New investor, overwhelmed by choices, analysis!

10 Replies

Hey guys, thanks in advance for reading my post. My goal is to build a solid managed real-estate portfolio that generates at least $10k of cash flow a month. I'm willing to do whatever it takes to accomplish this, whatever amount of work this takes, doesn't matter.

The problem is I have an overload of information and lots of fear about pulling the trigger. 

I subscribe to multiple real estate investing blogs, have a subscription to Mashvisor and RealtyTrac, and can't seem to make a decision about strategy or area. For strategy I'm leaning towards multi-family 4-plex units because I like the idea of consistent cash flow, and vacation rentals kind of turn me off because it's so seasonal and under attack from counties who have a housing affordability crisis (re:everywhere). I've heard investing in Ohio, Florida, Tennessee and Texas are good bets. Knowing specific neighborhoods of cities would be very helpful to know. From my research, it seems like the best cash-flowing neighborhoods are also somewhat sketchy as far as neighborhood, crime, and schools. Is this always the case?

Regarding the fear, I've been burned in the past by my realtor, lender, contractor, property manager, and tenants. Bought a condo in Reno in 2008, and pretty much everything that could have gone wrong...went wrong. I ended up selling a few years ago at a loss...I just don't want to get burned again. Because I've been burned I'm pretty sure I can now separate the professionals from the con-artists, and from what I've read the pending recession won't affect affordable housing that much, given there's a lack of affordable housing everywhere. Thoughts?

Any advice from any seasoned pros out there? I've been shopping for years, and I need to pull the trigger on SOMETHING, for my own sanity. Looking for tips on getting great deals, advice about areas, dealing with fear, and anything else that would be helpful.

Hey @Dan Pearson welcome. You make some good points...and the beautiful thing about this industry is there is a 1,000 ways to make money...and a version of each one of those. I think you can boil it down to simplify.

Choice 1

  • A. Use your own money and leverage...grow slowly and steadly and do this on your own
  • B. Use other peoples money and scale quickly with lots of strings attached

Sounds like you're on choice A, so now its just a matter of sticking to fundamentals. You want passive income, and that can come from lots of different asset types...but it sounds like you are leaning toward multifamily (good choice). Now the next question

  • A. Small MF (under 5-units)
  • B. Commercial MF (5+ units)

You mentioned you like 4-units, so you're leaning toward small MF. Your goal is to buy at a discount to speed up your equity, next question

  • A. Source your own deals and work directly with sellers
  • B. Work with an industry professional

It sounds like you want to ease in slowly, so maybe an industry professional is the best approach. Now its just a matter of running numbers. Set your criteria and thresholds for returns...when you see something close, pull the trigger...close, not perfect.

Aside from that, your #1 skill to survive in this industry is understanding how to structure a deal...there are lots of ways to do this, but only a few make good sense...remember, fundamentals ( at discount). Learn more about working directly with sellers and structuring purchase money mortgages.

There is typically a natural progression for folks that start in the small MF arena. Eventually you'll scale to larger acquisitions and get to that $10k/mo. in cash flow.

Best of luck

Hi Dan,

I understand your fear and reluctance to choose something. As new investor myself, it seems like at least your previous experience will get you past the con-artists and you should be well on your way to getting your first deal. From my understanding, it doesn't matter where you buy the deal as long as you crunch the numbers right and you know what you want. From your post, you said you wanted a multi-family. Why don't you get your feet with with a duplex first? Something less expensive (therefore less risk) so you get some more experience and understanding. Once that is done and complete and you know the workings, then try moving on to a 4-plex? This is the route I'm taking and I believe at the worst case, the experience I get will help me on my next deal if the first one comes crashing down for some reason (fingers cross it won't happen) and at least I won't have too much equity in it. Hope it helps!

@Brandon Sturgill I have a question for you since I am also new to REI and I would also like to someday buy and hold small multifamily homes for slow passive income. I live in the Washington DC, Maryland , VA area. What are some good sites I can go on to to learn how to analyze the market. or how do I even begin to learn how to analyze the market for that matter.

As you have found out the hard way,  a single unit far away is the worst case scenario for risk and loss if operated as a rental.   I've talked to more than a few people who have had that situation and gotten burned.   Operating a rental is hands on.   If you aren't willing to be hands on,  you better be darn sure your property manager is.    

If you hold out for the best deal ever (tm) in price per sf, cap rate, GRM, or whatever based on other investors fish stories, you'll never close on anything. I bought my first MF (MLS listed triplex - needed a little love) at the peak of the last housing bubble, paid asking price (the agent I was working with wanted me to go over asking; which was common in 2006 as it was more recently), and for a couple years was probably underwater on it. But once I moved out and rented all 3 units it cash flowed a bit, and some refinances, updates, and turnovers, (and seattle market) 13 years after purchase it returns enough to cover the mortgage and utilities on my new house and is worth way more than I paid. Its a long game sure, but point is I didn't necessarily get the best price or terms on it at the beginning. I see you are in CA so options may be limited, but look for something in a market close enough you can visit regularly, and where you know the rules, the economy, the people, the town, the good opportunities from the bad ones. If you would not be willing to live there yourself, don't assume others people with options would want to either. More units the better, if there are multiple units and residents it is more likely that a problem will be reported before its out of control, and you aren't all or nothing on income. If your only option is buy another condo, buy one closeby that you can visit often and do it. buy one in a complex with other rental units where many of them use the same property manager, and contract with them. Economy of scale.

@Dan Pearson The only thing that matters is taking action right now. Do

The blogs and magazines won't make you pick up the phone, make the calls, and get something going.

Choose a niche today and go with it. You've done enough reading. What's going to matter for your first is deal actually doing it.

@Silvanus Beckley It's just a matter of experience. We eventually wrote an algorithm that looks at the entire MF market and gives us an indication of what deals might be viable...there is a lot to understanding how to evaluate properties and their performance...but most comes from Most folks get caught up on this, but its a only need to be close...stay conservative, and focus on fundamentals...nothing fancy. 

@Dan Pearson , greetings and welcome to BP. Thank you for your transparency. I totally agree with @Seth Ferguson are going to have to take action, just jump. You may be surprised at how you make out given the knowledge you already have. Furthermore you have displayed great patience and I think that will work well for you moving forward. Some of my worst deals have come from my inability to be patient. In the end I believe there are really no 'bad' deals because I have learned something from every deal I have done. Experience is the best teacher. You will have to get some experience to get better. You will not get better on the sideline. I guarantee you will make mistakes. I guarantee you will make some right choices. Just do it!!

@Silvanus Beckley greetings,

To learn your market I suggest looking at properties online everyday. I do this with the Redfin App on my phone. The more you watch the market, the easier it will be to identify a deal when one becomes available. If you know that duplexes in your target market that meet your criteria (sq ft, beds/baths, style, condition, age, price range) go for 100k, when one comes on the market for 80k you will be able to jump on it. Tracking the market daily is the best way to learn the market imo. Other ways to learn.....go to your local REIAs and network with other investors and agents, ask them where they are buying, what they are buying, for how much, and in what condition. Also ask them about rent prices. 

Hope this helps!