I started working back in summer 2018 and was very interested in real estate investing. I bought my first property for self-living back in early 2019, a condo in Dallas TX. I was living by myself at that time, and was very much into house hacking, but the pandemic hit and disrupted my plans. In late 2021 my wife and I both found jobs in Chicago, bought our second property (also a condo) there, moved in and had our first kid there. We were super lucky to have hit relatively low rates (15-year 2%-3% range) that we would not see again today.
The Dallas property is now rented, giving a almost zero cash flow over a 15-year fixed mortgage, until the recent HOA increase pushed it into the negative side slightly. I have been a passive remote landlord throughout the time, thanks to my agent and nice tenants over there.
We have almost enough cash to pay off the remaining balances of the mortgages but obviously we want to use it in a different way. But my real estate investment knowledge is very limited to the basics that one always starts buying it as their primary residence. I was thinking of PRR but it seems challenging with a toddler. Getting a property solely for investing purpose (without living in it first) is completely new to me and seems costly at this time.
So I am here to ask for some ideas on how I can start out with this. Thanks!
My biggest piece of advice is to get involved in some of the local Chicago meetups. Meeting other investors in person will help set your compass in the right direction.
Read a few books on real estate investing to learn the power of leverage. I like the Unofficial Guide to Real Estate Investing. Here's a fundamental explanation to get your juices flowing:
Assume a house costs $200,000 and rents for $1,500. The market appreciates 3% per year.
Pay cash for one house and rent it for $1,500. You will have earned $90,000 in rent income and gained $34,000 in appreciation after five years.
or...
Buy four houses with $50,000 down on each. The mortgage payment is $1,000 on each house, so you earn $500 per house or $2,000 monthly. After five years, you'll earn $120,000 in rent income and $136,000 in appreciation. You've earned $132,000 more by splitting your money and leveraging it.
2. Prioritize your financial stability. Eliminate debt, establish a budget, and save. Remember, the notion of amassing wealth without investing is a dangerous myth perpetuated by self-proclaimed experts. A prudent investor doesn't seek quick riches through shortcuts. To thrive in real estate investing, you must maintain a firm grip on your finances. Explore my personal favorites, Set For Life by Scott Trench or The Total Money Makeover by Dave Ramsey, for invaluable financial insights.
3. As you read these books, watch the BiggerPockets podcasts. This will clarify and reinforce what you are reading. You can hear real-world examples of how others have built their investment portfolio and (hopefully) learn to avoid their mistakes.
4. NETWORK!!! Get out of your comfort zone. Stop hanging out with your deadbeat buddies who spend all day drinking, talking sports, and otherwise wasting away. Go to BUILD YOUR TEAM at the top of the screen and look for local investors or meetups in your area. You can also find real estate investing groups through meetup.com, Facebook, or a Google search. Birds of a feather flock together!
5. Now, you need to figure out how to find deals and pay for them. Again, the BiggerPockets store has some books on this topic, or you can learn about it by watching podcasts, reading blogs, and interacting on the forum. A handy search bar in the upper right makes it easy to find previous discussions, blogs, podcasts, and other resources. BiggerPockets also has a calculator to analyze deals, and I highly recommend you start this as soon as possible, even if you are not ready to buy. If you consistently analyze properties, recognizing a good deal will be much easier when it shows up. Find Brandon's videos on YouTube for the "four square" method of analyzing homes and practice. It doesn't take long to learn how to spot a good deal.
6. Study the market. You can learn to do this independently or get a rockstar REALTOR to lead the way. I highly recommend a well-qualified REALTOR who works with investors and knows how to help you best.
7. Jump in! Far too many get stuck in the "paralysis by analysis" stage, thinking they just don't know enough to get started. You could read 100 books and still need to learn more because certain things must be learned through trial and error. You don't need to know everything to get started; you need a foundation to build on, and the rest will come through experience and then refining your education.
You can build a basic understanding of investing in 3-6 months. How long it takes to be financially ready is different for everyone. Once you're ready, create a goal (e.g., "I will buy at least one single-family home, duplex, triplex, or fourplex before the end of 2019") and then do it. Real estate investing is forgiving; the average person can still make money even with some big mistakes.
I started working back in summer 2018 and was very interested in real estate investing. I bought my first property for self-living back in early 2019, a condo in Dallas TX. I was living by myself at that time, and was very much into house hacking, but the pandemic hit and disrupted my plans. In late 2021 my wife and I both found jobs in Chicago, bought our second property (also a condo) there, moved in and had our first kid there. We were super lucky to have hit relatively low rates (15-year 2%-3% range) that we would not see again today.
The Dallas property is now rented, giving a almost zero cash flow over a 15-year fixed mortgage, until the recent HOA increase pushed it into the negative side slightly. I have been a passive remote landlord throughout the time, thanks to my agent and nice tenants over there.
We have almost enough cash to pay off the remaining balances of the mortgages but obviously we want to use it in a different way. But my real estate investment knowledge is very limited to the basics that one always starts buying it as their primary residence. I was thinking of PRR but it seems challenging with a toddler. Getting a property solely for investing purpose (without living in it first) is completely new to me and seems costly at this time.
So I am here to ask for some ideas on how I can start out with this. Thanks!
Hi Teddy! Welcome to BP, and congrats on having two properties already. Especially with those interest rates you're in a super solid place already. It's incredibly difficult to find anything that breaks even on a note less than 30 years, I mean you're nearly half way to having that place in Dallas paid off!
Based on what you've said I would highly recommend Dave Meyer's book Start with Strategy because it goes over various tactics, or strategies, for investing in real estate. The book talks a lot about what your long-term goals are, and also sets a framework for writing out your long-term goals, then helps you align what strategies in real estate investing might fit best into your life given what resources you have in terms of time, money, and skill. I just finished this book earlier this month and wish I had read it sooner! I was really struggling to decide what investing option to prioritize but I got a lot of clarity from the decision making process in the book, so much so that less than a month after finishing the book, I'm under contract for my next place that aligns with my strategy! The book is really great for anyone on their investing journey whether you haven't started investing or you already own property.
Real Estate Consultant 路 Madison, NJ 路 Member since 2016 路 6k+ posts 路 7k+ votes
1y
Why are you keeping that Dallas property? That is a definite sell. You bought it as a primary and kept it to start investing, but that doesn't sound like a good investment and HOA can keep going up or there can be assessments and your appreciation is much lower in a condo than a single-family. Take all the money and roll it into a better investment where, for the first time, you focus on the investment outside of a primary.
I agree with @Jonathan Greene. It makes little sense to keep the property in Dallas since it's producing practically no cash flow. I recommend selling it and putting the money to better use somewhere else, perhaps into a rental property in your local market. It depends on your goals and how much cash you have at your disposal.
My biggest piece of advice is to get involved in some of the local Chicago meetups. Meeting other investors in person will help set your compass in the right direction.
Real Estate Agent 路 Chicago & NWI 路 Member since 2015 路 860 posts 路 521 votes
1y
Hey @Teddy Mao, you have some real great advice here; sounds like a better option to just sell the property, maybe do a 1031 exchange and purchase another property that does cash flow 馃槂
There are many REI opportunities in different markets - markets in the Midwest and Southeast of the country are really great - where not only are the purchase prices reasonable for most RE investors, but the homes are turnkey (new builds or completely rehabbed homes, tenant ready, systems 10 years of life remaining on them, property management teams in place) with appreciating home value AND appreciating rent. The amount of cash flow on a home will of course be contingent on the down payment. Putting less down may subsequently put you in a break-even scenario or possibly even a negative cash flow. However, some investors don't mind this strategy if they prefer not to put a lot of liquid in up front and plan to refi out within a few years of closing (which seems to be a great option with the talks of the FED reducing interest rates into 2025).
It really comes down to investing in a growing market, in a good neighborhood & building a great team to support you. It can be a lot of time and work if doing it on your own. It's helpful to work with a reputable team. That is what our team at Rent to Retirement has been helping investors to do for a decade now with BP. I'm happy to answer any questions you have about analyzing markets or getting started. Most importantly, choose a market that aligns with your goals!
Real Estate Broker 路 Coppell, TX 路 Member since 2011 路 5k+ posts 路 4k+ votes
1y
Sell the Dallas condo. It can be a great option if you're living in it, but normally not great for investment in Dallas. As you have experienced, HOA dues going up and so much out of your control, especially if you don't live there. There are also a ton of apartments competing with you in the same area that can do so many things to get tenants that are impossible as an individual owner, like giving 1-2 months free rent. With the exception of just a handful of condos, most just have HOA dues that are way too high and kill your returns. There are also probably a few that at some point will be buyout candidates for multifamily investors, but that is not easy, and is probably now 5 years or more on the horizon.
There are also just so many things that can go sideways with tenant occupied condos. Lawsuits against HOA, HOA lawsuits again insurance companies, deferred maintenance that makes it not qualify for FHA loans, too many investors make it unwarrantable for loans, too many investors, force you to sell to another investor (investors never want to pay premium prices) and just so many other issues.
I would say when your lease is up, sell that bad boy and either 1031 into a different kind of property or just take the cash and run. No reason to pay off cheap money today. I'm guessing your loan is at 3-4%? You will have some transaction costs there, but over the long run I think your overall ROI will be much better.
