on owner-occupied properties. There are some loan products that are for investment properties/nonowner-occupied properties that are as low as 10% down that go off of your DTI. @Grant Schroeder can share some more on that. He's helped a a number of investors in CO.
Here's how I'll end this: Live like no one else now (having roommates, house hacking ,etc.), so that later, you can live like no one else (Dave Ramsey).
Hope that helps! Keep us posted on what you decide to do and if you find any deals that make sense for you to pursue! Keep asking questions on the forums.
@Judd Meng Welcome to BP and congrats on taking that first step
You have a couple different options IMO.
1). Yes is obviously house hacking. I am sure this has already been mentioned in comment above but focus on finding a home with some form of separate income suite to rent out so you are not sacrificing too much privacy.
2) or....smaller rental property investing. (condo or town home in your back yard). This will not move the needle for you too much as far as cash flow but that is not what you are looking for in this first investment. A first investment property, regardless of your age should consist of one principle, K.I.S.S. That way you do not spend 1-2 year researching creative financing strategies or trying to rack your brain around what OOS markets should I invest in and what ones i should stay away from. That is not even touching on building your team virtually.
With this first investment property you will receive the following benefits:
-basics of rental property investing.
-self managing (i recommend self-managing since it is in your back yard plus you will be saving that 10% mgmt fee)
-asset appreciation
-principle pay down
-confidence going into your next property 1-2 years down the road (consistency is key)
Again, your first property does not need to be a home run. Consistent base hits win championships.
The biggest missing piece here IMO is the amount of capital you're working with.
I turned 40 this past September and if there's one thing us middle-aged folks have on the younger ambitious crowd is (usually) more cash savings and assets to leverage.
I got started in 2019 in Detroit. Between my savings, HELOC, and some 401(k) loans I cobbled together about $280k of dry powder. I went on a shopping spree for two years and ended up with 12-doors, now fully stabilized. And I'm nearly done with a big rehab on a duplex which will bring me to 14 doors.
It's hard to give advice without know all the pieces. Happy to help talk through options, especially if you're interested in Detroit. I now help my partner run a turnkey operation on the ground there.
Hey @Judd Meng! Welcome to the BP Community, and don't sweat starting in your 40s. Everyone regrets not getting started sooner, and the important thing is that you did start.
A few things that I believe are missing from your post to best assist you.
1. The amount of capital you have liquid to invest.
2. Your current living situation, property type, and rent/own?
I will say that while House Hacking is the De Facto strategy to get started, and may have become a bit of a cop-out, there is a reason why it is that way. It is the most approachable and least risky way to start an investing journey. With the low amount of capital needed, and worst case scenario all you are doing is paying your own housing expense these are the reasons why it is such a popular answer. However, what no one has really touched on here, is that there is no "right way" to house hack. It's not a one size fits all. It can be anything from a rent-by-the-room, all the way up to just simply buying the house and then moving out the next year and renting it. It can be as comfortable and easy as you want it to be, the idea is to simply take advantage of the owner-occupied loan. Sure the more uncomfortable you are willing to be the more income you can create, but you don't need to sacrifice everything.
This is also where your current living situation comes into play. If you currently own your primary and have had it a few years, then you can A) pull out some equity in the form of a HELOC or Cash out refinance, to increase your liquid capital to invest with. and B) you could choose to move to another suitable home for yourself, and rent your current primary. Boom you just created your first rental, by simply moving. You have very low stakes since you have owned that property for a while, so if anything does go wrong you can simply choose to sell it. But it should make for a decent rental, and you know the property well so managing should be easy. Then you can tack on to the next purchase if you want to make it a duplex, or something with an ADU, but you can just as well just buy something you want to live in.
Out of State investing could be an opportunity as well, but I always recommend getting your feet wet with something closer to home. You could start with a smaller investment here, which is lower risk and easier to handle. But if you feel comfortable and can build up a support team wherever you choose to invest, then you shouldn't have too many troubles. But as I said, without knowing what is limiting you I can't provide too specific advice.
Welcome! Absorb knowledge while you save for your first buy. I invest in the midwest and got into my first rental for about 20k out of pocket. It was in a pretty rough neighborhood but cash flows great.
There's a lot of markets that are accessible. Let me know if I can help point you in the right direction.
Welcome! Absorb knowledge while you save for your first buy. I invest in the midwest and got into my first rental for about 20k out of pocket. It was in a pretty rough neighborhood but cash flows great.
There's a lot of markets that are accessible. Let me know if I can help point you in the right direction.
As an agent here in Indianapolis I can say there are quite a few opportunities like the on Joseph just mentioned. If you aren't looking to take on a partner or creative financing, roughly 20k is what you'll need to get started in the Indy market.
Happy to chat further if you'd like and good luck! Remember, there is no better time than now!
I am an analyst at a real estate investment advisory firm and I help clients looking to invest out of state. We are located in Denver and see limited cash flow opportunities here so we focus on two midwestern markets. If you are interested in hearing more about why we focus where we do and how our business model works, I'd be happy to chat.
Hi Judd, I would have to say take your time. You could invest creatively and have partners, but what happens if the HVAC goes out or anything along those lines? I think you just need to build up your cash reserve to have enough deployable cash when ready. Unless you are willing to move for an FHA loan, I would say 50k is a good start!
Sounds like you need some guidance, perhaps a partner to get started. Message me if youre making $60k+ in income, I'll help with the dp money and experience issues.
I am an analyst at a real estate investment advisory firm and I help clients looking to invest out of state. We are located in Denver and see limited cash flow opportunities here so we focus on two midwestern markets. If you are interested in hearing more about why we focus where we do and how our business model works, I'd be happy to chat.
I just sent you a PM. Im in San Diego and interested in Out of State options since the barrier to entry in CA is higher.
