Questions From a Rental Investor Newbie

[email protected]978-710-8611

Brent Shields

Rental Property Investor · Sacramento · Member since 2019 · 129 posts · 108 votes

7y

If your goal is to be a rental investor then it sounds like your on your way. Just decide where you want to end up with the number of houses or amount of rents you collect, and start working toward that goal.

The equity in the house you have gives you options, you can look at getting a loan on your current property and using that money to buy your next rental.

If your moving to a new area and new at being a landlord, I would suggest buying your rentals one at a time. Then you can learn from your mistakes starting out and they will cost you less.

2 Reply

Jonathan BombaciBusiness Member

Real Estate Agent · Lowell, MA · Member since 2019 · 1k+ posts · 1k+ votes

7y

If I were in your shoes I would move to Austin and learn the area / industry before investing my retirement savings in the market place. Make sure it is the right market from you before committing to investing that mush money in the area. Austin may be great for most people but you wont' know if it works for you until you give it a try. You may move there and realize it's missing something that is important to you.

If your goal is to self manage the properties then maybe look for a job at a property management firm or get your real estate license and learn all you can about the market. The time you invest in learning the market and industry before jumping into it and buying property will be time well spent. It will help you avoid mistakes and allow you to stretch that equity further and into better deals. It's better to make mistakes and learn from them when the stakes are low (maybe not even your money on the line) than it is to jump in with both feet and realize there is no going back.

Sounds like you have a fun ride in front of you, real estate is fun. I'm excited for you, I hope you enjoy it.

Candor Realty4.760 Reviews

Website View Page

OP

Member since 2019 · 24 posts · 7 votes

7y

thanks everyone. I'm definitely nervous but also excited about opportunity. Thanks for the advice all!

Rachelle Duron

Houston, TX · Member since 2019 · 19 posts · 8 votes

7y

Seth, welcome! You'll learn so much here, with all the podcasts and webinars, and books. Personally, I'm a newbie as well, but I just read David Green's book on the BRRRR strategy, and I feel it's worth it to read; tons of information for someone looking into having rentals. Also, networking with local agents, pm's, lenders, etc. can only help you learn the Austin market and or learn who knows the market. There are lots of folks on here who are super helpful! I wish you success on your journey!

OP

Member since 2019 · 24 posts · 7 votes

7y

Thank you! Does anyone recommend for or against an LLC for something like this?

Jaron WallingPro Member

Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes

7y

You don't need an LLC when you're starting out. It's a waste of time and money. Once you have more experience and properties it starts to make sense.

2 Reply

Michael Strachan

Specialist · Santa Clara county, CA · Member since 2017 · 81 posts · 57 votes

7y

Hey Seth, welcome to BP! I live in the Bay Area like yourself and have family in the Houston, Texas area so I visit there from time to time. One thing I would urge you to do is definitely spend some time there before you dive in fully. There are some things that people often overlook when relocating that you couldn't foresee without actually experiencing it. For me, I've lived my whole life in California so when I visit Texas in the summer, the heat and humidity absolutely kills me! Maybe I'm just a wimp but if you plan to move your whole family to a new area, it would definitely be important to make sure that you can be comfortable in your new home. As far as your overall plan is concerned, I think it is a great idea and would be a natural transition considering that you're no longer tied to a job here. Like others mentioned, it would be a good idea to consider easing into purchasing multiple properties so that you can get used to being a landlord. It may also be worth taking some time to look in to the multi-family market there, as I would assume that the proceeds from the sale of your current home could make multi-family a possibility in Texas. Also, because your current property is being rented, I would recommend reading up on the 1031 exchange, particularly if you plan to re-employ that capital in to more investment property. I have a local connection who specializes in the 1031 exchange and I would be happy to give you his information, he is very knowledgeable. I am an agent here in the Bay Area so if you have any questions about our local market or the process of selling your home I would be happy to help you in any way I can. Good luck and happy investing!

Linda West

Investor · San Diego, CA · Member since 2018 · 62 posts · 16 votes

7y

Michael, I'm in San Diego. Would be interested in that information as well.

Michael Strachan

Specialist · Santa Clara county, CA · Member since 2017 · 81 posts · 57 votes

7y

Originally posted by @Linda West:

Michael, I'm in San Diego. Would be interested in that information as well.

Hi Linda, I'll message you directly!

OP

Member since 2019 · 24 posts · 7 votes

7y

Hi Michael, yes I would definitely be interested in your info about the 1031 exchange. I've only briefly heard of it but am in an information absorption phase so anything helps.

Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes

7y

Why would you sell that Silicon Valley property? It sounds like it's infinitely profitable (since you inherited it and you're netting $3000/month), and it's likely only going to keep gaining in both rents and value, all while your property tax doesn't move.

Can a crew of Austin properties cash flow that well and have that much appreciation potential??

3 Reply

Jaron WallingPro Member

Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes

7y

I agree with @Ali Boone ! Unless you can predict the next housing crash (if you can message me) I would keep that property. It's a solid gold egg for retirement in my eyes. It's value could double if you held it long enough, kept up the maintenance, and remodeled before you sold.

OP

Member since 2019 · 24 posts · 7 votes

7y

Ali, this is all true. The problem is that I lost job and my kid is in a good school and has grown. The area here is a bit unfriendly too and it's very expensive. Also we have been splitting rent with my parents in law and they are leaving for the same reason. My wife doesn't have a job that can sustain us in the meantime. Even if I got another job we would have to move and the only affordable place has a horrible school. If we don't act soon it will be a savings burn, poof. We just spent 15k to replace the roof. So I feel that eggs are in that one basket with potentially scary costs that we wouldn't be able to replenish.

So, it's more than just investment factors that are causing us to consider it. It's about family, schools, living expenses, culture and a desire to spread out our investments.

OP

Member since 2019 · 24 posts · 7 votes

7y

At this point, I'm trying to crunch numbers to see how many rental properties I would need to get by along with a residence home. With the property tax in Austin, that really cuts into it. I arrived at about $3,300 in living expenses after the property tax is figured, for 4 total properties. That doesn't even account for Federal income tax. So it's tight for sure. I'm looking for a way to sustain while we look for jobs. The threat of being kicked out of our homes removed would be a big plus. Renting in the Bay Area feels like a tightrope. Even if we ate Ramen we could still have a roof.

Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes

7y

Originally posted by @Seth Tipton:

Ali, this is all true. The problem is that I lost job and my kid is in a good school and has grown. The area here is a bit unfriendly too and it's very expensive. Also we have been splitting rent with my parents in law and they are leaving for the same reason. My wife doesn't have a job that can sustain us in the meantime. Even if I got another job we would have to move and the only affordable place has a horrible school. If we don't act soon it will be a savings burn, poof. We just spent 15k to replace the roof. So I feel that eggs are in that one basket with potentially scary costs that we wouldn't be able to replenish.

So, it's more than just investment factors that are causing us to consider it. It's about family, schools, living expenses, culture and a desire to spread out our investments.

Am I understanding right that this is all based on where you have to live? As in... you're assuming that since you can't continue to live in Silicon that you have to sell that property? Do you not think you can keep that property and rent it out while you live in Austin?

Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes

7y

Originally posted by @Jaron Walling:

I agree with @Ali Boone ! Unless you can predict the next housing crash (if you can message me) I would keep that property. It's a solid gold egg for retirement in my eyes. It's value could double if you held it long enough, kept up the maintenance, and remodeled before you sold.

Haha... I want that message too! :)

OP

Member since 2019 · 24 posts · 7 votes

7y

We thought about holding on to it and doing that. 3k though doesn't go far if we have to rent a place in Austin. So if a new big house problem came up in CA we'd have to pay CA prices to fix it with very little money. I'd be looking for a job but meantime savings would be depleting which is money I could use to invest if I can. I'm trying to minimize savings burn by getting some cashflow. If we buy a house in Austin or elsewhere and use the rest for rental properties we could possibly build enough cashflow to stabilize. The possibility of having to sell the CA house sucks for sure.

2 Reply

Jose D.

San Antonio, TX · Member since 2019 · 40 posts · 14 votes

7y

Why specifically Austin though? Austin is a young adult's town, with a lot of stuff to do and that's usually what draws people there. For you, the main thing seems to be school districts though. San Antonio is only about 1 hour 15 mins from Austin yet much more affordable. You can find great school districts in the North and Northwest sides.

Why not find a more affordable city that meets your needs and keep the Silicone Valley property?

Lisa Malik

Real Estate Agent · Montgomery, TX · Member since 2019 · 1 post · 0 votes

7y

Austin is a great city for landlords, and your plan to spend basically $900k to replace your current rental income is very feasible (the other $300K would be used for your own house). In fact, you'll most likely net quite a bit more than the current $2900. The biggest warning I'd give is about property taxes. Tax rates differ throughout the city and suburbs, but there are still a lot of amazing deals out there!

Michael Strachan

Specialist · Santa Clara county, CA · Member since 2017 · 81 posts · 57 votes

7y

Originally posted by @Seth Tipton:

We thought about holding on to it and doing that. 3k though doesn't go far if we have to rent a place in Austin. So if a new big house problem came up in CA we'd have to pay CA prices to fix it with very little money. I'd be looking for a job but meantime savings would be depleting which is money I could use to invest if I can. I'm trying to minimize savings burn by getting some cashflow. If we buy a house in Austin or elsewhere and use the rest for rental properties we could possibly build enough cashflow to stabilize. The possibility of having to sell the CA house sucks for sure.

I agree with many of the other people here when it comes to the value of having a cash-flowing rental in the Bay Area. Not only is that very rare here, but it is very likely to appreciate pretty substantially over time. If you're concerned about having a large unexpected expense on the property, I would encourage you to get inspections on the home to have a better idea of exactly the condition the home is in. You would need to have inspections done when you go to sell the home anyway. All of that said, you need to find the solution that works best for you and your family. If that means selling the home and purchasing property in Austin, the proceeds from the sale could spring board you in to an equally advantageous position in the new area (maybe a househack?). There are many paths to success, so as long as you give it adequate thought and attention I'm sure you will find an alternative that puts your family in a comfortable position.

Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes

7y

Originally posted by @Seth Tipton:

We thought about holding on to it and doing that. 3k though doesn't go far if we have to rent a place in Austin. So if a new big house problem came up in CA we'd have to pay CA prices to fix it with very little money. I'd be looking for a job but meantime savings would be depleting which is money I could use to invest if I can. I'm trying to minimize savings burn by getting some cashflow. If we buy a house in Austin or elsewhere and use the rest for rental properties we could possibly build enough cashflow to stabilize. The possibility of having to sell the CA house sucks for sure.

I'm not totally following your numbers here. You have the CA house which is producing massive cash flow (and equity/appreciation), but are thinking of essentially trading that up for a few smaller properties in Austin. Austin has minimal cash flow. For some reason do you think you'd be getting more cash flow and profit from Austin properties? It seems like you're saying you don't get cash flow from the CA property, but I thought you were netting something like $2900/month. Did I miss something?

OP

Member since 2019 · 24 posts · 7 votes

7y

We get massive cash flow from an investment perspective but not from a living perspective. The house we are in we split with my parents in law who are leaving in January (too expensive with the CA state tax which they have been paying with a credit card). All told, the rent and utilities will be a jump to $2700. That is with a big discount on rent we get from the family member who is selling the house in a couple years anyway. The rents around here can be around $3200 right off the bat not including utilities.

Groceries are about 700 and on and on. Medical. Gas. Etc etc. There's no way we can stay in this area with anything close to a good school. We have to move.

Renting the house from a distance makes me nervous since all eggs are in one basket and repair costs on managing CA house can be really high. I realize that cash flow isn't going to sustain in Austin. But I am trying to figure out a way to use the value of the house to snowball by starting to purchase with cash. I am researching numbers and trying to crunch them in a way we can make it work. Someone suggested a house hack which sounds interesting, but I do understand that it's not like money is growing on trees pretty much anywhere.

OP

Member since 2019 · 24 posts · 7 votes

7y

Others have suggested AirBnB a MFH or just MFH in general. House hacks. BRRRR. I'm looking into everything. We have friends in Atlanta near some good schools and are considering that too. All options are on the table save for one that we know we can't make work. But we are definitely open to ideas on that too.

Jaron WallingPro Member

Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes

7y

It's interesting to me you keep talking about cities that are trending and expensive. I would consider a strong cash-flow market instead of moving to a destination city.