Hi all! I've been educating myself through audiobooks, podcasts, the forums, and webinars and I think I'm finally ready to get started! Just not quite sure where to begin..
- 794 credit score
- $150k liquid assets (in a mixture of ETFs, savings accounts, etc)
- I work as an engineer. My salary and frugal lifestyle allow me to save $3k a month, which I currently just dump into ETFs
- Currently live in Denver, CO (have previously lived in Chicago and Central IL, Houston TX, Cleveland OH, Iowa City & Cedar Rapids, IA)
- Looking to free-up probably ~$50k for now to invest in real estate
- long term growth through using leverage to buy and hold rental properties
- early retirement when it conservatively makes sense (at 30 would be great :) - I'm 25 now)
Here's where you come in! I'm debating between a few different strategies to start out and would love input from knowledgeable BP-ers!
- Attempt to house-hack in Denver area (concerns me a little because the market is *hot* and hard to tell if it will keep rising at this rate. Also, high initial investment cost that may exceed the $50k I'm comfortable investing for now)
- Look out-of-state at one of the locations I'm familiar with. Houston stands out as a growing market, relatively low price-to-rent ratios and continued immigration of businesses and residents. Cleveland has lower entry point but it's been longer since I've lived there and seems to be less of a growing market
- Look out-of-state at various other markets that stand out for their combo of growth potential and low price-to-rent (e.g. Charlotte area)
Any and all help is much appreciated!
Wow impressive starting point!
I have the same doubts about the market, too hot at the moment.
I wouldnt be surprised if there is another crash in the next two years.
You are in a good spot, just wait.
I live in Chicago area.
Congratulations on building up all those assets by 25. I'm not sure what part of Central IL you're familiar with, but I own a real estate company with office in Arthur and Mattoon. I invest solely in Central IL because that's where I grew up so I know the market and it's easy to find deals that cash flow at 10%+ cap rates. Appreciation is slow, but so downturns are much less severe than cities and we don't really need appreciation to make 20% net returns on our money with 10% cap rates and 5% loans. Since I have offices in the area I'm always being approached with deals. Send me a message if you want to talk.
Village Square Real Estate
I will attend local open houses see if you can get a small house, town home using that fund as down payment. You mentioned nothing about your personal mortgage so you can get a bigger loan 80-90% price having more interest to reduce your tax obligation. Iowa City near campus is the only place I think you will do fine.
In places with low appreciation and low income employers after 30 years the equity is nothing to brag about. It is for income.
Not sure you know about buying notes they offer ~12% interest and is reasonably risk free for hard money.
We would be glad to help you in the Denver market. Check out our podcasts at Canon Property Group: Denver Commercial Real Estate and Development podcasts where we discuss the details of our deals and what is going own in the Denver market.
Sounds like you are doing your homework and ready to take the next step. We would love to tell you more about why we are so bullish on the Cleveland market, where we specialize in SFRs. We have a boutique firm specializing in providing a top quality product with excellent customer service. On top of all that, we are a female owned real estate company and big proponent of helping as many other female investors get involved with real estate investing. We'd be happy to help in any way we can!
Take your cash and get loans and invest in multiple markets and multiple houses. Don't limit yourself if your in doubt.
If you buy one SRF and you get a vacant you getting no ROI on your cash, so try to buy as much as you can for with your money.
I would not call $50k "Lots of cash", but I think it's a fine place to start. $100k would be more ideal and allow for more options IMHO. I would not invest in Denver, where the price per sq ft is pretty high, but seek other markets with a better ROI and price point. I would find a SFH, duplex, or fourplex in a reasonable market with a very good school system (no 2-4 scores, only 7-10s). With only $50k, I would start conservatively in a Buy & Hold strategy with 1-2 properties, putting down 20-25%. You would need to factor in property management and ask very good probing questions when discussing potential properties. Get the facts on the roof, repairs, maintenance, HVAC, and get the actual numbers if the property is/was a rental. Keep it simple. Find a good deal that cash flows 15-20% ROI from day 1. Do NOT start out with a rehab. Best of luck.
Account Closed For a 25 year old, you've set yourself up a great foundation. I think house hacking is a great route to look at. House hacking will NOT exceed 50k. You can house hack with 3.5% down (FHA) or 5% down (conventional.) A lot less than the 20% down needed for rental property.
Before you buy an investment property (whether in state or out of state), give house hacking a serious look. We currently have five properties under contract for house hackers in Denver. They range from condos to houses to duplexes. All of their down payments are way less than 50k!
Main reasons to look at house hacking:
- You have to live somewhere. You are either paying rent or mortgage. Let your tenants pay for your mortgage.
- You get tremendous leverage (I've seen house hackers with 50%+ cash on cash returns here in Denver)
- You get hands on experience a landlord.
- You get the best loan rates (typically 3/4s of a point less than an investment property loan)
- You have the opportunity to live for free or even cash flow!
I've got a lot of resources on house hacking around town. I'll send some over to you. Plus, I have some data on the market.
Hi Karen, there are many great opportunities for you in your situation. Do you currently own your home? If you do not currently own, then you can buy and your 50k could easily cover your down payment and your closing costs. The market has slowed down a little currently and you have some opportunities for some good deals.
Many people believe that a crash is coming. I don't necessarily agree. I feel that our economy is good and we have an influx of companies. Also if you are thinking about rents, rents have been going up here in Colorado and we still have a housing shortage. Renters can be found and rent continues to go up.
Another thing to think about is that most people have more than recouped any lost appreciation in the last crash and your investment in the property is a relatively safe long term investment.
Account Closed That's a great problem to have! I'm currently looking for a house hack deal around Denver and I wouldn't be so quick to rule it out. Just like some others have said, it can lower your living expense that you'll have anyway and it gives you a chance to dip your toe into real estate without going all in right away.
If you're a first time home owner, you can qualify for a loan with 3% down on a SFH or 5% for multi family. I've talked to a few lenders here about this. For most deals I've looked at, you can get in that way for anywhere from $10-20K. From the numbers you gave that should give you plenty of room to work with and give you time to get more comfortable scaling up after that deal.
Account Closed Like some have mentioned, $50k is not a lot of money to work with when investing in real estate but it is a great number when you're planning to leverage your money. I'm surprised you did not mention San Antonio, TX as a market of interest since the market is growing here with all the developments going on around the city as well as the appreciating neighborhoods. Shoot me a message and I'd love to discuss further about why the market would be great for you here.
Hey Account Closed, as others have said utilizing 50k isn't a huge pot to start with, but it's more than many people have in their mid 20's. If you have the time this Monday you should come to the BadAss meetup. The crowd there has done all kinds of different investing and you should be able to get a perspective of what the locals are doing all the way from house hacking to out of state investments.
Account Closed I would house hack, especially if you can find something to buy that is cheaper than your current rent. I bought my first condo in 2011 when I was 25 and still own it today. Best investment that I ever made. Even if market tanks, you would still have a roof over your head, and rent it to offset your mortgage costs. Stay in your local market, until you get a good understanding of the inner workings of real estate investment. Denver is a a great market. Good luck
"Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell." - Sir John Templeton
Currently, I don't see any indicators that Denver is overheated. Is Denver a "hot" market? Yes! Just because a market is hot, doesn't mean there isn't still room to grow, especially when you consider the market statistics and where we came from in 2008. If the market tanked in 2008, it makes sense that we will see an even longer recovery and appreciation period. After all, everything has an equal & opposite reaction.
While this is the first year we have started to see a "slow down" in the Denver market, we are still very much in a sellers market. We need 6 months of inventory to be considered a balanced market (neither a sellers market or buyers market). Over 6 months of inventory is considered to be a buyers market. Consider below.
- 2014: Avg. Sale Price = $358,771 | New & Active Listings = 5,124 | Home Sales = 4,963 | 1.032 months of inventory
- 2015: Avg. Sale Price = $396,749 | New & Active Listings = 5,849 | Home Sales = 5,233 | 1.118 months of inventory | 10.59% YOY appreciation = $3,164.83/mo in appreciation
- 2016: Avg. Sale Price = $438,755 | New & Active Listings = 6,002 | Home Sales = 5247 | 1.144 months of inventory | 10.59% YOY appreciation = $3,500.50/mo in appreciation
- 2017: Avg. Sale Price = $473,273 | New & Active Listings = 5,850 | Home Sales = 4,994 | 1.171 months of inventory | 7.87% YOY appreciation = $2,876.50/mo in appreciation
- Through Sept 2018 (YTD): Avg. Sale Price = $503,497 | New & Active Listings = 5,953 | Home Sales = 4,229 | 1.408 months of inventory | 6.4% YOY appreciation = $3,358/mo in appreciation ($30,224 appreciation ÷ 9 months)
Increasing interest rates are going to kick some people out of the buyer pool in 2019, and we have started to see some of that already in 2018. At the same time, 2018 is the first year we have really seen any indication of wage growth in the past 5 years. Even though interest rates are increasing, people are starting to make more money which means people will be able to afford the increase in rates & home prices. With wages increasing, we have a long runway of appreciation and inflation ahead, both in terms of interest rates and home prices.
Affordable housing & entry level homes in Denver-Metro are the real concerns for the years ahead, but there are still plenty of people that can absorb the increase in home prices and interest rates with wage increases. Increasing interest rates & home prices in Denver has more of a mental impact on people than it does in reality. Was it less expensive to buy 5 years ago? Yes. Will it be more expensive to buy 5 years from today? Yes.
Hopefully this data helps you assess the Denver market for your decision. My personal opinion is that Denver is still a great place for a house hack. At the same time, are there great long-term buy & hold strategies outside of Denver? Yes. I think the question you really need to ask, is which strategy yields a better ROI and comfort level? You're in a great position financially, and I think the biggest misstep you can make at this stage is the inability to act on something.
What about a 3% down conventional loan in Denver as a house hack (rent out bedrooms), and then doing a 25% down investment purchase out of state? There's no reason you can't do both.
$400,000 purchase price in Denver @ 3% down = $12,000 + closing costs
$100,000 purchase price in another state @ 25% down = $25,000 + closing costs
I definitely think it's realistic to do both with $50,000 in savings.
I’m a big fan of Michael Blank and Jake and Gino. Great podcasts that will motivate you to “go big or go home” as some one mentioned earlier.
I know you are looking to retire early through the use of real estate. I guess the question I have for you would be are you looking to self manage or manage a real estate manager?
House hacking is a much more involved process to start out. The nice thing about this is you are right there when problems arise and you learn real estate at the ground level. Unfortunately things are on you to take the initiative and address things. I have managed my own rentals and working with a local lawyer familiar with real estate management is a huge help to guide you in the right direction.
Investing at a distance is nice because you have a buffer between yourself and the tenants and someone (the management company) is holding your hand through the process. The only thing is it makes it super important to select a great management company. If things go bad its can be much harder than a house hack to show up to to see what is going on and work to fix it.
I recommend David Greene's book Long Distance Real Estate Investing. He has a really good process for vetting and operating a team at a distance.
Since you went with investing in ETF's rather than individual stocks I am going to go out on a limb and say you may want to "manage the manager".
I would recommend that you go with what you go with what will make you most comfortable even if its not the most profitable first investment. This might even mean buying a property locally and getting practice "managing the manager".
The first deal shouldn't be about making the most money it should be about getting the experience and knowledge. From there you will be able to make better informed decision for your next investment.
I would start with finding the right city to invest in first (do your research on cap rate, vacancy etc...) don't settle with only your local inventory, and then find the right team that can help you "rinse and repeat" the process of buying one asset, stabilizing it, leveraging the equity on it (When the time is right) to buy the next. This type of investing has never been as easy as it is now, with the new private money options out there.
17 years investing in cash flow properties in the Tampa area.