Originally posted by @Matthew Gangi :
Hello, 22 year old trying to get my feet wet in REI. I have $20,000 to spend. I currently live in Boston, MA which is a super expensive market so i was thinking of out of state investing. Turn keys did come to mind. Should I just keep on saving, or dive in? Thank you
I am a strong proponent of investing closer to home specially for your first deal.
I have acquired over 1,000 apartment units and most of them I did right where I live - in Cincinnati Ohio. The rest of my properties are in the Midwest but I do have partners in cities (outside of Cincy) where I have my properties.
Having said that, I understand Boston is quite expensive.
Option #1: is to invest in areas, say 1 hour away from Boston and hopefully not as expensive as Boston. 1 hour is close enough that you can still monitor your investment but not too far that you waste so much time on travel.
And yes, with the technology nowadays you can monitor your properties from a distance. But if you decide to invest out of state, you got to find someone trustworthy as your "boots-on-the-ground" team. Also, you need to visit the city for a few days to really have a "feel" of the place before you invest.
So, Option #2: invest out of state but before you buy, spend time understanding the market and build a team first.
Are you able to use that money to buy a duplex or a home with a rental suite? That $20K can go further if you are living in the home and rent out a part of the house whether it is another unit or rooms.
@Matthew Gangi I would invest close to home.
Hi @Darius Kellar , I agree with the comments above. If you could invest in a multi-family and house hack, this would allow you to invest, while (hopefully) cutting down on your living expenses to save more money faster to invest in your next property.
@Matthew Gangi Speaking from my location and from my experience starting out. I would not buy a multifamily unit first starting out. I know I know I know,"but I can live in one side and rent out the other". I see the trend on BP. Yes it makes sense to why so many lean to that strategy. However, with limited funds of just 20K and with minimal construction experience the single family is easier starting out. I've seen it where experienced investors have fell victim to miscalculation on rehabbing properties.
@Matthew Gangi is it possible for you to house hack somewhere within driving distance of Boston?
House Hack allows you to save more money if you buy it right and gives you first hands on experience being a landlord!
Matthew - house hacking in the Worcester area might be a good option for you. I've heard there's a couple management companies in Worcester with very good reputations. The area is more susceptible to ups / downs of the market, but it's easy to find cash flowing properties there.
@Matthew Gangi Have you looked at the Southern New Hampshire market? You'll find more affordable prices and it'll be easier to house hack. @Ryan Schumacher makes a good point about Worcester as well. I'm not as familiar with that market, but am definitely in agreement with staying within driving distance for your first place. Good luck!
Keep on saving! Look into Graham Stephens on YouTube. He’s does real estate in California and started at your age. Has a ton of info on how to get in in expensive markets.
Hey Bud, some great advice in this column honestly. I keeps all my investments within 45m of my home so I can tend to them easier. While I understand realistically anything this distance from Boston is tough because market prices are so inflated in the suburbs like Natick, Wellsley etc, you can do big things a little further out near Worcester, which is pretty up and coming, and in the worst case, you're a 45-1h drive down the Pike to your investment. Also if you hire a local property management company you can save a trip. Realistically 20k will net you a 100k property @ 20% down. 200k @ 10% and so on. Just gotta find yourself a deal that makes sense with those numbers in mind.
Even though Worcester is an "hour drive" if you go at the same time the rest of MA commutes, you're looking at a 2+ hour drive easily (even on the pike). If you have any commitments in Boston that you will need to be back and forth to you will need to consider that, and your alternative would be a monthly commuter rail pass ($363) from Worcester to Boston. I think you'll be able to find a place that works for your needs but if you plan on house hacking you're in a good spot with $20k. I would get a conventional mortgage and put 5% down, You'll still have PMI as a monthly cost but when you reach 20% equity you can usually refi or appraise out of it (ask a loan officer). bottom line is at 22 years old you have the capital to live for free essentially and benefit from home ownership. you certainly have more buying power than $100-$200k as previously stated. $400,000 list price would be $20k down pmt and you could have your closing costs covered using seller concessions. Good luck.
@Matthew Gangi $20,000 isn't going to go very far around Boston, unless it's for an owner-occupied house hack.
Even there, with $6K-ish in closing costs (very optimistic) and an FHA 3.5% down loan, you're looking at a purchase price of $350K-ish.
That means that you're going to have to look in some tougher areas like Fall River and New Bedford or WAY out west like Franklin, Hampshire, Hampden and Berkshire county. Those are 3+ hours from eastern Mass.
I think a smarter investment would be as an investor on somebody else's fix & flip. Rehabbers using hard money usually need 25% down and you can be part of that investment.
You'll probably have to be a partner on the deal as most HMLs won't allow an investor in a 2nd position. You'll have to vet the deal carefully and I definitely recommend that you have your own attorney review any partnership docs before signing.
@Matthew Gangi I got started with $38k borrowed from my 401k. I put it all in on a down payment with a flipper and split equity 50/50 on the backend when we sold. Maybe try something like that, at $20k you'll likely have to take a smaller percentage. Maybe you can get more equity if you can add value by doing tasks related to the project like getting materials, keeping accounting books, construction work, etc...