Is it all about the money?
Member since 2024 · 7 posts · 4 votes
Is it all about the money?
Most Popular Reply
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
2yNeed to be in a good location and have good management; otherwise, you will lose money. What you are describing is "buying" rather than "investing".
21 Replies
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes2y
Need to be in a good location and have good management; otherwise, you will lose money. What you are describing is "buying" rather than "investing".
- Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes2y
You make money in real estate in four ways:
1. Cash Flow
2. Appreciation
3. Loan Buy Down
4. Tax Benefits
When buying in low cost areas, it can be difficult to achieve FIRE without high volume of units. That's what makes more expensive markets/price points interesting. A 3% increase in rent on a $3,000 a month rental is more cash in hand than on a $1,000 a month rental. The same logic applies to appreciation. Plus higher price points with leverage general means higher loan buy down.
There has to be a bigger picture. For example I have one property in the lower price point as a rental (triplex that is now worth around $225K). The intention is buy more and then sell off as a portfolio and go into these bigger properties. Of course this can change if you decide to move to a low cost area where this cash flow goes farther. In a few short years I could likely move to areas where the median home price is around $100K and likely get fairly close to retirement (although I don't want to).
Although you may not cash flow, I recommend starting with house hacking. That's what I did and because of the bigger numbers, I was able to get lines of credit against the properties to buy more. I now have 9 doors (including where I live) and plan on buying more.
If you are thinking of buying a property straight cash, obviously the cash flow is higher, but harder to scale. If you are younger, then you have the time to take on less cash flow and bank on the above four points later on. If you are older and need the cash flow (retiring), then yes, paying all cash can make more sense.
- Attorney · Columbus, OH · Member since 2023 · 193 posts · 145 votes2y
You need to build your core 4 in any market you decide to invest in. Your core 4 consist of a real estate agent(deal finder), property manager, contractor, and lender. Ideally, you'd find a real estate agent who has a property manager, contactor, and lender readily available already.
- 2yJay ThomasPro MemberReal Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 716 votes
Investing in properties outside Los Angeles, like in Kansas City, has challenges beyond just the down payment. Understanding the local market there, like rental rates and property trends, is crucial but hard to do from far away.Finding a reliable property manager is vital for tasks like tenant screening and repairs. Time zone differences can complicate addressing tenant issues or emergencies, and managing major repairs from a distance can be tough. While a $130,000 property might seem appealing, managing it from afar requires careful planning, considering travel costs, taxes, and legal obligations like understanding landlord-tenant laws specific to Kansas City.
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
yes. if you buy a random property in the midwest that is on the market, there is a near 100% chance you will lose money in the short term, and won't cash flow positive for years. might it be a good investment over 50 years? sure. but this idea of cash flowing in month 1 or year 1 is extraordinarily unlikely in today's market.
- Real Estate Agent · Kansas City · Member since 2018 · 5k+ posts · 3k+ votes2y
Quote from @Lucas Moncada:
I have been searching for my first investment property and am now considering buying/holding and renting out. I live in Southern CA where cost of living is high as is real estate. So, I am considering buying out of state.
Given that I have cash for a down payment and could get a loan for a "cheaper" house is it really the ability to come up with the money that holds people back?
For example, and this is picked at random, this house is $130,000 Kansas City.
- I could easily put down a cash down payment and given my wages in Los Angeles, if need be, pay the mortgage when it is not being rented.
- What are the potential problems other than not being there in person 24/7?
- Am I oversimplifying it?
Thank you.That's not a bad house, I have viewed it before. That area is spotty though. The street is fine but tenants can be difficult with it being in the city. That property has a tenant way under market that you'd have to raise rent or evict. It needs work too once the tenant leaves. Wherever you look you need a team. I don't think you would blindly buy but make sure you have your ducks in a row.
- 2yJoel BongcoBusiness MemberInvestor · Honolulu HI & Los Angeles, CA · Member since 2018 · 375 posts · 181 votes
@Lucas Moncada - before you look outside, I recommend that you look in your own backyard for off market properties. Partner will someone on an off market deal via Subto - use your $$ for the rehab, then cash them out on a Refi. There are opportunities in SoCal, you just need to know where to look. Please DM me if you would like to discuss over the phone. Aloha! Joel
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
here's why this won't make you any money (again, in the short term)
https://www.biggerpockets.com/forums/12/topics/1171104-the-m...
- 2yMichael SmytheBusiness MemberReal Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
@Lucas Moncada man if I had a dollar for every time someone thought they had a way to cheat the process...:)
Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.
When investing in areas they don’t really know, investors should research the different property Class submarkets. If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.
Here’s our OPINION for the Metro Detroit market (always verify each area for yourself!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:
Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 yearsClass C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.
Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with zero or negative relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.Make sure you understand the Class of properties you are looking at and the corresponding results to expect.
What else can we assist you with?
Logical Property Management4.9459 Reviews - Member since 2024 · 7 posts · 4 votes2y
Quote from @Mike Dymski:
Need to be in a good location and have good management; otherwise, you will lose money. What you are describing is "buying" rather than "investing".
If I rent out each room and make more than the mortgage or the house to cover the mortgage and the house appreciates is that not an investment?
- Member since 2024 · 7 posts · 4 votes2y
Quote from @Rick Albert:
You make money in real estate in four ways:
1. Cash Flow
2. Appreciation
3. Loan Buy Down
4. Tax Benefits
When buying in low cost areas, it can be difficult to achieve FIRE without high volume of units. That's what makes more expensive markets/price points interesting. A 3% increase in rent on a $3,000 a month rental is more cash in hand than on a $1,000 a month rental. The same logic applies to appreciation. Plus higher price points with leverage general means higher loan buy down.
There has to be a bigger picture. For example I have one property in the lower price point as a rental (triplex that is now worth around $225K). The intention is buy more and then sell off as a portfolio and go into these bigger properties. Of course this can change if you decide to move to a low cost area where this cash flow goes farther. In a few short years I could likely move to areas where the median home price is around $100K and likely get fairly close to retirement (although I don't want to).
Although you may not cash flow, I recommend starting with house hacking. That's what I did and because of the bigger numbers, I was able to get lines of credit against the properties to buy more. I now have 9 doors (including where I live) and plan on buying more.
If you are thinking of buying a property straight cash, obviously the cash flow is higher, but harder to scale. If you are younger, then you have the time to take on less cash flow and bank on the above four points later on. If you are older and need the cash flow (retiring), then yes, paying all cash can make more sense.
Is there not a viable in between? Larger down payment, smaller loan and having the tenants cover the mortgage (maybe even with a small cash flow)? Essentially, house hacking with me not being there.
I know that house hacking is the recommended start but, I live comfortably on my parents' property in a nice location. It is not worth it to move to a "bad" neighborhood or having to commute hours to then have to live with strangers if there are alternatives.
With the house used as an example the mortgage is around $900 not including the utilities etc. Apartments in the same area are $800+.Could I not rent each room for $400- $500 a month?
Of course, you have to find the tenants but, assuming you did, what would be the issue? - Real Estate Agent · Member since 2023 · 92 posts · 80 votes2y
In the Florida market , no it is not all about the money. There are properties that cash flow with high insurance costs and much needed structural rehab or rental volatility.
There are also rock solid properties, not in flood zones that barely cash flow. Yet year over year rents increase, tenants are solid, low maintenance etc.
The numbers can't give the whole picture. Have a good LOCAL agent go preview the property with you or for you. They will know if the right construction materials are used, can get you projected insurance quotes up front and save you a ton of time and energy.
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
why not house hack in a good area? if you don't have enough saved up to do that... save up more.
- Rental Property Investor · Avalon, CA · Member since 2020 · 4 posts · 2 votes2y
I live in CA and began out of state investing 3 years ago. I have an amazing property manager/realtor and contractor. It would be impossible to do long distance investing without them. Research a market, find boots on the ground and make sure the numbers work. Don't just buy a house because it is cheap, everyone has posted good advice here. Taking action is the only way to grow but you want to be smart about it.
- 2yKo KashiwagiPro MemberLender · Los Angeles, CA · Member since 2022 · 967 posts · 445 votes
Hi Lucas,
Have you looked into house-hacking? This probably has the lowest barrier to entry given your good income and savings.
- 2yJake AndronicoBusiness MemberRealtor · Reno, NV · Member since 2019 · 1k+ posts · 938 votes
Quote from @Lucas Moncada:
I have been searching for my first investment property and am now considering buying/holding and renting out. I live in Southern CA where cost of living is high as is real estate. So, I am considering buying out of state.
Given that I have cash for a down payment and could get a loan for a "cheaper" house is it really the ability to come up with the money that holds people back?
For example, and this is picked at random, this house is $130,000 Kansas City.
- I could easily put down a cash down payment and given my wages in Los Angeles, if need be, pay the mortgage when it is not being rented.
- What are the potential problems other than not being there in person 24/7?
- Am I oversimplifying it?
Thank you.Chasing "cheaper" will take you likely on an interesting journey. Asking, WHY is something so expensive or "cheap" is the better question.
It's likely that way for a reason :)
@Nicholas L. provides some good insights and a great post on that topic specifically. A good read. - Real Estate Agent · Chattanooga, TN · Member since 2021 · 29 posts · 22 votes2y
Just my $.02
1. Market research - landlord friendly states, economic fluctuations, rental demand, risks, which investing strategy
2. Build a team for that market - realtor, lender, contractor, and property manager (realtor should have systems/vendors in place to make this happen)
3. Cash reserves - 'stuff happens'
Good luck!
Spencer
- Real Estate Agent · Pasadena, CA · Member since 2017 · 276 posts · 255 votes2y
Quote from @Lucas Moncada:
I have been searching for my first investment property and am now considering buying/holding and renting out. I live in Southern CA where cost of living is high as is real estate. So, I am considering buying out of state.
Given that I have cash for a down payment and could get a loan for a "cheaper" house is it really the ability to come up with the money that holds people back?
For example, and this is picked at random, this house is $130,000 Kansas City.
- I could easily put down a cash down payment and given my wages in Los Angeles, if need be, pay the mortgage when it is not being rented.
- What are the potential problems other than not being there in person 24/7?
- Am I oversimplifying it?
Thank you.Before jumping into any given business, you need to figure out who your target customer is first. In real estate, the question is: What kind of tenant do you want to attract? This will inform your buying (and rehabbing) decisions. For example, if you want to attract a high-income earner, you can't, in general, buy in a low-income neighborhoods or rehab using low quality materials and finishes. If you want to attract high-income earners who are used to a certain quality of life and can't afford to buy in those areas, then look at your available options; house-hack, partner, buy a condo/townhouse as opposed to a single-family home, start with medium-income earners, etc.
- Investor · Cincinnati/Fort Thomas, KY · Member since 2015 · 207 posts · 183 votes2y
@Michael Smythe This is great material you are sharing whether one is new or experienced.
- Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes2y
Quote from @Lucas Moncada:
Quote from @Rick Albert:
You make money in real estate in four ways:
1. Cash Flow
2. Appreciation
3. Loan Buy Down
4. Tax Benefits
When buying in low cost areas, it can be difficult to achieve FIRE without high volume of units. That's what makes more expensive markets/price points interesting. A 3% increase in rent on a $3,000 a month rental is more cash in hand than on a $1,000 a month rental. The same logic applies to appreciation. Plus higher price points with leverage general means higher loan buy down.
There has to be a bigger picture. For example I have one property in the lower price point as a rental (triplex that is now worth around $225K). The intention is buy more and then sell off as a portfolio and go into these bigger properties. Of course this can change if you decide to move to a low cost area where this cash flow goes farther. In a few short years I could likely move to areas where the median home price is around $100K and likely get fairly close to retirement (although I don't want to).
Although you may not cash flow, I recommend starting with house hacking. That's what I did and because of the bigger numbers, I was able to get lines of credit against the properties to buy more. I now have 9 doors (including where I live) and plan on buying more.
If you are thinking of buying a property straight cash, obviously the cash flow is higher, but harder to scale. If you are younger, then you have the time to take on less cash flow and bank on the above four points later on. If you are older and need the cash flow (retiring), then yes, paying all cash can make more sense.
Is there not a viable in between? Larger down payment, smaller loan and having the tenants cover the mortgage (maybe even with a small cash flow)? Essentially, house hacking with me not being there.
I know that house hacking is the recommended start but, I live comfortably on my parents' property in a nice location. It is not worth it to move to a "bad" neighborhood or having to commute hours to then have to live with strangers if there are alternatives.
With the house used as an example the mortgage is around $900 not including the utilities etc. Apartments in the same area are $800+.Could I not rent each room for $400- $500 a month?
Of course, you have to find the tenants but, assuming you did, what would be the issue?Absolutely it is an option, it just depends on your goals. I like to maximize my cash with leverage.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes2y
Quote from @Lucas Moncada:
Quote from @Mike Dymski:
Need to be in a good location and have good management; otherwise, you will lose money. What you are describing is "buying" rather than "investing".
If I rent out each room and make more than the mortgage or the house to cover the mortgage and the house appreciates is that not an investment?
The rent needs to cover the mortgage, vacancy, insurance, property taxes, repairs, maintenance, property management, capital expenditures, and any other expenses that are applicable (utilities, snow removal, landscaping).
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