Starting My REI Journey

24 Replies

Hey BP Community,

I'm a high net worth (lower middle six-figure) individual in his early 20s just exploring the world of REI for the first time. I've been working, saving, and investing since I was 15-16, and the stock market is great, but I'm worried about a slowdown, and also hoping to be a bit more active on my path to FI. I live in the suburbs of New York City, which is, of course, a very expensive area of the country. While I'm sure there are deals, I have a few concerns and would love to hear your thoughts:

1) My Job—I work at a startup, and, including commuting, work consumes about 55-60 hours of my week, not including any other hours on the weekend. I’m worried that I won’t have the time I need to really do this right. How many hours have you found you spent on your first properties?

2) What type of property—Excluding the five boroughs, I live within 2 hours of 5 Opportunity Zones. Should I be looking there to try and capitalize on those newly established tax benefits, or do most of you expect those will go away once the Trump tax cuts expire? The other thing that I’m thinking about is house hacking, I also figure it may help with question 1 and the time, since I’ll be living right there.

3) Personal Life—I’ve been with my girlfriend for over five years, and marriage is on the horizon once she finishes her graduate program (another two years or so). For anyone that’s faced a similar issue, how have you balanced budgeting your own life, an investment property, and a big life landmark?

Thanks so much! I feel so lucky to have stumbled across this group, I’ve learned a lot just lurking in the forums, very excited about being more active.

Best,

Mike

Welcome to BP Mike!

You have made a great decision to get involved in the BP community!  

What strategies are you wanting to pursue in the REI world?

Are you looking primarily buy/hold? Flips? Wholesaling? Notes?  

Are you open to investing outside of NYC where it is more affordable?

I got into the REI world kinda on accident through house hacking so I would definitely recommend that route as a great way to get started. I rent out the upstairs unit in my house. You can finance up to a 4-plex with owner occupancy financing so you might want to look into a 2-4 unit property. You can live in one and rent the others out. You can even still have those properties managed and not let the other tenants know that you are the owner if you want to cut down on 3 am phone calls or knocks on the door...haha

You might also consider a strategy involving notes. If done properly, that strategy could cut down on your overall time investment as you wouldn't need to be out swinging hammers and fixing toilets. I am not well versed in Note investing personally but I am sure there are plenty of folks on here that are and could steer you in the right direction to learn.

All the best in your REI journey!

Aaron 

@Michael B.

There's no way I would be in this business if I earned that kind of money in my twenties. Real estate was, for me, the only way I could ever see FI short of changing professions. And really, that's what I've done, going from being a teacher to being a handyman with C/D class properties, my natural niche.

What I would do if I were you would be to find the cheapest possible place to live (including small multifamily househacking, house roommate, and Airbnb possibilities) near enough to my job to bike there and back or take public transportation. I would switch down to the cheapest possible jalopy that would pass inspection. And I would stash the cash like mad for three or four years while I learned what to do with it. But you're not me and who's to say you can't come up with a better idea?

After some years spent learning the ropes, meeting the right people at the local investor meetings, I'd probably narrow it down to the right remote turnkey operator in the right area and start buying solid B-class turnkey rental properties -- probably just past Jersey in the Scranton-Wilkes Barre area. Set very small profitability goals at first. No one make real money in real estate until they've been at it for a while.

As for your girlfriend, pulling down a salary like that, I hope you've kept up a long and involved conversation with her about money. When you're married, how are you going to handle it? What are your short-term, middle-term, and long-term financial goals? What's the life you want to have with her?

If you're renting now, I'd househack in my own name since you're not yet married.  Buy a plex. Learn the ropes as you go and sell tax-free in 2 yrs +. 

Funny you're moving out of equities and into RE.  I'm doing the opposite.  Landlording has a shelf-life and I've about had my fill.  I make almost as much trading 52 week low ETFs with no hassles but I hear you on the frothy levels of broad index buying.  At each new high, I'm shaving my long-term positions down.

Great opportunity to buy a modest house-hack close to your work as possible.  Read Set For Life by Scott Trench. Go get 'em!

@Aaron Clements Thanks for the feedback! What do you mean by notes?

I’m mostly interested in rental properties (I think-haha), so house hacking seemed like a good avenue to start. Immediately renting now, but am hoping that my next big decision would be to buy a duplex/triplex to rent out.

I have thought about out of state, but through the lens of crowdfunded real estate (like Fundrise). I thought that owning RE outright in a place I can’t get to seemed too risky, especially as a novice.

@Jim K. Great points, thank you! Unfortunately I don't make very much, I've just been investing for a while (compound interest-truly the 8th wonder of the world!)

My office is in a B- area, I’d love to cut my commute by living closer but it may not be the best move. I am looking at areas that would cut my commute by about 40%, just have to find the right deal!

Originally posted by @Michael B. :

@Anthony Rosa I’m in Westchester, taxes are brutal. That’s the other big concern, also with the newly passed rent control law, giving municipalities the option to adopt similar measures, scary stuff

Taxes are worse than brutal especially in lower Westchester. It's beautiful for primary residence but not for renting. From what I understand the rent control laws apply only to 5 or more units. I have 2 two family houses in the Bronx and it cash flows very well but does even better with appreciation. I bought them in 1994 and 1996 and are worth almost double from what I paid. Where are you looking to invest?

Originally posted by @Michael B. :

@Anthony Rosa Not totally sure yet. Was thinking New Rochelle just for proximity to the city, a lot of development, etc . But i haven’t started doing any analysis yet.

One of the lowest taxes in lower Westchester is White Plains because corporations take on the bulk of the taxes. Maybe some of the C class White Plains areas will work but they get top dollar even for busted homes. I tried working the numbers in lower Westchester but it's mostly expensive SFH and taxes kill cashflow. I tried buying 2br co-ops on Shore Rd in New Rochelle but the co-op board/PM charge premium if you rent it bc they want to keep it owner occupied. Plus the maintemace is high. Have you tried upper Westchester, Rockland or Putnam counties?

@Michael B. No problem! Notes are basically mortgages, paper investments. You buy the mortgage and the payer starts paying you instead of a traditional mortgage bank. Given your background, I think that might be a good strategy for you because you can dig in and analyze the numbers like you would in the market. That is just a guess and comes with the HUGE asterisk that I do not fully understand Notes myself at present. I hope to tackle that Knowledge base once I build up my base with flipping, wholesaling and buy/holds.

I highly recommend House hacking to start.  Do you have the option to work remote? I ask because 6 figures plus goes A LOT farther in midwest markets like Indianapolis and Cincinnati where there are cheap flights to NYC on a daily basis.  Just a thought.

Yes, Investing out of state can be risky, but so can investing in state. Either way, you need to build up a solid team and ding your due diligence.  The difference is, you can buy some pretty nice houses and multi family properties in Midwest markets for under $150K. Sometimes fr under $20K...haha Just all depends on what your end game is and what direction you ant to go.  Please feel free to shoot me a PM and we can exchange numbers and have a conversation about various strategies.

Anther big recommendation I would make to you is to make your commute work for you.  Listen to Investment and business building audiobooks and even Podcasts (BP has some decent ones) while you drive.  Turn your car into a Mobile University.  i do this all the time while I drive back and forth between cities. It has changed the way I perceive my drives and drastically helped me learn as I go.

All the best!

Aaron

@Aaron Clements Unfortunately do not have the option to be remote, but having just moved from Kansas City, I definitely know what you mean. I could have bought two or three places out there for the price of one here!

I'll look in to notes, there's probably some avenue out there for average investors, even in the post-2008 world. I'll also keep looking at crowdfunded real estate and publicly traded REITs, seems like great ways to get exposure to RE in other parts of the country. Th Ronny big asterisk on the crowdfunded real estate is that they have never operated during a downturn, so all their marketing and claims of 8-12% historical returns has never been tested.

I use the train to read and listen to podcasts, partially how I found BP! It’s amazing what 1-2 hrs a day of personal development can do for you.

If I were you, I would buy a condo in the city, preferably 1 bedroom in Manhattan.  I would live there for 3-5 years, save money for another down-payment, and then try to move out to a larger condo in the city (if city living is for you) or to a house in Bergen County NJ or Westchester (especially if you are thinking kids).  At that point, the tenants are paying off your first condo for you.  You can rinse and repeat at that point or look to other markets to expand your empire.  Manhattan real estate is always going to be valuable.  If you have the means to get in, get in.         

You may want to look into passive investment in a multifamily syndication deal. This will allow you to invest your capital in a large apartment deal, with no work on your end beyond vetting the deal sponsor and the deal itself. For your investment, you will earn quarterly or monthly distributions, as well as your pro rata share on any capital event. Minimums are typically $25K - $100K.

@Kris Wong I second this. As an accredited investor, you have access to incredible passive investing opportunities.

@Michael B. I work similar hours, and they were a huge deterrent to me looking into buying individual rental properties. Owning rental properties is another job, and is particularly time consuming to get up and running. Just something to think about.

@Michael B. , I’m happy to see your post! I grew up in New Rochelle and really got started in this community about 3 years ago, since they my real estate investing like has really started picking up steam. I would be happy to show you my duplex in New Rochelle which I am currently working on, and go through numbers etc with you. I’ve also helped a few around here in their searches to do the same thing. A few of us hold a meetup each moth In Harrison, which is this Thursday. Or if you are in the city thurs evening,

@Darren Sager is holding a meetup and @Will Barnard will be speaking to our group. It’s at the Roosevelt Hotel and we can meet there if you’d like!

@Michael B. there are a number of deal sponsors here on BP. You can find them in the forums or on the podcast. Several deal sponsors have their own podcast. You can find them through events (conferences) hosted by major multifamily mentors. You can find them at local meetups that are focused on multifamily.