Beginner looking for coaching/guidance/mentorship
Member since 2024 · 3 posts · 8 votes
Beginner looking for coaching/guidance/mentorship
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Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
2yOkay, I don't know if everyone posting here has been living under a rock, you are setting a young guy up for failure by supporting absolutely unrealistic expectations.
In order to clear $120k of net income in the Midwest you need a RE portfolio to the tune of 8 million. At current rates probably 30% down to get to a 1.2 DSCR.
As an OOS investor, you have a huge disadvantage compared to local investors and you are cost burdened by paying a PM. You are also likely to pay more for contractors and get a lower-quality install because you are not there to supervise.
Midwest housing stock is old. You can ignore capex for a while, but the financial liability just keeps quietly getting bigger. At some point you need a new roof, plumbing, windows, HVAC, etc - setting aside 5% of rent may cover a new water heater, but very few components of a house last more than 50 years.
It's 2024: books written in 2015 or 2018 are based on the market conditions in year 5 years before they were written. Milwaukee home prices have doubled since 2015 and interest rates are now 7.5% - 8.5%. The unicorn years are in the past.
REI is back to what it used to be historically: a long-term equity play to preserve and grow wealth. The years of free BRRRR cash flow with basically infinite returns are gone. We all wish we could get back ten years and buy some more.
For the record, I continue to grow our portfolio, because I think in 10 years from now I will be happy for every property that I have bought in 2024. (Just like I am happy today for every property I bought in 2014).
But let's be real: the cash flow you can currently squeeze out of properties is barely enough to keep the lights on and do some maintenance while you watch equity grow.
The worst advice we can give a newbie is to keep hammering "just find a deal where the numbers work" and thereby pushing them into low-income neighborhoods with run-down housing stock and management challenges that most seasoned investor run from.
I absolutely encourage young investors to buy real estate, but look at it as a long term INVESTMENT, which means you are putting money in, not taking money out. As for cash flow, buy or start a business. The whole point of a business is cash flow. Whether you are starting an online service or buy a food truck, endless possibilities.. But that is a much better shot at cash flow than REI.
Okay, now I'll get off my salt box.
43 Replies
- Real Estate Agent · Worcester, MA · Member since 2023 · 88 posts · 52 votes2y
Quote from @Marcus Auerbach:
Okay, I don't know if everyone posting here has been living under a rock, you are setting a young guy up for failure by supporting absolutely unrealistic expectations.
In order to clear $120k of net income in the Midwest you need a RE portfolio to the tune of 8 million. At current rates probably 30% down to get to a 1.2 DSCR.
As an OOS investor, you have a huge disadvantage compared to local investors and you are cost burdened by paying a PM. You are also likely to pay more for contractors and get a lower-quality install because you are not there to supervise.
Midwest housing stock is old. You can ignore capex for a while, but the financial liability just keeps quietly getting bigger. At some point you need a new roof, plumbing, windows, HVAC, etc - setting aside 5% of rent may cover a new water heater, but very few components of a house last more than 50 years.
It's 2024: books written in 2015 or 2018 are based on the market conditions in year 5 years before they were written. Milwaukee home prices have doubled since 2015 and interest rates are now 7.5% - 8.5%. The unicorn years are in the past.
REI is back to what it used to be historically: a long-term equity play to preserve and grow wealth. The years of free BRRRR cash flow with basically infinite returns are gone. We all wish we could get back ten years and buy some more.
For the record, I continue to grow our portfolio, because I think in 10 years from now I will be happy for every property that I have bought in 2024. (Just like I am happy today for every property I bought in 2014).
But let's be real: the cash flow you can currently squeeze out of properties is barely enough to keep the lights on and do some maintenance while you watch equity grow.
The worst advice we can give a newbie is to keep hammering "just find a deal where the numbers work" and thereby pushing them into low-income neighborhoods with run-down housing stock and management challenges that most seasoned investor run from.
I absolutely encourage young investors to buy real estate, but look at it as a long term INVESTMENT, which means you are putting money in, not taking money out. As for cash flow, buy or start a business. The whole point of a business is cash flow. Whether you are starting an online service or buy a food truck, endless possibilities.. But that is a much better shot at cash flow than REI.
Okay, now I'll get off my salt box.
I'd agree @Marcus Auerbach RE investment is safer to store money than it is to make money in the current environment. If cash-flow is the desire, starting out in real estate would not yield very good cash-flow results at the start but building equity is never a bad thing.
Pros and cons for sure. Tax advantages, appreciation, costs just a few things to consider but with a long-term view like Marcus said, you'd be in good shape to start. Investment helps grow and keep money, cash-flow is easier down the road.
Good luck!
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes2y
Yes, tax advantages, appreciation - but most importantly: the ability to leverage! I have been an investor much longer than a broker. And we continue to buy, as tough as it has gotten, so I am definitely pro-REI. But you have to have realistic expectations.
You don't invest in the stock market to live off dividends, which is basically what cash flow is. For as long as we have owned RE we have not taken any cash flow out of the business, we have used it to grow and improve our assets. On the stock market they would call that full dividend reinvest.
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes2y
Quote from @Mark Cruse:
The majority of post like this are thrown up and they never return. If they do, it may be one or 2 comments/questions then they are ghost forever. Does this frustrate you all?
It did at first. I get lots of DMs asking about investing in California and Indiana. I wonder if they ever wound up making an offer. It's better to be ghosted than scammed. I was almost a victim to this person.
https://www.biggerpockets.com/forums/49/topics/1168199-fraud...
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes2y
Quote from @Marcus Auerbach:
Okay, I don't know if everyone posting here has been living under a rock, you are setting a young guy up for failure by supporting absolutely unrealistic expectations.
In order to clear $120k of net income in the Midwest you need a RE portfolio to the tune of 8 million. At current rates probably 30% down to get to a 1.2 DSCR.
As an OOS investor, you have a huge disadvantage compared to local investors and you are cost burdened by paying a PM. You are also likely to pay more for contractors and get a lower-quality install because you are not there to supervise.
Thank you for saying this! $8 million in Midwest RE portfolio and putting over 30% down - that sounds depressing. It's a good thing I didn't sell off my Bay Area SFH (with lots of equity) to buy OOS. I listened to the "cash flow, go buy in the Midwest". I'm losing money every month on 2 properties. I posted this on another thread but I'm honestly getting better returns (IRR and CoC) on a HYSA than Indy Class C house #2 projected out 15 years on my calculations. I get mixed feedback from Indianapolis people - one agent says typically 3% appreciation (with 2019 to 2022 being outliers), other people say it's higher and with gentrification those areas will go up in value. Maybe I should have started a business instead.
Adding to my original comment, the people I know who left their W2 started way back in 1998 (that California appreciation) or in 2014 (bought the right properties and benefitted from the run up in values from 2019 to 2022) or started in 2015 by house hacking in CA and with their high W2 incomes ($200,000 to $400,000) leveraged and scaled to 2023 and are running RE businesses. They're not doing this in 2024 but the social media gurus are saying people can.
If the OP is still here, it'd be great to hear from him. - Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes2y
@Account Closed
Iḿ glad you all really have steam left to engage these one and done posters, but I have little desire. I´ve had too many instances of wasting my valuable time with people who are not serious. I still respond to stuff if they stick around for a while and at least show they care a little, however, I have halted a lot of the phone calls. No more meet ups. As stated before awhile back, I had people hound me for days to do a zoom and they didnt show the hell up. Many of these people move from fad to fad or whatever they think sounds cool and easy. Coming here, having people take time to provide expert advice and not having the decency to bring their azz back to even read it is insulting to me.
However, Iḿ glad you still have the stomach for it because maybe small in numbers, I know a handful could be genuine.
- Member since 2024 · 3 posts · 8 votes2y
Hello! I am still here. I appreciate your responses and candid advice.
I am not looking for a ‘fad’ or something that is cool and easy. I’m committed to putting in the time to REI and do what it takes to get me to my goals. I just don’t have the time to spend my day logged into this site and respond to every comment that pops up, Hope you can understand that.
Quote from @Mark Cruse:
@Account Closed
Iḿ glad you all really have steam left to engage these one and done posters, but I have little desire. I´ve had too many instances of wasting my valuable time with people who are not serious. I still respond to stuff if they stick around for a while and at least show they care a little, however, I have halted a lot of the phone calls. No more meet ups. As stated before awhile back, I had people hound me for days to do a zoom and they didnt show the hell up. Many of these people move from fad to fad or whatever they think sounds cool and easy. Coming here, having people take time to provide expert advice and not having the decency to bring their azz back to even read it is insulting to me.
However, Iḿ glad you still have the stomach for it because maybe small in numbers, I know a handful could be genuine.
- Member since 2024 · 3 posts · 8 votes2y
So in your experience, it sounds like you’ve had more success investing in a more expensive market and building equity as opposed to cheaper, lower quality properties in places like the Midwest?
Quote from @Becca F.:
Quote from @Marcus Auerbach:
Okay, I don't know if everyone posting here has been living under a rock, you are setting a young guy up for failure by supporting absolutely unrealistic expectations.
In order to clear $120k of net income in the Midwest you need a RE portfolio to the tune of 8 million. At current rates probably 30% down to get to a 1.2 DSCR.
As an OOS investor, you have a huge disadvantage compared to local investors and you are cost burdened by paying a PM. You are also likely to pay more for contractors and get a lower-quality install because you are not there to supervise.
Thank you for saying this! $8 million in Midwest RE portfolio and putting over 30% down - that sounds depressing. It's a good thing I didn't sell off my Bay Area SFH (with lots of equity) to buy OOS. I listened to the "cash flow, go buy in the Midwest". I'm losing money every month on 2 properties. I posted this on another thread but I'm honestly getting better returns (IRR and CoC) on a HYSA than Indy Class C house #2 projected out 15 years on my calculations. I get mixed feedback from Indianapolis people - one agent says typically 3% appreciation (with 2019 to 2022 being outliers), other people say it's higher and with gentrification those areas will go up in value. Maybe I should have started a business instead.
Adding to my original comment, the people I know who left their W2 started way back in 1998 (that California appreciation) or in 2014 (bought the right properties and benefitted from the run up in values from 2019 to 2022) or started in 2015 by house hacking in CA and with their high W2 incomes ($200,000 to $400,000) leveraged and scaled to 2023 and are running RE businesses. They're not doing this in 2024 but the social media gurus are saying people can.
If the OP is still here, it'd be great to hear from him. - Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes2y
Quote from @John Thomas:
Hello! I am still here. I appreciate your responses and candid advice.
I am not looking for a ‘fad’ or something that is cool and easy. I’m committed to putting in the time to REI and do what it takes to get me to my goals. I just don’t have the time to spend my day logged into this site and respond to every comment that pops up, Hope you can understand that.
Quote from @Mark Cruse:
@Account Closed
Iḿ glad you all really have steam left to engage these one and done posters, but I have little desire. I´ve had too many instances of wasting my valuable time with people who are not serious. I still respond to stuff if they stick around for a while and at least show they care a little, however, I have halted a lot of the phone calls. No more meet ups. As stated before awhile back, I had people hound me for days to do a zoom and they didnt show the hell up. Many of these people move from fad to fad or whatever they think sounds cool and easy. Coming here, having people take time to provide expert advice and not having the decency to bring their azz back to even read it is insulting to me.
However, Iḿ glad you still have the stomach for it because maybe small in numbers, I know a handful could be genuine.
Please dont take this as a personal jab against you. I was basing my comments on the general climate that I currently see often with many newbies. I did learn why some still continue to devote their time to so many who are not truly serious about learning, and I get it. I respect it. I was just mentioning the difference on the fierce and intense desire to learn this stuff as opposed to now. Not talking about you per se but so many come here with one comment, never to return to even read the response. Others come in here asking basic comments they can google; or have some desire for people to walk them through a perceived get rich element they feel will easily make them a wealthy in a few easy months. All I was saying is that I have wasted so much time on people i clearly know didnt give a sht in the first place. I am glad you came back and hope you do get into the game because these people who gave you advice are heavy hitters. No one was expecting you to be on here all day and respond to every comment. However, this business does take time. As a newbie, I aggressively soaked up as much knowledge as I could and the information was nowhere near as available as it is now. I knew for this to work I had to put in the time and have that burning desire to make it all work. If I didnt have time to learn it, clearly I wouldnt have time to make something so complicated be successful. Most I know who came up in the game with me and are still here did the same. This is not some MLM gig. Honestly, if you cant carve out at least a minimal degree of time to learn and understand this vast process, Iḿ telling you things wont turn out good.
All in all I wish you the best and I want you to secede. Let me know if you need something. I can navigate you over the hundreds of mistakes Ive made.
Stay at it and good luck!
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes2yThese threads within multiple threads make my eyes hurt lol...Yes but my properties were acquired pre-2013 so in a much different market.
Quote from @John Thomas:
So in your experience, it sounds like you’ve had more success investing in a more expensive market and building equity as opposed to cheaper, lower quality properties in places like the Midwest?
I'm guessing you're in California, Oregon or Washington. I still believe in West Coast appreciation despite the not so friendly landlord laws. if In CA, property taxes go up a max of 2% a year (Prop. 13) unless someone does a major renovation where the property is re-assessed. Values are re-assessed upon purchase price which I think is a factor in why people hold onto properties for a really long time and we have a housing shortage and high demand (Bay Area specifically). You have $1.5+ million home and you're paying $2000 property tax a year, probably a paid off mortgage if you bought in 1970 for example, and can charge market rate rent (multi units are under rent control with existing tenants, generally speaking, but not SFHs so far)
Be really careful with whoever gives you numbers on a spreadsheet whether it's a turnkey company, agent etc. Those are ideal scenarios. I'd recommend talking to at least 3 to 5 property management companies in the locations you're considering buying. They can give information about what types of properties are renting for what amounts, turnover, etc.
I don't see this mentioned more often but look at property tax rates, how often property values are reassessed, and if there's a cap with each increase. And insurance rates of what locations you're considering. - Member since 2024 · 9 posts · 0 votes2y
Quote from @Michael Smythe:
Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.
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.
So, when investing in areas they don’t really know, investors should research the different property Class submarkets.
Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) 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.
Hey Micheal! How do you go about finding what class properties are when you’re doing your research ?
- 2yMichael SmytheBusiness MemberReal Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
@Rodeline Paul not as hard as you may think, but does take time to research a market.
You can use Zillow info to map out cities or neighborhoods in a large city, and then look at the sales and rent data.
Geographic patterns will emerge in the data:)
Logical Property Management4.9453 Reviews - Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes2y
Quote from @Becca F.:
Quote from @Marcus Auerbach:
Okay, I don't know if everyone posting here has been living under a rock, you are setting a young guy up for failure by supporting absolutely unrealistic expectations.
In order to clear $120k of net income in the Midwest you need a RE portfolio to the tune of 8 million. At current rates probably 30% down to get to a 1.2 DSCR.
As an OOS investor, you have a huge disadvantage compared to local investors and you are cost burdened by paying a PM. You are also likely to pay more for contractors and get a lower-quality install because you are not there to supervise.
Thank you for saying this! $8 million in Midwest RE portfolio and putting over 30% down - that sounds depressing. It's a good thing I didn't sell off my Bay Area SFH (with lots of equity) to buy OOS. I listened to the "cash flow, go buy in the Midwest". I'm losing money every month on 2 properties. I posted this on another thread but I'm honestly getting better returns (IRR and CoC) on a HYSA than Indy Class C house #2 projected out 15 years on my calculations. I get mixed feedback from Indianapolis people - one agent says typically 3% appreciation (with 2019 to 2022 being outliers), other people say it's higher and with gentrification those areas will go up in value. Maybe I should have started a business instead.
Adding to my original comment, the people I know who left their W2 started way back in 1998 (that California appreciation) or in 2014 (bought the right properties and benefitted from the run up in values from 2019 to 2022) or started in 2015 by house hacking in CA and with their high W2 incomes ($200,000 to $400,000) leveraged and scaled to 2023 and are running RE businesses. They're not doing this in 2024 but the social media gurus are saying people can.
If the OP is still here, it'd be great to hear from him.It is so hard for a new investor to differentiate what is realistic and what not when you have gurus still push the cash-flow & retire myth on social. Investing means putting money in, not taking money out.
Milwaukee remains to be an interesting market and we will continue to buy (typically in the second half of the year, our market has a very strong seasonality with prices peaking in May/June every year).
Milwaukee has a housing shortage, which is reflected in the numbers: median home prices have increased 11.8% YoY and we have some of the highest rent increases in the US.
- Property Manager · Indianapolis, IN · Member since 2022 · 150 posts · 59 votes2y
@Nick Giulioni would be a good resource for you. He also lived in California and now invests in Indianapolis, and helps others do so as well.
Good luck!
- 2yNick GiulioniPro MemberRental Property Investor · Carmel, IN · Member since 2016 · 1k+ posts · 615 votes
Quote from @Mark Jones:
@Nick Giulioni would be a good resource for you. He also lived in California and now invests in Indianapolis, and helps others do so as well.
Good luck!
@Mark Jones really appreciate the tag and kind words!
@John Thomas please PM me and we can schedule some time to chat!
- Real Estate Agent · Worcester, MA · Member since 2023 · 88 posts · 52 votes2yI agree with you 200% Mark,
Quote from @Mark Cruse:
Quote from @John Thomas:
Hello! I am still here. I appreciate your responses and candid advice.
I am not looking for a ‘fad’ or something that is cool and easy. I’m committed to putting in the time to REI and do what it takes to get me to my goals. I just don’t have the time to spend my day logged into this site and respond to every comment that pops up, Hope you can understand that.
Quote from @Mark Cruse:
@Account Closed
Iḿ glad you all really have steam left to engage these one and done posters, but I have little desire. I´ve had too many instances of wasting my valuable time with people who are not serious. I still respond to stuff if they stick around for a while and at least show they care a little, however, I have halted a lot of the phone calls. No more meet ups. As stated before awhile back, I had people hound me for days to do a zoom and they didnt show the hell up. Many of these people move from fad to fad or whatever they think sounds cool and easy. Coming here, having people take time to provide expert advice and not having the decency to bring their azz back to even read it is insulting to me.
However, Iḿ glad you still have the stomach for it because maybe small in numbers, I know a handful could be genuine.
Please dont take this as a personal jab against you. I was basing my comments on the general climate that I currently see often with many newbies. I did learn why some still continue to devote their time to so many who are not truly serious about learning, and I get it. I respect it. I was just mentioning the difference on the fierce and intense desire to learn this stuff as opposed to now. Not talking about you per se but so many come here with one comment, never to return to even read the response. Others come in here asking basic comments they can google; or have some desire for people to walk them through a perceived get rich element they feel will easily make them a wealthy in a few easy months. All I was saying is that I have wasted so much time on people i clearly know didnt give a sht in the first place. I am glad you came back and hope you do get into the game because these people who gave you advice are heavy hitters. No one was expecting you to be on here all day and respond to every comment. However, this business does take time. As a newbie, I aggressively soaked up as much knowledge as I could and the information was nowhere near as available as it is now. I knew for this to work I had to put in the time and have that burning desire to make it all work. If I didnt have time to learn it, clearly I wouldnt have time to make something so complicated be successful. Most I know who came up in the game with me and are still here did the same. This is not some MLM gig. Honestly, if you cant carve out at least a minimal degree of time to learn and understand this vast process, Iḿ telling you things wont turn out good.
All in all I wish you the best and I want you to secede. Let me know if you need something. I can navigate you over the hundreds of mistakes Ive made.
Stay at it and good luck!
The times have changed and I'd argue only 1% of people who are "hungry" are actually hungry to do the work required to be successful in this industry. It is not a get-rich-quick scheme, those do not exist in reality. Might even be less than 1%. I will say though, that people coming here typically know what the site is about and why they are coming here so maybe that percentage is higher on bigger pockets.
It could also be nerves, I was definitely nervous to put myself out there when I joined BP and became an agent. I feel in today's world, battling the "embarrassment" of being bad at something holds a SIGNIFICANT amount of people on the sidelines. The only way to start is to try and fail fail fail because that's how we learn.
Thanks for sharing your journey with us. Glad to have you here!
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