Have Seed Money- Now What?

Question

Hi,  I have 250k in funds to start out.  I live in the Seattle area where the house prices will make it hard to cash flow so am considering other markets.   What would you do with this amount? I am considering duplexes or small multi family or sticking with single family homes and buying a couple and doing a BRRR.  What would you suggest? .

Marcus Auerbach · Answer

Anything you do remote is hard. If hard is not enough you combine remote + BRRRR. How we have normalized buying real estate across the country is nuts. There is survivorship bias: you don't read much about people loosing their shirt and basically ruining a couple years of their life, because nobody posts about that.

If you have to go remote, buy a single family. It is by far the easiest to manage, because the tenant does everything. You don't have to worry about lawn care, snow removal and someone slipping on your icy sidewalk.

Avoid complex renovations, buy as close to move in ready as you can. Most people find out that paint and carpet are hard enough. Plus you always have 100 little things that don't really fall on any particular trade.

Buy above the median price aka in a good neighborhood.

Christian Hwang · Answer

• Dana, if it were me, I wouldn’t start with the question of what I can buy with $250k.

I’d start with a few different questions first:- Do I want to be active or passive?- Do I want cash flow now, or am I okay with a longer-term upside play?- Do I want to stay local, or am I comfortable building relationships in another market first?
I think a lot of people jump straight into a strategy — BRRRR, duplexes, small multifamily, etc. — before getting clear on what role they actually want to play.

If you want to stay hands-on, a smaller deal in a market you can really learn deeply may make more sense than stretching into something bigger just because you have the capital.
• If you want less operational headache, I’d probably spend more time underwriting operators and markets than just underwriting properties.

From what I’ve seen, picking the right market and having the right execution plan matters just as much as the asset type.Curious what’s pulling you most right now — cash flow, appreciation, learning the business, or building toward something bigger over time?

Nicholas L. · Answer

@Dana Fitzpatrick

hi Dana.  it's hard to say.  a lot of folks on BP who live in high cost areas like Seattle pick another market based solely on price point, and get absolutely crushed.  see following threads.  if you're going to try to BRRRR, i'd stay as close to home as possible even if that's a couple hours away.

bottom line: the market is just very difficult for new investors right now and there's no easy strategy.  i am happy to dialogue further or answer any questions you have.

Turnkey Nightmare: Property Manager Ignored My Warning About a Missing A/C…

Nightmare with my property manager - advice needed!

Feedback Needed: $8.8k Turnover Quote for 2BR Duplex (Half)Out-of-State Landlord Nightmare: 4 Months No Rent, Cleveland Escrow BattleFailed BRR in Memphis TN

A Cautionary Tale About a Property Manager in Cinncinatti

https://www.biggerpockets.com/forums/48/topics/1242392-rough...

https://www.biggerpockets.com/forums/48/topics/1137397-balti...

https://www.biggerpockets.com/forums/432/topics/1231840-sell...

https://www.biggerpockets.com/forums/311/topics/840134-memph...

https://www.biggerpockets.com/forums/963/topics/1195280-expe...

Ryan Kitchell · Answer

Coming from the Bay Area with a similar situation so take this for what it's worth since I haven't pulled the trigger yet either. But after about 4-5 months of researching Phoenix for my first OOS rental, the thing that actually moved the needle for me was calling property managers in my target market before I had anything under contract. They'll tell you what actually rents vs what Zillow says, which neighborhoods to avoid, and honestly whether or not your numbers are realistic. I spent way too long running spreadsheets in a vacuum before someone on here suggested that.

The other thing I keep coming back to is the deferred maintenance risk on cheaper properties. The deals that look best on paper tend to be older houses where one bad surprise eats a year of cash flow. So whatever you end up doing, I'd budget more conservatively on repairs and capex than the calculators suggest, especially if you're looking at older stock in a market you don't know yet.

Drew Sygit · Answer

You’re ALWAYS better off investing locally, where it’s easier to:

• Learn the market
• Network to find deals
• Network to find contractors
• Be more hands-on
• Driveby property to keep tabs on it
• Network to find a decent Property Management Company (PMC)

Next best location is somewhere else you lived, where you have an existing network of family & friends to help you as accomplish the above list as needed.

If you invest OOS, your biggest challenge won't be finding properties to meet your goals on paper, it’ll be successfully outsourcing all of the above.

The biggest mistake we see OOS investors making in our market, over and over again, is not fully understanding Neighborhood/Property/Tenant Classes and how they impact your probability of success!

They all run their ROI numbers assuming Class A results – when buying Class B, C & even D rentals.

Then they’re shocked when their performance expectations aren't met😞

If you choose to invest OOS, and have little to no landlord experience, we highly recommend targeting Class B Neighborhoods/Properties/Tenants. If you target Class C, you better be prepared emotionally & financially for plenty of challenges.

You can find Class B properties in the Midwest to BRRRR, but it will take more digging and YOU will need to understand how to analyze & identify them - because a lot of agents, wholesalers, PMCs, etc. will try to sell you Class C or D misrepresented as Class B:

• Many of them don't know/care what Class the properties are, so they're incompetent.
• Others know exactly what they are doing, so should be labeled as crooks!
EITHER WAY YOU LOSE!

Why is Property Class so important for investors to understand and apply in their investing strategies?

Because the Property Class dictates the Class of the tenant pool that the property will attract.

The Tenant Class greatly impacts rental income stability and property maintenance/damage by tenants.

Both Property Class and Tenant Class will affect what type of contractors, handymen and property management companies you should target and be willing to deal with a property.

The Property Class will also impact the maintenance & renovations you do to, “Maintain to the Neighborhood”.

Why is that important?

Well, if you buy & renovate a property in Class D area to Class A standards, what Tenant Class will actually rent it?

Or, if you put several Class D tenants in a Class A four-plex, what do you think will happen to the property?

So, if you fail to apply the correct assumptions to a property, your expectations won’t be met, and it may even be a financial disaster.

We use the following to rank Property Classes, in order of importance:

• Property Tenant      Pool: closely linked to location, but not always.
• Property      Location: closely linked to tenant pool, but not always.
• Property      Condition & Amenities: it’s important to, “Maintain to the      Neighborhood.”

Key metrics for each Property Class:

Class A Properties:
Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years.
Tenant Default: 0-5% probability of eviction or early lease termination.
Section 8: Class A rents are too high and won’t be approved.
Vacancies: 5-10%, depending on market conditions.
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.

Class B Properties:
Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years.
Tenant Default: 5-10% probability of eviction or early lease termination.
Vacancies: 10-15%, depending on market conditions.
Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation.
Section 8: Class B rents are usually too high for the Section 8 program.

Class C Properties:
Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability.
Tenant Default: 10-20% probability of eviction or early lease termination.
Section 8: Class C rents usually meet program requirements, proper screening still recommended.
Vacancies: 10-20%, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation.

Class D Properties:
Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”.
Tenant Default: 20-30% probability of eviction or early lease termination.
Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection.
Vacancies: 20%+, depending on market conditions and tenant screening.
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.

Where did we get our FICO credit score information from?

Check out this chart:

FICO Score

Pct of Population

Default Probability

800 or more

13.00%

1.00%

750-799

27.00%

1.00%

700-749

18.00%

4.40%

650-699

15.00%

8.90%

600-649

12.00%

15.80%

550-599

8.00%

22.50%

500-549

5.00%

28.40%

Less than 499

2.00%

41.00%

Source: Fair Isaac Company

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

For example, Metro Detroit has 132 cities and the City of Detroit 183 Neighborhoods, which we’re analyzing and classifying to make better investing decisions.

Horror Stories from those that did NOT Understand What they were Buying:

https://www.biggerpockets.com/forums/48/topics/1137397-baltimore-a-path-to-never-ending-pain

https://www.biggerpockets.com/forums/432/topics/1231840-sell-at-a-loss-or-rent-at-a-loss

https://www.biggerpockets.com/forums/311/topics/840134-memphis-turnkey-tenant-turnover-costs

https://www.biggerpockets.com/forums/963/topics/1195280-experience-of-oos-investing-in-cleveland-after-15-years

Taylor Dasch · Answer

Dana — you're in a strong position with $250K. I'm based in Central TX and  actively invest here (100+ transactions including BRRRR and mid-term rentals),   so I'll share what I see on the ground rather than theory.

The buy box I work in for buy-and-hold investors is $100K–$260K in zip code   76502 and 76504(Temple, TX). Trailing 12-month median there is roughly $225K across 574   closed transactions. At that price point, $250K gets you into two properties   with 20% down and reserves — or one BRRRR with room to force equity and  recycle capital into a second.

What makes this market work for out-of-state investors specifically: two institutional demand drivers that don't depend on one employer. Fort Hood is   the largest active-duty post in the country, which creates constant tenant      turnover in a good way — military families on 2-3 year PCS cycles who need   housing immediately. And Baylor Scott & White in Temple has 8,884 employees   with 21+ residency programs, which fuels mid-term rental demand from traveling   nurses and rotating residents at rates well above LTR.

On the BRRRR vs. multifamily question — small multifamily (2-4 units) is      scarce in this market. Most of the inventory is SFH, which actually works in   your favor because competition from institutional buyers is lower. I'd lean     BRRRR on the first one to recapture capital, then hold the second as a   stabilized LTR.

Happy to share more data if you want to dig deeper on this market — comps,  rent ranges, rehab cost benchmarks, whatever's useful.

Mike Paolucci · Answer

I was in a similar boat back in 2021 while living in San Francisco. I ended up looking out of state where numbers made sense and focused on landlord friendly states.

If you go out of state, to start off, I'd look at a turnkey/light value add 1-4 unit property so you can get a lay of the land and what the market is like. Each market is very different from what you're used to so I'd recommend taking it slow and building the foundation for OOS investing.

Once you've gotten your foundation, contractors, lenders and other local boots, then I'd say go ahead and BRRRR properties when you can. Depending on the market, you'll likely need to leave a little bit of money in the deal.

Kerlous Tadres · Answer

@Dana Fitzpatrick, I’d buy one good duplex/triplex in a cash-flow market (Midwest) and keep a healthy reserve, because that’s usually the simplest way to get stable income fast. I’d only do BRRRR if you already have a strong local contractor and property manager lined up, since the team is what makes it work.

Samuel Diouf · Answer

Hey Dana, out-of-state investing is a top choice. You can invest in any market selecting the ones that you believe are seeing the most growth, and do it from anywhere. Once you get your systems down, you have a real estate business model that you can take to any market and still be successful. I work with plenty of out-of-state investors who are seeing great success here in Ohio.

Read this article on the "core 4". It explains the team that you should develop to have a strong foundation under you while investing remotely. This will be crucial if you're looking to invest in BRRRRS.

https://www.biggerpockets.com/blog/core-four-real-estate-team

Alfath Ahmed · Answer

You should look into the midwest. Find a good market and buy there. Your money will go much further and you can do BRRRR/Flip deals at 75% ARV that will actually make sense.

Connect with a good investor agent that can send you both offmarket/onmarket deals and connect you with their team of lenders, contractors, property managers. Buy deals at 75% ARV rules in B- or C+ areas.

Have your agent help you scope work and use inspection report to create final quote. Make sure you have enough data points from your ARV and use comps as examples to choose layout/materials.

Good luck and reach out if you have any questions.

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