Guidance for a newbie please!

46 Replies

Hi all, brand new, zero deals, but motivated - hoping someone with more knowledge that I have can give suggestions on how I should start out in REI given my specifics. In the absence of a mentor, and getting bogged down in webinars and podcasts and seemingly a thousand ways and strategies to get started, it would be awesome to get some nudging in the right direction - even if to be told "stop overthinking and do something". Excited by the positive success stories, and daunted by the "deals gone wrong" stories and talk of recession, what they may mean etc.

Here are details -

*Full time job so need relatively low time commitment for now, although wife would help when not looking after young kids.

*Live in California where house prices are steep and basic numbers (gross rent multiple etc) on surface look no good so looking out of state.

*Approx $550k in equity in home, refinancing could release $250k.

*Self directed IRA about $90k.

My goals - livable income from property within 5 years, efficient velocity of capital (reuse money through refinancing etc), learn as much as I can, have fun, more time with family.

Various combinations of the following I have considered.

—>To release capital to invest:

*Release equity in home through $100k HELOC (then refi rentals after a year).

*Selling home to downsize (or maybe move into house hack property if I can find one that works) and release capital that way

*Renting out our home to net probably $1000 before cash out refinancing and maybe getting out more than $250k.

—>To start investing have considered:

*Start out easy with turnkey SFH rentals out of state to learn more practically - just 1 or 2 to start. Have considered through Real Wealth Network, and even Mashvisor / Roofstock. If successful (cash flow and tax benefits and hopefully appreciation) then scale and reposition in about 5 years.

*Explore Airbnb home ownership through Vacasa. If successful then scale.

*Try BRRRR later once I have time, experience etc.

*Thought about small multi-family but seems more complex to down the line maybe.

That’s about it. Appreciate any guidance I advance. Oh hey and if anyone wants to give mentoring a go, help build out a plan etc - I’d be willing to listen!

Originally posted by @Greg R. :

Hi all, brand new, zero deals, but motivated - hoping someone with more knowledge that I have can give suggestions on how I should start out in REI given my specifics. In the absence of a mentor, and getting bogged down in webinars and podcasts and seemingly a thousand ways and strategies to get started, it would be awesome to get some nudging in the right direction - even if to be told "stop overthinking and do something". Excited by the positive success stories, and daunted by the "deals gone wrong" stories and talk of recession, what they may mean etc.

Here are details -

*Full time job so need relatively low time commitment for now, although wife would help when not looking after young kids.

*Live in California where house prices are steep and basic numbers (gross rent multiple etc) on surface look no good so looking out of state.

*Approx $550k in equity in home, refinancing could release $250k.

*Self directed IRA about $90k.

My goals - livable income from property within 5 years, efficient velocity of capital (reuse money through refinancing etc), learn as much as I can, have fun, more time with family.

Various combinations of the following I have considered.

—>To release capital to invest:

*Release equity in home through $100k HELOC (then refi rentals after a year).

*Selling home to downsize (or maybe move into house hack property if I can find one that works) and release capital that way

*Renting out our home to net probably $1000 before cash out refinancing and maybe getting out more than $250k.

—>To start investing have considered:

*Start out easy with turnkey SFH rentals out of state to learn more practically - just 1 or 2 to start. Have considered through Real Wealth Network, and even Mashvisor / Roofstock. If successful (cash flow and tax benefits and hopefully appreciation) then scale and reposition in about 5 years.

*Explore Airbnb home ownership through Vacasa. If successful then scale.

*Try BRRRR later once I have time, experience etc.

*Thought about small multi-family but seems more complex to down the line maybe.

That’s about it. Appreciate any guidance I advance. Oh hey and if anyone wants to give mentoring a go, help build out a plan etc - I’d be willing to listen!

You said you wanted the short version:

You are in California so buy Turnkeys  close to you like in Nevada or in Arizona and follow the spreadsheet below:

Average Turnkey Cash Flow Per Door In Phoenix Metro Area No Bank Needed

https://www.biggerpockets.com/forums/600/topics/584916-average-cash-flow-per-door-in-phoenix-metro-area

Account Closed - thanks for the spreadsheet - will check it out. You say "invest close to you" - I assume because its easier if / when market visits are needed?

@Mark Pedroza - yes good idea on networking! Have not taken action here but will. Thanks for the push.

@Greg R.

I ran into all the same questions you have about 2 years ago. My best advice is to echo what @Mark Pedroza said - go to as many meetups as possible and begin networking. Watching webinars and reading only takes you so far, the next step is making connections and talking to the people that have the experiences you desire. This was huge for me when I started doing it and continues to pay off to this day. 

Everyone recommends investing outside of CA, I recommend the opposite - invest in Santa Cruz and the surrounding areas - specifically the San Lorenzo Valley! It's expensive, extremely competitive, and only getting harder, but well worth it. It is not impossible here, just difficult.

PM me if you would like to meet up sometime and talk real estate. I just purchased a multi-plex in the local area and have plans to take it from a 6 cap to a 8.5 cap in under a year- nearly doubling its value. The deals are out there, they just have to be flushed out. 

Best of luck. 

I'll echo @Greg R. and @Jonathan Pflueger . There are several local real estate meetup groups. During the group meetings we frequently discuss local and out-of-state investment opportunities. Sometimes the meetings are more informational than others. And sometimes the information is wrong. But it's a great way to learn and network and share the frustrations of trying to be an investor in this pricey market.

Originally posted by @Greg R. :
@Mike M. - thanks for the spreadsheet - will check it out. You say "invest close to you" - I assume because its easier if / when market visits are needed?

@Mark Pedroza - yes good idea on networking! Have not taken action here but will. Thanks for the push.

I always walk the property and neighborhood before I buy so I can assess what I am getting into. If you buy across country it is harder to keep in touch, there are time zone differences and people might think a little differently than you may guess and that can cause communication errors. It's best to invest in your own city if possible but if prices are too high locate the closest area that the numbers work. You will appreciate how much less hassle it is when you can get to the properties and deal with problems when you need to.

Originally posted by @Jenifer Levini :

I'll echo @Greg Ross Smith and @Jonathan Pflueger . There are several local real estate meetup groups. During the group meetings we frequently discuss local and out-of-state investment opportunities. Sometimes the meetings are more informational than others. And sometimes the information is wrong. But it's a great way to learn and network and share the frustrations of trying to be an investor in this pricey market.

-->Great! Thank you Jenifer. Networking is coming through as a strong theme. I appreciate the suggestion. Are there any particular groups in Santa Cruz you might recommend? Again thanks...

Originally posted by Account Closed - thanks for the spreadsheet - will check it out. You say "invest close to you" - I assume because its easier if / when market visits are needed?

@Mark Pedroza - yes good idea on networking! Have not taken action here but will. Thanks for the push.

I always walk the property and neighborhood before I buy so I can assess what I am getting into. If you buy across country it is harder to keep in touch, there are time zone differences and people might think a little differently than you may guess and that can cause communication errors. It's best to invest in your own city if possible but if prices are too high locate the closest area that the numbers work. You will appreciate how much less hassle it is when you can get to the properties and deal with problems when you need to.

--> Mark - totally makes sense. Thank you..


Originally posted by @Jonathan Pflueger :

@Greg Ross Smith

I ran into all the same questions you have about 2 years ago. My best advice is to echo what @Mark Pedroza said - go to as many meetups as possible and begin networking. Watching webinars and reading only takes you so far, the next step is making connections and talking to the people that have the experiences you desire. This was huge for me when I started doing it and continues to pay off to this day. 

Everyone recommends investing outside of CA, I recommend the opposite - invest in Santa Cruz and the surrounding areas - specifically the San Lorenzo Valley! It's expensive, extremely competitive, and only getting harder, but well worth it. It is not impossible here, just difficult.

PM me if you would like to meet up sometime and talk real estate. I just purchased a multi-plex in the local area and have plans to take it from a 6 cap to a 8.5 cap in under a year- nearly doubling its value. The deals are out there, they just have to be flushed out. 

Best of luck. 

--> Jonathan - really interesting point of view. And wow on that multi-plex deal. Congrats. I will PM you as suggested.  

Hey Greg, if you need any help on the turnkey front, that's most of all I've bought for myself (I also live in CA). Happy to help. Recently started a turnkey Facebook group as well (not sure I can advertise it outside of the Marketplace). Reach out anytime!
Originally posted by @Greg R. :

Hi all, brand new, zero deals, but motivated - hoping someone with more knowledge that I have can give suggestions on how I should start out in REI given my specifics. In the absence of a mentor, and getting bogged down in webinars and podcasts and seemingly a thousand ways and strategies to get started, it would be awesome to get some nudging in the right direction - even if to be told "stop overthinking and do something". Excited by the positive success stories, and daunted by the "deals gone wrong" stories and talk of recession, what they may mean etc.

Here are details -

*Full time job so need relatively low time commitment for now, although wife would help when not looking after young kids.

*Live in California where house prices are steep and basic numbers (gross rent multiple etc) on surface look no good so looking out of state.

*Approx $550k in equity in home, refinancing could release $250k.

*Self directed IRA about $90k.

My goals - livable income from property within 5 years, efficient velocity of capital (reuse money through refinancing etc), learn as much as I can, have fun, more time with family.

Various combinations of the following I have considered.

—>To release capital to invest:

*Release equity in home through $100k HELOC (then refi rentals after a year).

*Selling home to downsize (or maybe move into house hack property if I can find one that works) and release capital that way

*Renting out our home to net probably $1000 before cash out refinancing and maybe getting out more than $250k.

—>To start investing have considered:

*Start out easy with turnkey SFH rentals out of state to learn more practically - just 1 or 2 to start. Have considered through Real Wealth Network, and even Mashvisor / Roofstock. If successful (cash flow and tax benefits and hopefully appreciation) then scale and reposition in about 5 years.

*Explore Airbnb home ownership through Vacasa. If successful then scale.

*Try BRRRR later once I have time, experience etc.

*Thought about small multi-family but seems more complex to down the line maybe.

That’s about it. Appreciate any guidance I advance. Oh hey and if anyone wants to give mentoring a go, help build out a plan etc - I’d be willing to listen!

Decent amount of capital but living in a super expensive market. Lots of folks are in the same boat as you. Many of them invest in the Midwest or what we can the "turnkey markets" because they are super cheap with high price to rent ratios. Tons of turnkey markets out there. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors

  • Cleveland, Ohio
  • Dayton, Ohio
  • Toledo, Ohio
  • Youngstown, Ohio
  • Cincinnati, Ohio
  • Memphis, Tennessee
  • Birmingham, Alabama
  • Kansas City, Missouri
  • Saint Louis, Missouri
  • Indianapolis, Indiana
  • Detroit, Michigan
  • Erie, Pennsylvania
  • Louisville, Kentucky
  • Milwaukee, Wisconsin
  • Jackson, Mississippi

Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.

One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

@Greg R.

Pay cash for a turn key property to get your feet wet. Then do a cash out refi on it later. Take that cash and buy another. Then keep repeating. Eventually buy a beater SFR and BRRRR it. Hire someone else to do it all. That's what I do. This is what I did when I started 4 years ago. My cash flow per month after all expenses is only $3,500/month but I'm slowly growing and adding to it.

@John Morgan - thanks John! 4yrs to net $3500 per month sounds pretty good. What would you do in hindsight to have scaled more? And do you invest out of state?

To some of your points:

“Pay cash” - Can’t you cash out refinance when you borrow to turnkey - ie 20% down and mortgage the rest? Or can only do so if paying cash.

I’ve been wondering the pros / cons of paying cash for one vs borrowing / leveraging to get say 5 properties. Love the idea of recycling money and if not possible if borrowing then would be major advantage of putting down cash.

"Have someone else do it" for BRRR - you mean do the rehab work, general contractor etc - or the whole BRRR process similar to turnkey?

Thanks again!

Originally posted by @Greg R. :

@John Morgan - thanks John! 4yrs to net $3500 per month sounds pretty good. What would you do in hindsight to have scaled more? And do you invest out of state?

To some of your points:

“Pay cash” - Can’t you cash out refinance when you borrow to turnkey - ie 20% down and mortgage the rest? Or can only do so if paying cash.

I’ve been wondering the pros / cons of paying cash for one vs borrowing / leveraging to get say 5 properties. Love the idea of recycling money and if not possible if borrowing then would be major advantage of putting down cash.

"Have someone else do it" for BRRR - you mean do the rehab work, general contractor etc - or the whole BRRR process similar to turnkey?

Thanks again!

I wasn’t comfortable leveraging so much at first so that’s why I paid cash for my first property. I’m 2015 when I first got started in real estate, people told me we were at a peak in the market and it was about to crash  if I could go back I would have leveraged and bought 5 properties with 20% down.

@Greg R. I agree with Account Closed Given your situation and desire to be as hands off as possible, turn key would be your best route. Once you go out of your local market, I wouldn't worry about how far it is. It's more important to choose a market that's aligned with your goals than where it is located.

@Greg R.

Based on your goal of wanting cash flow in the near future, buying out of state is the way to go. You can buy a decent amount of units with your money. I would buy as many units as you can. You can get good returns on SFR's but you're also paying for maintenance on multiple roofs, yards, etc. in different locations.

Based on your goal of wanting to refi and invest in other properties, you should look for areas that appreciate well or a value add project. If you find a great contractor and property manager finding a BRRRR project won't take too much of your time. They'll do all the heavy lifting. Make sure they have great experience and ideas. Ask for their references.

If you do decide to go out of state and want recommendations for great investor-friendly realtors, let me know. I meet realtors all over the US.

@Stephanie Chiramberro

Thanks Stephanie! You recommend getting “as many units as possible” - feels aggressive I figured I would wet feet with one to learn and overcome beginners nerves then get more aggressive. Also concerns over going all in just before a possible recession. Any thoughts there?

As for BRRRing out of state - is that possible? Would welcome any guidance on just how that can be done. I always believed that this would require eyes on the ground - ie id have to travel a bunch. Am I wrong? Is there a “turnkey” type approach to BRRRing where the agent manages this process on buyers behalf? If so yes would love a recommendation on who I could work with.

Lastly - you mentioned high appreciation markets. What is your opinions on where these are?

Thanks!

@Greg R.

You should do what makes you feel comfortable. If starting small does that, do it. It’s about getting started and learning from your first deal. You can move up after that.

As for the recession, people have been saying it was going to happen a couple of years ago, it will happen next year, two years from now and have even heard it will happen in 10 years. It’s something you can’t time but as long as you have plans B and C for your property, it helps mitigate risk. If it does happen soon, ride it out for a few years and you will come out on top.

I’m buying in Kansas City which isn’t seeing appreciation like California but I’m buying in a part of town that’s appreciating more than other areas of KC. Also doing a value add project that is forcing appreciation.

For BRRRR-ing, I have an amazing GC who is on it and provides updates with photos on a weekly basis. I have a property manager who I've been working with and trust as boots on the ground. He's been doing similar projects for over 30 years. He's going by every day to check on the project as is the GC. I've been flying out there every 6 weeks to check on it but it's going so smoothly I probably don't need to.

@Greg R.

Learn a lot and then take action. Think about your ultimate goal and work backwards. If you want "livable" income in 5 years what is that number per month? How are you going to get there with 250k from a refi? If you want to scale and reposition then what is that going to take? In my opinion, it's going to take equity in properties. So you either need market appreciation or forced appreciation to get that equity. You'll also get principal paydown but not that much in 5 years on a 30 year am. I would be wary of just buying cash flow, you can buy cash flow anywhere. Look into 1031 exchanges, these are a great way to trade up for more cash flow. But you need equity for them to work. 

I buy in the midwest and force appreciation with BRRR plus get cashflow after. My brother lives up your way so I helped him buy a value add rental in Seaside. The ratios are not great, he's all in 425k on 2700/mo rent but he has already gotten a ton of forced and market appreciation, so he has equity. If the market "crashes" where do you think Seaside will be in 5, 10, 15 years? It's coastal CA so I'm thinking it's valuable long term.

Anyway, there are lots of ways to invest in RE. I think that investing and business are personal, you put your own personal style into them. So there really is no right or wrong answer on how to do things. Just what is right for you given your goals and your resources. 

Learn, take action, refine action, scale. You'll get there. 

Originally posted by @Stephanie Chiramberro :

@Greg R.

You should do what makes you feel comfortable. If starting small does that, do it. It’s about getting started and learning from your first deal. You can move up after that.

As for the recession, people have been saying it was going to happen a couple of years ago, it will happen next year, two years from now and have even heard it will happen in 10 years. It’s something you can’t time but as long as you have plans B and C for your property, it helps mitigate risk. If it does happen soon, ride it out for a few years and you will come out on top.

I’m buying in Kansas City which isn’t seeing appreciation like California but I’m buying in a part of town that’s appreciating more than other areas of KC. Also doing a value add project that is forcing appreciation.

For BRRRR-ing, I have an amazing GC who is on it and provides updates with photos on a weekly basis. I have a property manager who I've been working with and trust as boots on the ground. He's been doing similar projects for over 30 years. He's going by every day to check on the project as is the GC. I've been flying out there every 6 weeks to check on it but it's going so smoothly I probably don't need to.

Thank you for your advice. Good point on recession fears. Who knows what will happen. As for BRRRing out of state being made possible by great relationships with an amazing GC and property manager - these relationships naturally ONLY develop over time (maybe started with turnkey rental and got to know then this way) or are there those GC's and PM's who specifically work with out of state buyers? If the later then I suppose just research (probably on BP) will tell me who these folks are? Thanks again..!