Finding my First Deal

18 Replies

Hi Everyone,

I am a San Diego CA, white-collar worker (not in the real estate industry) and have not bought any property yet. The San Diego market is so expensive, I pretty much terrifies me. This could be due to me having no experience in real estate at all.

That said, I do have a bit of savings -- I have been working professionally for 8 years. A friend of mine has gotten into buying REI multi-family rentals in Kansas City and I like the idea of doing the same. I figure, the process of getting into REI's will have me learn the ropes in working with agents, brokers, lenders, etc.

That said, I am looking for advise on what markets to start in? I know there is a marketplace forum here on bigger pockets, but I there is also Zillow and RedFin, etc.

My goals are:

  • Find properties that will cost me about $20-25k each in terms of down payment and any fees
    • No rehab properties and no expectation of appreciation, just something that can be rented out
  • Creation a positive $200/mo cash-flow (more the better obviously)
  • Most likely out of state from California
  • Managed remotely (ideally, I never need to even visit the property)
  • Develop a great relationship with a lender who will help in future deals as well as my eventual home for myself/family!
  • Start the momentum to eventually buy more properties
    • Then eventually get into bigger and bigger deals
    • (I did read the 7 Years eBook - 7 years sounds good to me!)
  • I believe REI Rentals are the easiest ways to start out, but also the slowest
    • I think I'd eventually like to find rehabs - however as my first REI, I think flipping a rehab may be too much coordination and too much of a time crunch
    • (Let me know if you disagree)

Anyway, obviously I am a newbie, so I could have misinterpreted things and be setting myself up for trouble. Any advice would be great! 

Hello @Eric Sender ! I know a lot of people from California that want to invest out of state. Some choose to stick on the West Coast and invest in Oregon or Washington because there is great appreciation value and others invest in the Midwest, Texas, Florida, etc. to get a little more bang for their buck and to get better cashflow. Considering the fact that you would like to find properties that cost 20-25K I would suggest exploring the Midwest. Nebraska and Iowa are great options in my opinion. Let me know if you have any questions regarding specific markets or if you need help connecting with an investor friendly agent. 

Jacob Wathen, Real Estate Agent in OR (#201222796)
971-236-3552
I'm in your shoes. Properties are expensive here in the Greater Boston region. I believe that turnkey properties are the best way to go.

@Eric Sender - I'm seeing your post because someone mentioned Iowa and I have keyword alerts set up. 

If you are interested in Iowa, I would be willing to partner on deals with you. We self manage our properties so you could be hands off, and we could teach you as we go. We're not that much farther along than you honestly, but we have four rentals under our belt and about four years experience actually managing them. Iowa is a pretty landlord friendly state with good opportunities for cash flow. 

We actually put an offer in on a property Sunday and are waiting to hear back. Let me know if you're interested at all. I'm not going to pretend I know how to make it all work, but we can figure things out I'm sure. I was already considering beginning to look for partners to do more deals. Either way, best of luck!

@Eric Sender It all depends on your goals and objectives. If cash flow is your goal, then you'll have no choice but to go outside of your local area. San Diego won't cash flow unless you can put a huge amount down and then your COC return will be practically nothing. Out of state investing doesn't have to be any more risky than investing locally as long as you spend plenty of time upfront learning the neighborhoods and finding good property management. Any of the other risks will be the same regardless of where you invest. A big mistake I see first time out of state investors make is spending more time researching the market than researching the neighborhoods and then consequently buying in bad areas. You can find good and bad areas in almost any market so once you've selected a market drill down and get to know the market at a neighborhood and street level. You can recover from nearly any mistake in real estate. You can't recover from buying in a bad area however.

Great that you have some specific goals. Firstly, the lender you work with for investments likely won't be the lender you use for your home because your investment lender will likely be located out of state. A local CA lender does . not have the resources to lend out of state.

You want hands off, no need to visit and cash flowing... That makes me think turnkey as well. I have never invested with one but obviously management is important. In your post you say you want to manage remotely and never need to visit the property. I think what you need is a turnkey with management... You do need to investigate the turnkey seller / management team. Talk to as many customers as possible. Maybe even ask the turnkey company to let you talk to a cranky customer to find out what aches and pains to expect. Some customers will be annoyed that the management company didn't get 10 quotes for a water heater replacement and could have save $200 (however that's the small stuff you shouldn't worry about).

You say you want to get bigger and bigger.... Scale is important. Maybe starting with a few single family turnkeys will teach you a ton and then give you the confidence to buy either a residential multi-family (4-plex or less) or commercial multi (more than 5 units). In those deals you would be hiring a management company and managing the management company.

As @Mike D'Arrigo said, neighborhoods are also important. I invest where people want to live, not where they have to live. Evictions get a lot of ink because they are expensive, but tenants who don't care about a unit are also extremely costly.

I'm in Indianapolis.  Rental market is great.  But, we do have a few TKs in Indy that have been all over the local news this year.  Let's just say it's an ugly picture.  If you are going TK, don't have them provide your due diligence.  You need to have an understanding of the neighborhoods you're buying in and in the end the property management is crucial.  Don't think you are just hiring an expert and everything will be taken care of. 

If you are interested in Milwaukee, WI - I can partner with you.

welcome to bp. turnkey at that price sounds like a warzone but im sure there are markets out there that you could find it if you search hard enough. personally, im in Kansas city as well

Originally posted by @Eric Sender :

Hi Everyone,

I am a San Diego CA, white-collar worker (not in the real estate industry) and have not bought any property yet. The San Diego market is so expensive, I pretty much terrifies me. This could be due to me having no experience in real estate at all.

That said, I do have a bit of savings -- I have been working professionally for 8 years. A friend of mine has gotten into buying REI multi-family rentals in Kansas City and I like the idea of doing the same. I figure, the process of getting into REI's will have me learn the ropes in working with agents, brokers, lenders, etc.

That said, I am looking for advise on what markets to start in? I know there is a marketplace forum here on bigger pockets, but I there is also Zillow and RedFin, etc.

My goals are:

  • Find properties that will cost me about $20-25k each in terms of down payment and any fees
    • No rehab properties and no expectation of appreciation, just something that can be rented out
  • Creation a positive $200/mo cash-flow (more the better obviously)
  • Most likely out of state from California
  • Managed remotely (ideally, I never need to even visit the property)
  • Develop a great relationship with a lender who will help in future deals as well as my eventual home for myself/family!
  • Start the momentum to eventually buy more properties
    • Then eventually get into bigger and bigger deals
    • (I did read the 7 Years eBook - 7 years sounds good to me!)
  • I believe REI Rentals are the easiest ways to start out, but also the slowest
    • I think I'd eventually like to find rehabs - however as my first REI, I think flipping a rehab may be too much coordination and too much of a time crunch
    • (Let me know if you disagree)

Anyway, obviously I am a newbie, so I could have misinterpreted things and be setting myself up for trouble. Any advice would be great! Also, if you are local to San Diego or interested in a partner who has theoretical knowledge a bit of cash, let me know too!

 A Turnkey...at $25k????? No, thank you.

Tom Ott, Real Estate Agent in OH (#2016003865)
440-749-4043

@Eric Sender $25K down payment even if we use a 0 cost loan at 80% LTV would be $125K. I think you would be better served by raising that amount to close to double and avoid the worst areas.

Using $50K with $5K closing costs leaves $45K for down payment. At 80% LTV would allow purchasing a $225K RE. So maybe you do not need to be as high as $50K but I strongly suggest higher than $25K.

Newer investors should avoid the worst areas which often have the least desirable tenants (there are exceptions).

Good luck.

This post has been removed.

You can do turnkeys and possibly partner in on some of those deals to lower your risk and get into larger deals that may be more profitable in the long run.

Originally posted by @Mike D'Arrigo :
Originally posted by @Tom Ott:
Originally posted by @Eric Sender:

 A Turnkey...at $25k????? No, thank you.

Tom, he said $25K for down payment and closing costs. He can do that all day long in Indianapolis and Kansas City as I'm sure is the same in your market in Cleveland too.

 Oh YES, I see that now. Sorry, I guess I missed that. Yeah, $25k would easily get you a nice home in the suburbs that gets high rent. Thanks for clearing that up!

Tom Ott, Real Estate Agent in OH (#2016003865)
440-749-4043

@Eric Sender I'd agree to save more money for your first purchase. If you have a 401(k), look into tapping into that account to provide you more capital; just a thought. The probability for cash flow is much greater outside of SoCal. Best of luck.

At $20-$25k all in purchase price, in Milwaukee, you would definitely be in some more challenging areas. However, if it was a $25k down payment per property, then that would be a much different scenario. With a good team in place, I have seen many successful out of state investors building their rental portfolios here, plus, I think the Milwaukee REI community is great---Investors here are very open to helping each other out.

Hi Eric-

I looked at doing this initially when I started investing and found that it might have saved me quite a bit of headache for my later RE investing. A nice way to dip my toe into RE

That being said, I would be very wary of some (not all) turnkey providers. Usually they are trying to sell you a lipstick job reno at a 10% higher premium than the market because it is "easy" for someone like you who is remote to have management and a tenant in place. The number still make sense, but it isn't really a deal (or even retail).

Also do your due-diligence. Look at the PERSON who is selling you the product and find out all of their past LLC's. Do they have 3 or more LLC's in the past? Why? Have they ever declared bankruptcy? If so, they have left investors on the hook before and they will again. The two times I have really gotten taken advantage of it was with people who had declared bankruptcy. There must be something about going through the process that seems to tell them that it is ok to leave creditors on the hook because the world didn't end. Even if they express regret, ask them if they ended up making those creditors whole after they emerged from bankruptcy.

Good luck and drop me a line if you would like to chat.

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