beginner needs advice, is my plan realistic? buy or invest as 1st house?

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beginner needs advice, is my plan realistic? buy or invest as 1st house?

Andy Gerry
Member since 2009 · 2 posts · 0 votes

Hello everyone, I am a motivated beginner with some questions about getting involved with real estate investing.

Right now I am renting from a landlord, don’t own a house, I am putting together about $20,000 in profits every year from my job, that I am only now thinking of what I can do with it, instead of waste it.

Since I don’t even own my own property yet, everybody says I should I buy a property for myself first, but I'm thinking I can move in with my parents rent free for 2-4 years, and focus only on investment properties in this period of time. Assuming I can put down a down payment every year, that is 2-4 houses / year, by then I would be making a solid enough stream of side cash to buy a starter home for myself.

Is this plan realistic at all? My dream is to own 10-20 properties before I am 40, by then I would have the cojones to be able to handle this workload. Since I am a workaholic, and currently work from home, seven days a week in my own situation, I feel I can do this and it suits me well. Thanks for your advice, please set me straight if anything I said is silly or unrealistic.


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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    17y

    As a parent who's 22 YO recently came back to town, I'd say the only silly thing here is living with your parents "rent free" for 2-4 years. The price may be higher than you think. And, do you really want to freeload on your parents, or would you help them out in exchange for a place to stay, either now or later?

    IMHO, owning a residence is just as much of a liability than renting. When you buy you still pay interest, so you're renting money rather than renting a place. Transaction costs on real estate are very high. I certainly do not recommend buying a place until you expect to stay put for at least five years. When we buy, we often buy a nicer place than we might rent. The net cost, after tax breaks, but including all the stuff the landlord handles, taxes, insurance, maintenance, and the like, ends up being higher. In exchange, we may or may not get some appreciation. I owned three residences I've since sold, and took a loss, after all costs, on all three.

    So, IMHO, renting is not such a bad thing.

    I'll congratulate on thinking about this now. You're way ahead of many people, even folks my age.

    Read in the landlording forum about the reality of rental property. You MUST buy good deals. You don't say where you're from. That would be useful. If you're in the bay area, this probably isn't going to work locally. If you're in a flyover city, I'm sure you can make it work.

    Is your job something that requires you to be at your desk all day long? That will make it tougher. If its something like coding that you could do in the evening, then you can spend some of the daytime hours working on buying real estate.

    From your description, if you're living in some high-priced area, you might want to think about moving to a more attractive investment area.

    Hoard your cash carefully. You could easily end up spending the entire bankroll on one or two houses and then be stuck. Figure out more creative ways to acquire properties so you're not limited by the amount of cash. Hard money, subject to, lease options, and the like.

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  • Andy Gerry
    OP
    Member since 2009 · 2 posts · 0 votes
    17y

    Thanks, after doing some research I see the #'s aren't as favorable as I thought, with the 50/2 rule, I am in MA so very few houses fit this mold, but maybe by year's end if the market continues to dwindle there will be some good houses

    I also see I have overshot the amount of money that a rental investment would bring in, talking only about $100-$200 in profits / month, vs what I assumed would be closer to $700-$800.

    Still I think it will be worthwhile, if I moved in with my parents, I would probably make sure to help them out, with house / yard work, etc... I am the type that always has to have something to do. Part of what appeals to me about real estate investing is that it is 'real work' , you can get results if you play all the variables in correctly.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    17y

    In my opinion, the 2% rule is only valid for a small range of rents. Apply the 50% rule, and you'll see that a higher priced property with correspondingly higher rent will produce the same $100/month at a lower percentage.

    Very tough to find one that will produce $700/month in real cash flow after realistic expenses. Even $200 can be a challenge.

    Seriously, though, if you're free and easy, and don't care where you live, and really want to be a landlord, think about moving. Its not unusual to move somewhere to take a good job, so why not consider that for investing.

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  • Hermann L.
    Real Estate Investor · Castle Rock, CO · Member since 2009 · 13 posts · 0 votes
    17y

    Pardon me for asking, but what is the 50/2 rule? Thanks.

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    17y

    Andy,

    If you work from home you might be considered self employed and you will not be able to get financing for any homes. Also I think putting down 20% every time is a bad idea. You should not move into your parents home. Just my opinion.

    Curt Davis - KAIZEN Realty538 Reviews
    WebsiteView Page
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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    17y

    Hermann, the 50% rule - expenses are 50% of rent, and 2% rule - buy rentals where rent is 2% of more of purchase price are discussed at length in the Landlording forum.

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  • Heather Pelletier
    MA · Member since 2008 · 199 posts · 1 vote
    17y

    Hi Andy,

    Welcome to Bigger Pockets. Where are you from in MA? We are from Western MA and are always looking to meet people interested in REI. Perhaps you could join your local REIA, we are members and we find the meetings very informative. Have you considered buying a multifamily you could reside in yourself (owner occupied), to me it seems like it might be a good idea for you.

    Good luck,
    Heather

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  • Anthony E Russell
    Real Estate Investor · Los Angeles, CA · Member since 2008 · 148 posts · 22 votes
    17y

    Jon,

    "...Seriously, though, if you're free and easy, and don't care where you live, and really want to be a landlord, think about moving. Its not unusual to move somewhere to take a good job, so why not consider that for investing..."

    Great point. I've been thinking about that a lot lately. I live in Santa Monica, CA. Talk about an overpriced region. I actually visited Denver last summer and really loved the lifestyle there.

    Anthony

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  • Hermann L.
    Real Estate Investor · Castle Rock, CO · Member since 2009 · 13 posts · 0 votes
    17y

    Thanks Jon for the explanation.

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  • Michael Rossi
    Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
    17y

    Andy,

    There are very few houses that will cash flow properly in any market. I'm sure that if I checked my local MLS right now, there wouldn't be a single property that would cash flow using the 50% Rule. This business just isn't that easy. (If it were that easy, everyone would do it.)

    You'll have to really work to find deals that will cash flow. That is true today and it will be true in a few months. I find most of my deals through personal contacts. Get out of the house and meet people. Tell everyone you know that you buy houses. Hand out business cards. Run a small ad in the classified section of the newspaper. Join your local REIA and make friends with the SUCCESSFUL investors in your area.

    Good Luck,

    Mike

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  • Casey Auciello
    Cincinnati, OH · Member since 2008 · 8 posts · 1 vote
    17y

    I'm in the same position- buy an investment property or buy a personal residence and have a cousin live with me and rent.

    The idea of moving into a multi family sounds good, but I don't know if I really want to live next to my tenants. Plus I would be using my dad's credit to get the loan, so it would be an investment interest rate (i believe) since he already has a primary residence. So if I live in one unit, I'm losing cash flow from one unit. Any thoughts?

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