Seeking Input on My First Real Estate Investment Strategy for Passive Income

Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes

2y

Sounds like you almost want a turn-key property if your investing long distance from the get - a rehab can end up in an absolute train wreck

Is there anything on the outskirts of your city that work? Just realize that not being local - you are already having the deck stacked against you. I don't care what any "guru" says - it's much easier to inspect, buy, rehab, manage etc a local property. Not only that but you KNOW the area. You really need to get a feel for the area - remember you can change anything about a property BESIDES the location. I cannot emphasize location enough

That being said your research on (2) locations looks fine to me, (3) property types is fine, (4) starting small is a good idea as well, (5) conventional 30 year loan is a solid easy cheap route

Onto (6) Property Management - research and essentially interview them. Especially if you're going out of state. Where do they like to manage? Where do they not like to manage? Why? Why not? Best schools in the area? Lowest crime? Prices? Attractions around your property? They intimately know the area and can be your friend. Do they have anyone selling? Know of any deals? Know any investor friendly agents?

(7) You need an awesome agent, lender, property manager - talk to a lot of them

(8) timeline is fine - I did about 6 months research before buying my first property

What I like: You have a plan. Preparation and education is key. Build up your capital during this time. Experience will just be learned through the real world

What else I would like to see: How do you plan on calculating your numbers? MAKE SURE THEY WORK. I only buy great properties in great locations - they must be great deals. That's what makes you successful doing a small volume of deals. How do you plan to find your deal?

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Noah Fele

OP

Washington, DC · Member since 2017 · 7 posts · 4 votes

2y

Much appreciated Jeremy for the thoughtful response. Unfortunately, I’ve never seen anything workable within a 2 hour drive. Once Inget outside that 1.5-2 hour drive those markets are unfamiliar to me. Even those markets, there’s nothing that comes close to the 1% rule. Best I’ve seen is 0.6%.

I love the example questions to ask potential property managers. Will sure to ask those and add a few more like them.

for deals, I’m hoping I can get RE agents to send me a flow of deals and I can run the numbers on the BP calculator. Would love any tips and guidance to do this part more efficiently.

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Jeremy Horton

Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes

2y

Quote from @Noah Fele:

Much appreciated Jeremy for the thoughtful response. Unfortunately, I’ve never seen anything workable within a 2 hour drive. Once Inget outside that 1.5-2 hour drive those markets are unfamiliar to me. Even those markets, there’s nothing that comes close to the 1% rule. Best I’ve seen is 0.6%.

I love the example questions to ask potential property managers. Will sure to ask those and add a few more like them.

for deals, I’m hoping I can get RE agents to send me a flow of deals and I can run the numbers on the BP calculator. Would love any tips and guidance to do this part more efficiently.

Gotcha - the location thing makes it tough honestly. It can be done but it definitely takes a lot more due diligence.

for finding deals - getting agents to find you deals is an ok method. Why do I say ok? Well they're just going to set up a filter based on what you give them and it will automatically send you deals (98% of them operate this way anyway). If you get a good one that can send you some "handpicked" deals that's the way to go.

MLS is ok for your first one - realize this will not be the "best" deal but it can work. Once you understand what you are doing you'll quickly realize that off-market is the way to go. Check facebook marketplace, craigslist, call landlords that are renting rooms and see if they'd be interested in selling, get in touch with wholesalers (even places like "we buy ugly homes" - they will wholesale you homes too)

BP calculator is ok. I personally think it's better to make your own so you understand what you are doing. Be wary of trusting someone else's work on YOUR investment (something that your spending 10s of thousands of dollars on)

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Mariah JefferyBusiness Member

Real Estate Agent · Cheyenne, WY · Member since 2009 · 205 posts · 51 votes

2y

Quote from @Noah Fele:

Hello BiggerPockets community,

I'm thrilled to join this forum and seek advice from experienced real estate investors. Here's what I've considered so far:

1. Markets:

Local Market: I live in the DMV area (DC/MD/VA) which primarily experiences appreciation, making it challenging to find cash flow properties.

Out-of-State Priorities:

- Price Below National Average: I'm prioritizing markets where property prices are below the national average.

- Positive Population Growth: Markets with growing populations tend to have increased demand for housing.

- Low Unemployment Rate: A stable job market is crucial for tenant stability.

- Rent-to-Price Ratio: I'm looking for areas where rental income justifies the property price.

2. Potential Markets:

I'm currently researching the following markets:

- Huntsville, AL: Low unemployment rate and steady growth driven by large aerospace and defense industry.

- Columbia/Greenwood, SC: Affordable properties and potential for cash flow.

- Cheyenne, WY: Small market with stable economy.

- Syracuse, NY: Decent A education and growing tech industry.

- Open to other markets that I should be researching

3. Property Types:

I'm considering mainly 3bd/2ba in the following property types:

- Single-Family Homes

- Townhouses

- Small Multi-Family (1-4 Units)

4. Starting Small:

- I've been interested in real estate for years but lacked the courage to take the plunge.

- My strategy is to begin with an easy deal, even if the numbers aren't optimal.

- Goal: Gain confidence, understand the process, and get my feet under me before scaling up.

5. Financing and Budget:

- I’m thinking of starting with no more $50k out of pocket for all upfront costs including the down payment to keep with my “start small” strategy.

- Considering a conventional loan with 20-25% down

- I'm open to exploring other investor-friendly financing options that allow for a lower out-of-pocket down payment but I’m not familiar with what’s available to me

6. Property Management:

- Given my W2 job and the out-of-state nature of the investment, I'll have to work with a property manager.

7. Networking and Education:

- As a beginner, I started to reach out to real estate agents here hoping to find a good match and hoping to expand my network from there

- Connecting with experienced investors will provide valuable insights.

8. Timeline:

- I’m thinking 2-6 months will give me ample time for learning and evaluating deals but open to other suggestions

I appreciate your warm welcome and look forward to learning from your insights. Thank you for being part of this supportive community!

Hi Jeremy,

When I first started investing I lived in Portland, OR, which was a landlord's nightmare. I ended up with 31 units in Rapid City, SD. The key is to have a good property manager.

I'm an agent and investor in Cheyenne, WY. I can definitely point you to some good property management companies if you decide to invest here.

- Mariah

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Russell BrazilBusiness Member

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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

2y

Investing locally always greatly reduces your risk. Chasing yield in out of state makets is a recipe for disaster

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Corby GoadeBusiness Member

Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes

2y

Good for you for taking the next step and posting for feedback.

Your criteria is very specific and many of them are at odds.

Growing area, low unemployemnt, high rent to price ratio, under the national average in price and you don't want to spend more than $50k out of pocket.

There's a reason why cities grow- people want to be there, but that drives up price and competition. When you have a market that people are leaving, there will always be plenty of folks that can't afford to leave- the gvt steps in and subsidizes their rent and stabilizes the rental market, but property values go down.

If you want stable tenants and a property that increases in value, you will have to pay for it one way or another.

Unless you give up some of that conflicting criteria, I fear you'll be stuck in analysis paralysis forever, waiting for that perfect opportunity and it's never likely to arrive.

Pick one of those markets, go there for a few days, meet at least 3 investment friendly agents and 3 property managers, view at least 10 properties that meet your price point and come back to reevaluate your plan.

Best of luck!

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Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

2y

@Noah Fele

Noting you mentioned in your post targets passive investing.

Seems a lot more like active investing

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Noah Fele

OP

Washington, DC · Member since 2017 · 7 posts · 4 votes

2y

Thank you all in helping me continue to refine my strategy! Given that I'm giving myself up to 6 months, I will certainly keep looking in the DMV area to stay as local as possible.

I'll talk to several agents to better understand their approach to deal sourcing (handpicked vs auto filter) and whether working with them is likely to yield a deal. I'm ok starting with MLS and getting an "ok" and not "amazing" deal for my first investment. Once I get my feet under me I'll start exploring these other deal sources you're recommending.

For the calculator, I came across DealCheck last night and I can certainly build one in Excel myself (I'm pretty decent with Excel).

On the criteria being at odds, I haven't thought about it this way but now that you mentioned it yes it makes 100% sense. I suppose high growth and low unemployment go together and opposite to median price. Given that the general guidance seems to be pick a good location, I suppose I will have to see where the median price is for such locations and use that to come up with a different upfront cash target even if it means take a bit more time to save up some more cash. It's hard for me to go to another city for a few days but what I can do is pick cities where I have close friends so I can rely on them to get insights into what neighborhoods are really like.

Lastly, totally agree that this is not truly passive investing. My investment strategy today and prior getting into real estate is truly passive. This will certainly be a lot more work than what I do today. Perhaps I should refer to it as investing for cash flow as opposed to passive investing.

Your feedback and input is gold so please keep them coming.

1 Reply

Nina Soden

Real Estate Agent · Madison, AL · Member since 2023 · 13 posts · 10 votes

2y

Hi Noah, It looks like you've done a lot of the planning work already. You seem to know what you want and where. I agree with Jeremy, it is important to have a great agent to work with as your eyes and ears with boots on the ground in the areas you are looking. As a local to Huntsville, I can tell you there are a lot of new construction turn-key properties that would make wonderful rental properties. If you reach just a little out of the city you can also get some great deals on pre-owned properties as well.

I am an agent and an investor in this area, so I would be happy to share any information you're looking for and the contact information for a property management company my clients have been happy with.

Nina Soden

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Stephen SchmittBusiness Member

Real Estate Agent · Liverpool, NY · Member since 2019 · 111 posts · 72 votes

2y

Hello Noah, it sounds like you have put a lot of thought into this, I can confirm that Syracuse is an up and coming market that still has good cash flow, and may fit into your budget. You can find an ok 2 fam for $120k but you need to push to @$150k to get to an average for something that doesn’t need a lot of immediate repairs. Rents are around $800 studio, $1100 1 br, 12-1400 2 br and more for 3 bed. Let me know if you need an agent in Syracuse.

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Min ZhangBusiness Member

Real Estate Agent · Member since 2022 · 1k+ posts · 1k+ votes

2y

Hello Noah! It's clear you've done your homework, and your criteria for selecting potential markets and property types are well thought out. I wanted to mention that based on your considerations, Columbus, Ohio, could be a fantastic addition to your list. It has experienced significant growth in recent years, thanks in part to tech giants like Intel ($20 billion), Meta, Amazon, and Google establishing warehouses and data centers in the area. This growth has led to increased property prices and a rising number of people moving to the city for job opportunities. I also invest in Cleveland and Dayton, so if you'd like more information or assistance I'm happy to connect!

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Jimmy LieuBusiness Member

Real Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes

2y

Quote from @Noah Fele:

Hello BiggerPockets community,

I'm thrilled to join this forum and seek advice from experienced real estate investors. Here's what I've considered so far:

1. Markets:

Local Market: I live in the DMV area (DC/MD/VA) which primarily experiences appreciation, making it challenging to find cash flow properties.

Out-of-State Priorities:

- Price Below National Average: I'm prioritizing markets where property prices are below the national average.

- Positive Population Growth: Markets with growing populations tend to have increased demand for housing.

- Low Unemployment Rate: A stable job market is crucial for tenant stability.

- Rent-to-Price Ratio: I'm looking for areas where rental income justifies the property price.

2. Potential Markets:

I'm currently researching the following markets:

- Huntsville, AL: Low unemployment rate and steady growth driven by large aerospace and defense industry.

- Columbia/Greenwood, SC: Affordable properties and potential for cash flow.

- Cheyenne, WY: Small market with stable economy.

- Syracuse, NY: Decent A education and growing tech industry.

- Open to other markets that I should be researching

3. Property Types:

I'm considering mainly 3bd/2ba in the following property types:

- Single-Family Homes

- Townhouses

- Small Multi-Family (1-4 Units)

4. Starting Small:

- I've been interested in real estate for years but lacked the courage to take the plunge.

- My strategy is to begin with an easy deal, even if the numbers aren't optimal.

- Goal: Gain confidence, understand the process, and get my feet under me before scaling up.

5. Financing and Budget:

- I’m thinking of starting with no more $50k out of pocket for all upfront costs including the down payment to keep with my “start small” strategy.

- Considering a conventional loan with 20-25% down

- I'm open to exploring other investor-friendly financing options that allow for a lower out-of-pocket down payment but I’m not familiar with what’s available to me

6. Property Management:

- Given my W2 job and the out-of-state nature of the investment, I'll have to work with a property manager.

7. Networking and Education:

- As a beginner, I started to reach out to real estate agents here hoping to find a good match and hoping to expand my network from there

- Connecting with experienced investors will provide valuable insights.

8. Timeline:

- I’m thinking 2-6 months will give me ample time for learning and evaluating deals but open to other suggestions

I appreciate your warm welcome and look forward to learning from your insights. Thank you for being part of this supportive community!

Hey Noah, I moved to Columbus a few years ago (from Portland, Oregon which was super expensive) to become a full time real estate investor, and ever since, I've completed quite a lot of BRRRRs, flips, and own a successful rental portfolio here in Columbus Ohio. There's so many catalysts for population and job growth (Intel, Honda, Amazon, Nationwide Hospital, etc). I can definitely tell you there's still a lot of positive cash flowing and 1% rule deals and you get amazing appreciation. As an investor and agent here in Columbus Ohio, if you have any questions or want to connect, definitely reach out!

[email protected]614-300-7535

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Lindsay DavisBusiness Member

Real Estate Broker · Birmingham, AL · Member since 2019 · 326 posts · 203 votes

2y

@Noah Fele,

You’re right that Huntsville could be a good fit given your four criteria. Beyond its low unemployment rate and steady population growth, the city also fulfills your remaining two criteria.

Notably, the median home sales price in the city is $311,000—about 28% below the national average sales price of $431,000. As for the rent-to-price ratio, that really depends on the neighborhood and type of property. For example, we’re seeing single-family homes in B-grade neighborhoods in north Huntsville—think areas like Mount Carmel, Meridianville—meet the 1% rule that’s often talked about on this forum. On an annualized basis, that’s a price-to-rent ratio of about 8.3.

Properties in other locations in the Huntsville metro area, like Decatur, also sport similar metrics.

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Terra Padgett

Investor · Houston, TX · Member since 2022 · 126 posts · 122 votes

2y

If you're trying to be passive and do SFH, then a turnkey provider in a market you select would likely be a better option. It's imperative to find the right team if investing from afar. So your boots on the ground contractors, property managers, realtors, etc. No matter which route you take, you'll certainly learn things along the way which will help in your next deal and decision.

1 Reply

Noah Fele

OP

Washington, DC · Member since 2017 · 7 posts · 4 votes

2y

Wow I am incredibly grateful for this community! Many of you shared your ideas and advice here and some of you reached out directly to me. I have since been talking to members in different markets and feel supported and encourage. I also have been reading a ton and learning a lot.

I have been between interest and analysis paralysis for the last 3 years but now that I've engaged the community I finally feel ready to take the plunge and as Terra said I'll make mistakes along the way, learn and refine my approach.

Having said all of that, I have since adjusted my strategy to go from turnkey cash flow to BRRRR so I can increase the velocity of my cash. I'm now getting my finances ready and starting to connect with folks on the ground to start to find my first deal!

I will certainly be reaching out many times going forward and hopefully with tactical questions as I start to get going.

This is my long winded way of saying thank you all!!!

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Nina Soden

Real Estate Agent · Madison, AL · Member since 2023 · 13 posts · 10 votes

2y

Quote from @Noah Fele:

Wow I am incredibly grateful for this community! Many of you shared your ideas and advice here and some of you reached out directly to me. I have since been talking to members in different markets and feel supported and encourage. I also have been reading a ton and learning a lot.

I have been between interest and analysis paralysis for the last 3 years but now that I've engaged the community I finally feel ready to take the plunge and as Terra said I'll make mistakes along the way, learn and refine my approach.

Having said all of that, I have since adjusted my strategy to go from turnkey cash flow to BRRRR so I can increase the velocity of my cash. I'm now getting my finances ready and starting to connect with folks on the ground to start to find my first deal!

I will certainly be reaching out many times going forward and hopefully with tactical questions as I start to get going.

This is my long winded way of saying thank you all!!!

Noah, I am so extremely excited for you. Reach out any time if you have questions about the North Alabama area.

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Becca F.

Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes

2y

@Noah Fele

Congratulations on taking the first step and doing your research! I don't know anything about the markets you're investing in except that I have a few California investor friends who bought in Huntsville, AL. If you can buy within driving distance, you'll have an advantage vs. being hundreds or thousands of miles away.

You mentioned wanting cash flow and the rent to price ratio (RTP) to be as close to 1% and finding 0.6%. I echo what the other comments have said about out of state investing being challenging. I would also add that buying turnkey may not truly be turnkey. I bought a renovated SFH (built in 1920) that had a full inspection done and minor repairs before the tenant moved in June 2023. I'm -$300 to -$700 each month. This is in a "up and coming area" of Indianapolis, Class C for $130,000. When I ran the numbers I was at 0.8%. I'm losing money every month from repairs called in by the tenant, trying to problem solve with my property manager. No positive cash flow here except for with one month's rent. Then I bought another Indy property last month. I used to live in the Indy metro area so I knew the area, not down to a detailed level. I felt that I did my due diligence from talking to real estate agents, local investors and contractors.

I would recommend buying in Class A to B areas if looking OOS. Your RTP ratio won't be anywhere close to 1% unless you pay all cash, which won't happen if you're looking at $50,000 in all. Whatever numbers for cheap properties on paper that look good for cash flow will be obliterated by repairs, capital expenses, tenant turn over etc. I have 3 Class A properties (2 in San Francisco Bay Area and one SFH in great Indianapolis suburb). All was going well until I started to chase cash flow with the Class C properties.

Wealth from real estate is build on appreciation and equity. I know lots of California investors who are multi-millionaires now who played the long game (15 to 30+ years) that were solidly middle class, not software engineers, not physicians. I'm guilty of listening to YouTubers and social media, including some of the people posting on BP who emphasize cash flow. Who's going to be wealthier in 20 years - the investor who bought 5 Class A properties in appreciating locations or the one who bought 20 Class C properties in inexpensive locations?

I know this is sacrilege on a RE forum but I would have cash flowed more had I just left my money in a high yield savings account or index funds than bought these 2 Class C properties - I'm out $60,000 (the 20% down payments and closing costs) and I don't think these properties will appreciate enough to cover all the monthly expenses in the next 5 to 7 years. I'll get some of the money back in tax write offs from the passive losses. Sometimes it's just better not to do a deal.

I've posted a couple of times regarding my experience but here's a recent post. I don't mean to discourage you but proceed with caution. Good luck!

https://www.biggerpockets.com/forums/48/topics/1165499-whats...

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Chris ClothierBusiness Member

Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes

2y

@Becca F.,

Regardless of the intent of BiggerPockets as an open forum, there should be no sacred statements! The reality is, your advice is great and 100% accurate - especially the line ..."Sometimes it's just better not to do a deal."

That is the truth and there are some great commentators on here who say it all the time but very few investors want to admit it. Call it FOMO, lack of patience or lack of good disciplined understanding, but utilizing the word no is very powerful for real estate investors. Sometimes, the best deals you do are the ones you said no to.

Thanks for posting this. Good luck as you keep investing.

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Seeking Input on My First Real Estate Investment Strategy for Passive Income

Seeking Input on My First Real Estate Investment Strategy for Passive Income

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