Advice on my First Investment!

20 Replies

Hey all! My wife and I are new into the real estate investing business but are in a good spot to begin. Our goal is to buy our first property (ideally a live-in flip) in June 2019 in Lincoln, NE. By June, we will have saved up enough to put down 20% on a modest single-family home. The big wrench in our plans is a move to Colorado beginning in early 2020 which means we would live in the property for a little over a half year which would be plenty of time for a proper rehab as well as time to assemble a good team (because we plan on continuning to invest In Lincoln even after we leave) including a property manager. Then, once we are ready to move, rent it out and have it as an out-of-state property.

Do you guys think this is a wise move? If not, what complications do you think could arise that could make this a disaster? Overall pros and cons?

Like I said, this will be our first investment so I'm sure not everything will be perfect but I'm willing to try my best to minimize any problem that could potentially arise. Any other tips and advice regarding my situation would be greatly appreciated! Thank you!

Sounds like a good plan to me. Just be sure to run the numbers of your livin flip the same way you would as a rental and be sure to account for vacancy repairs capex and definitely management if you are going to be moving away. I also invest in Lincoln and my husband is a realtor here so if you want to get together for coffee sometime we would love to help you guys out.

@Javier Beltran - I’d say wait until you get to your next location and save up more money so you can buy there. If you don’t sell, and don’t rent for high enough, your rental property will probably prevent you from buying another home (Debt to Income). In a higher cost city with good job opportunities, maybe you’ll buy a more expensive home and rent out a room to a working professional. Most people with long distance rentals do not make as much money as they would have on stocks.

Also, generally if you're buying and selling a home within 6-12 months, you need to be really on the ball with contractors AND find a GREAT deal otherwise you will lose all your profits in closing costs and rehab. (3-8% to buy, 5-10% to sell). Your quality of life will be low with all the dust and debris and constant work. You'd need to find a mortgage worthy very ugly house, ideally put down like 5% conventional, then use your remaining cash to execute the rehab. You will not find a pretty house that you can buy and sell in 6-12 months without losing money. Talk with real estate agents. The pretty homes are largely not good ROI because you compete with other people looking for pretty homes.

I bought a fugly rehab for $80k in November and plan to sell it as a pretty home for $180k in March-May. My husband and I would probably be on the verge of divorcing if we were living in this thing. For our personal home, we bought a Fannie Mae homepath foreclosure in the first days on the market for 250k that's across the street from like models that sold for $380-400k during the same time. But this requires a year minimum owner occupancy. When we go to sell we might get 350k because no finished basement and our rehab cost $70k with a gc. So after you're all in for 320 on a 350k property, you maybe break even when you sell after 10% in closing costs. And that's with me being a realtor and keeping the commission.

Remember real estate agents get paid to sell you A HOME and not necessarily a good deal.

@Natalie Schanne Thanks for the response! 

So one of the biggest reasons why I've been wary of investing at our next location, Colorado, is because the market we will be in there is currently insanely expensive and very difficult to find a great deal - at least for someone new like me with no connections there yet. Our market here in Nebraska, however, is a different story and great deals can surely be sought out. I was originally planning on buying my first property here alongside with building a good team and then continually keep adding properties from out-of-state over the years. I figured since I know this area/market as well as have many connections here and did my due diligience in prepation, I could make this work. Do you still think I should save up and invest in Colorado, then?

@Javier Beltran - I 100% believe everyone’s first investment should be within 30 minutes of your home (or ideally your first investment is your own home, bought ugly, fixed up, with working professional roommates or Airbnb who help pay your bills and give you tax deductions (repairs, property taxes). Certain homes can be shared without a lot of privacy issues. It all depends on the tenants you pick.

Self manage it and you will learn a lot, quickly, so you make less future mistakes. Most PMs are not worth their pay. They call their plumber who charges you $300 to plunge the toilet and they get a 30% markup over that for administration. They don’t care if you’re bringing home profit. Your team isn’t any good until you try them. I’ve received dozens of names for every trade and am constantly looking for new guys because the current ones are too expensive (vs Rehab estimating book) or performed shoddy work when I hired them. You will love your realtor until your fixed up property doesn’t rent for the projected $$ for six months because your price is too high. 

Remember in a hot market with good job opportunities, if a zillion homes aren’t being built, then the price of housing will go up. If I bought a home in New York City or San Francisco or Denver 5 years ago I would have thought it was overpriced at the time but it’s worth 30-100% more today while Lincoln Nebraska is probably still worth about the same. A good example might be checking historical prices in a condo development. Here in ewing Nj, the value of decent 2/2 1980’s condos worth $180-200k has fallen to $130-150k as property taxes and hoa fees rose. They rent for $1500 consistently today where they compete with apartment complexes. I’d rather have a home in NYC or Denver that has economic fundamentals to appreciate massively.

@Javier Beltran  Welcome Javier,
Denver is definitely expensive but you can still find some decent assets if you know where to look. There are also other markets around Denver that aren't too far. Colorado Springs is about an hour south and is awesome for investment properties. If you really want cheaper properties or flip opportunities Pueblo is worth a look as well.

@Natalie Schanne Our lease on our apartment is up in June. So let's say I choose not to invest in Lincoln and instead save up to buy a fixer-upper to later rent out in Colorado (Fort Collins area, specifically) when we move there in early 2020. Throughout that half year stretch while I'm still in Lincoln, do you think it'd be wisest to just continue renting? I know it would be the option with the lowest risk involved, but by June we will have a decent chunk in our reserves as initial capital for a property and, to be honest, am rather anxious to start sooner rather than later! What course of action do you recommend while we are still in Nebraska?

@Tanner Crawley We will be in the Fort Collins market north of Denver. Greeley seems to be the best choice to invest around that general area so if I decide to wait, save up, and invest when I'm Colorado, I think I will probably look around there or see how creative I can get in Fort Collins.

@Javier Beltran - I'd invest your savings/Capital ongoing in index funds or if you're really really aggressive, as private money / joint venture / profit share in someone else's fix and flip in your current hometown that'll 100% get sold before you need to buy a home. This way you can get involved now and start learning. I'm sure there's someone at a local REIA who could use your 50k or whatever and offer you 10-15% interest and/or 50-75% of profits. Just make sure they're vetted and you have a priority lien position on the house.

Remember buying and selling homes that you live in or flip, is very expensive in terms of transaction costs and fees. (5-10% each deal).

I’d keep renting where you’re at (because moving sucks) and time your lease to end when you plan to move, or in June I’d downsize to a smaller apartment or house or walkout basement apartment in someone else’s house to save even more money. Private owners are more flexible/generous with security deposits and lease durations unless you’re military and can get out anyway. When I was 24, I lived with a sweet lady in CA for $500 utilities included while my friends rented for $1000/mo plus utilities. I used the spare money to travel the world and max my 401k. 

I'm a local investor and rental owner in Fort Collins. What type of return and property are you interested in. Our market is challenging to find good deals. How much do you have to invest? I have a few agents I can recommend who work with investors in the area if you would like a referral. 

Thanks for all the responses, guys! 

I have a lot to sift through. I am still considering buying here in Lincoln before my wife and I take off to CO mainly IF we can find a below-market wholesale property that we can put ~5% down on a conventional loan and that has monthly expenses (including repairs) that would ultimately be less than what we are currently paying for our apartment. That way, we are still saving capital for our next property (our home in CO that will eventually become a rental property) while building equity. And then, rent it out.

This might be a rather stringent set of criteria, but I really want to start off RE investing on a great note (especially since my wife isn't fully on board yet). Having said that, if I can't find a deal that meets what I mentioned above, we will likely just renew our lease and continue saving capital to invest in Fort Collins and/or surrounding areas.

I'm only about 3 months into really learning about REI, so please don't be afraid to call this out if it's a horrible plan!

@Javier Beltran wholesale property that we can put ~5% down on a conventional loan = Not going to happen. Conventional financing will not close on the purchase of a wholesale deal. Your seller won't won't show up on title and the lender/underwriting won't go for it. Some will say yes yes and in the end it blows up. You can buy with hard money and then refi with conventional but most hard money lenders want some skin in the game (>5%) with newbies.

Home run goal ("I really want to start off RE investing on a great note") on first deal, 99.99% of the time means no deal. Set realistic goals and achieve them. Set unrealistic goals and never leave the dock. 

Keep in mind just buying a property is a huge thing. If you buy something that make financial sense as well, you are 10x ahead of the rest of the crowd. Buy a conservative start home in Colorado Springs with low down payment. Live in it and add some value, get rid of the PMI and get some equity. Then refi and use the equity to buy another starter home rather than selling your first home and buying that "forever dream home" with a high monthly payment.

Read Scott Trench's book called Set for Life. Focus on phase I and II rather than skipping to phase III of investing.

All things considered my first investment was an out of state investment and it has enabled me to buy my first duplex but it wasn't a multifamily and I'm now about to sell it this year to buy another multifamily here in Colorado Springs. Multi is the way to go. You should also consider what your lending would look like once you got to Colorado and how that house in NE would affect your ability to borrow. I've seen predictions of 2019 being a good year in Colorado for buyers and sellers depends on where you are going but it's a strong market to invest in and it's definitely a plus to be able to drive by your properties once in while. We just closed on a 9 bedroom property and are buying again within 6 months, reach out if you'd be interested in our area and knowing a little about our strategy. . Best of luck. 

Hi Javier,

i am glad that you took the first step together as a couple to jump into real estate. Remember, that you want your real estate investing to complement your lifestyle and individuals goals. Since you mentioned that you want to buy a property for a rehab project and live in after it is finished whereby you will move out of state shortly afterward.

Here is my suggestion and consideration that you should think about. Since buying a property a long-term strategy and moving to Colorado in a short time, you have to think about how to consider managing the property from far away. Either creating a team that you trust to manage the property for you or buy a property that is favorable with the less amount of management. For property management software, I recommend trying Cozy since it is free and you can screen tenants, collect payments online, and do background and credit check.

Another thing to keep in mind is to find a property where you can get low turnover or if you get high turnover you can quickly get a tenant in. A good market for that could be in a college town, around healthcare professions, or areas where there are lot of entertainments to attract tenants.  The reason I mentioned that is you don't want to pay two mortgages (or rents) as this can be stressful and doing this planning ahead of time will reduce your chances of failing. 

Last but not least, also think about how long you will hold the property. This will dictate your real estate strategy. Is your strategy to buy and hold until the mortgage is paid off or do you want a chance to go in and flip to get a quick profit. This will affect your property selection as each property is ideal for each situation.

I hope the ideas mentioned above help clarify your thought process and hope to hear from you soon in your new real estate adventure!

@Bill S. In my naivete, I just assumed a loan like that would work on a wholesale property but shortly after I posted I looked into it some more and it unfortunately turns out that you're right! The don't-wait-and-do-it-now in me hates this, but you bring up some great points to wait and rather build equity to refi down the road..

Account Closed Lincoln, NE is definitely a college town and that coupled with a decent market makes here not a bad place to invest. I would absolutely hire a property manager to look after my property when I move. I think so much of my decision, not just for this one investment but rather any future investing in LIncoln, ultimately rests on how good of a team I can assemble before I leave. Which means I need to start looking NOW as my lease renewal is coming up in a few months!

You want to look at Wellington, about 20 min. north of FT.Collins, Eaton or Ault to the E. of FT Collins or possibly Cheyenne, WY which is about an hour away.   All will have lower pricing than FTC.   

Hey all! Just wanted to touch base with everyone who commented and gave advice to my initial post and give everyone an update on what ended up happening. So my wife and I decided to take the leap head on and buy our first property that will act as our primary residence for a year! It's a single-family home that we were able to acquire for 3% down. According to the numbers, it will cash flow (barely lol) but really I'm just excited that I'm STARTING! The plan is still to move out to Colorado, although in summer of 2020 instead of early 2020, and have another property purchased here in the area before we leave (so two total out-of-state properties).

At the rate that we are able to save, we will have 20% for a 100-120K property in a little under a year. I have no problem saving up for the next property and investing it then, however, I was curious as to whether or not you guys had any recommendations as to what I could do to potentially land more than one deal before I leave. For example, for a person in my shoes who is just starting out in REI who makes decent income with little outstanding debt - would you guys recommend pursuing a private or hard money lender? Or since I'm starting out, should I just stick to my own guns and save up my own money?

My main goal throughout the next year is to have a team set in place to manage, find, and fund future properties from out of state. Aside from that, do you guys have any tips for any essential things I should also be doing until then? Thanks in advance!!!