Newbie here needing advice!

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Newbie here needing advice!

Connor Ryan
Financial Advisor · Boulder, CO · Member since 2019 · 38 posts · 75 votes

Hello BP community! I am an aspiring real estate investor currently living in Denver, CO and working in finance. In a few months I will be relocating to San Diego with my girlfriend.

We aren’t at the point in our relationship to buy a home together so we will rent for the first year to get a feel for the area. In the meantime I am soaking up as much real estate books, podcasts, and networking as possible to continue to gain knowledge and to see what strategies are the most appealing. I have about 25k saved and excellent credit.

So far the out of state Brrrr strategy sounds appealing for a few reasons. 1. It’s more affordable for me to buy properties in the Midwest. 2. I know the St. Louis area well because I lived there most of my life and feel comfortable with my connections there. Eventually I’d like to househack a duplex in San Diego but for now renting makes sense while I get used to the area. I have long term goals of scaling into a real estate business.

So this leads me to a couple questions. What advice would you give to someone in my situation trying to get started in real estate investing? Is it smart to start a business account at a bank now with the goals of scaling larger in a few years? Is it smart to wait and househack a duplex to get started or is it possible to start investing without owning a home? Should I look at forming partnerships or mentor relationships?

I’d love to hear feedback and I’m open to anything! Thank you!

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Robert Comstock
Member since 2018 · 138 posts · 56 votes
7y

don't do anything....get situated with your new job and city.  25k is an emergency fund living in san diego...just keep saving and reading...re think it in a year.....wet blanket I know but 25k is slim.

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  • Christopher Petrillo
    Member since 2018 · 264 posts · 61 votes
    7y

    @Connor Ryan  have you thought about wholesaling property?

    2Reply
  • Connor Ryan
    OP
    Financial Advisor · Boulder, CO · Member since 2019 · 38 posts · 75 votes
    7y

    @Christopher Petrillo Hi Christopher! I have considered wholesaling but haven’t done a ton of research on it. I know wholesaling is competitive but also a great way to get started if you’re god at finding deals. Do you have any good books or podcasts you recommend on wholesaling?

    0Reply
  • Christopher Petrillo
    Member since 2018 · 264 posts · 61 votes
    7y
    @Connor Ryan have you listened to wholesaling inc.?
    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    7y
    @Connor Ryan Using FHA (owner occupied house hack)you can get financing at very large LTV. If for example you used FHA at 95% LTV you could afford five times the price of an OOS investment at 75% LTV (not including closing costs). The challenge is finding a place to house hack that, at such a high LTV, does not hemorrhage cash and still meets the FHA requirements for financing. Definitely it will require some searching. Good luck
    1Reply
  • Robert Comstock
    Member since 2018 · 138 posts · 56 votes
    7y

    don't do anything....get situated with your new job and city.  25k is an emergency fund living in san diego...just keep saving and reading...re think it in a year.....wet blanket I know but 25k is slim.

    7Reply
  • Peter Giardini
    Rental Property Investor · Baltimore, MD · Member since 2009 · 624 posts · 559 votes
    7y

    Connor,

    It is tough to argue with Roberts advice!

    The last time I was involved in the SD market, nothing made sense from an investment point of view.  Well, nothing where positive cash-flow was expected.

    Investing remotely takes knowledge and skill, and having to rely on "relationships" in the remote market can be daunting.  And based on personal experience, it can be done!

    It is probably too early to think about partnerships or seeking out mentors, I am not sure that you are clear enough regarding your goals. 

    Good luck moving forward.

    Pete

    1Reply
  • Frank Maratta
    Rental Property Investor · CT · Member since 2019 · 105 posts · 68 votes
    7y

    @Connor Ryan

    I would strongly encourage you to house hack. I wish I had done it. You don't have a lot of capital so an FHA loan with 3% down or whatever the minimum requirement is, is a great way to get great cash on cash returns. Also I am strongly against investing out of state for your first rental. I self manage and need to be close to my properties. All my properties are in the same town, 15 minutes from my home and 15 minutes from my day job. I think out of state investing is for those who have more expierance and have a relationship with a good property manager.

    Just a side note, I looked at a six unit the other week that was managed by a property management company. The owner knew nothing about the building, including where the boilers were located in the mess of stuff piled in the basement. He also did not even realize they were oil fired when he told me they were all natural gas. One unit did not even have heat - just space heaters. The entire building was just a disaster of deferred maintenance. It’s scary to think you pay someone 10% of your rents to manage the place and this is what you end up with.

    1Reply
  • Brad Uhlig
    Real Estate Agent · Denver, CO · Member since 2017 · 98 posts · 33 votes
    7y

    Connor, I agree with holding off and saving your money.  I've looked at markets like St Louis and while the properties are affordable and the returns on a percentage basis are good, the returns as a whole aren't great (i.e. a 10% cash on cash return would equate to a whopping $2500). A water heater goes out and there goes your profit.  You also don't get the same upside on rent growth and appreciation as you do in other markets.  If you're in finance with a full time job, you probably don't have a lot of time to effectively wholesale.  That leaves you with house hacking which is a good idea, especially in San Diego, if you're girlfriend is ok with that.  Another idea is to find a good rental in SD that will allow you to airbnb (assuming you have somewhere to go while it's full).  With the economy shifting and an election coming, keep saving and don't get over-leveraged.  Best investment for a young guy like you is the first home you buy for yourself which you can get into for little money down, house hack, and turn into a rental later.  

    5Reply
  • Connor Ryan
    OP
    Financial Advisor · Boulder, CO · Member since 2019 · 38 posts · 75 votes
    7y

    @Brad Uhlig I really appreciate you going out of the way to give me advice! While St. Louis is affordable I agree it almost doesn’t seem worth the headache and being out of state only amplifies that headache if you don’t have a good system in place. Maybe later down the road after I gain experience this could be an option. House hacking seems to be the way to make it work in most markets to at least cut down on a majority of the mortgage expense. I will also look into the short term rental/Airbnb option as well.

    This is valuable information! Thank you again Brad!

    2Reply
  • Brad Uhlig
    Real Estate Agent · Denver, CO · Member since 2017 · 98 posts · 33 votes
    7y

    Any time Connor,  I look forward to hearing how you eclipsed the $1B mark with your real estate investments 20 years from now and helped to solve world hunger.  Best of luck!

    2Reply
  • Jason Martinez
    Real Estate Agent · Cypress, CA · Member since 2018 · 88 posts · 41 votes
    7y

    Hi @Connor Ryan, 

    I was in a similar situation as you, aside from having a full time career, but I did the opposite of what the above posters said to do. With all due respect of course. I had some funds in my Online Savings account producing a whopping 2% interest... I did what you did read, read, read, read, listen to podcasts, network etc... and invested OOS. My returns are about 13% much better than the 2% online savings account which would probably break even with inflation..maybe. 

    I am about an hour and a half away from San Diego meaning home prices are pretty high. I doubt you will cash flow in SD with long term renters, unless you plan to Airbnb, but bet your cards on appreciation. 

    On the other hand I do agree with @Brad Uhlig "with the economy shifting and an election coming up" a lot COULD happen. 

    I do believe House Hacking is one of the better ways to get started in real estate investing. Take that one year you plan to rent and keep educating yourself on the SD market. 

    Hope this helps. 

    0Reply
  • Connor Ryan
    OP
    Financial Advisor · Boulder, CO · Member since 2019 · 38 posts · 75 votes
    7y

    @Frank Maratta Frank thank you! I have been reading “Long Distance real estate investing” and it talks about building a good system and hiring good property managers and contractors. If you don’t have a good team it’s a disaster waiting to happen. Getting started I’ll just continue to build capital and house hack.

    Again thank you for the advice!

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    7y
    Originally posted by @Jason Martinez:

    Hi @Connor Ryan, 

    I was in a similar situation as you, aside from having a full time career, but I did the opposite of what the above posters said to do. With all due respect of course. I had some funds in my Online Savings account producing a whopping 2% interest... I did what you did read, read, read, read, listen to podcasts, network etc... and invested OOS. My returns are about 13% much better than the 2% online savings account which would probably break even with inflation..maybe. 

    I am about an hour and a half away from San Diego meaning home prices are pretty high. I doubt you will cash flow in SD with long term renters, unless you plan to Airbnb, but bet your cards on appreciation. 

    On the other hand I do agree with @Brad Uhlig "with the economy shifting and an election coming up" a lot COULD happen. 

    I do believe House Hacking is one of the better ways to get started in real estate investing. Take that one year you plan to rent and keep educating yourself on the SD market. 

    Hope this helps. 


    >I doubt you will cash flow in SD with long term renters, unless you plan to Airbnb, but bet your cards on appreciation. This is a common opinion but is very incorrect. I have invested in San Diego area RE a long time and the family even longer. The appreciation that you reference is why almost all San Diego buy n holds end up cash flowing. In June 2018 I looked at rent appreciation in San Diego. The average SFR rent increase for the previous 3 years was $500 (so averaged about $167 for each of those 3 years). A SFR purchased in June 2005 with $250/month projected negative cash flow would have ~$250/month positive cash flow by June 2018. Last month I sent about half of our rental units a rent increase notice. In total, the rent increases totaled ~$9K/annual and this was keeping my good tenants below market rent. There is a big difference between initial cash flow and actual cash flow achieved. Historically San Diego has produced outstanding cash flow for the long term buy n hold RE investor. This of course is in addition to the outstanding market appreciation, equity pay down, tax benefits, etc.
    1Reply
  • Tanner Marsey
    Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes
    7y

    House hack/live in flip in SD.

    Force some equity with the improvements and let time/appreciation do its thing. Live in it for a few years and sell it tax free. Use that 100k plus profit to start investing elsewhere or rinse and repeat. It’s not glamorous but it’s a great option.

    1Reply
  • Robert Comstock
    Member since 2018 · 138 posts · 56 votes
    7y

    out of curiosity....where is your job located in sd.  how much of a commute your willing to endure may determine your choices.

    0Reply
  • Connor Ryan
    OP
    Financial Advisor · Boulder, CO · Member since 2019 · 38 posts · 75 votes
    7y

    @Brad Uhlig haha! When I do I’ll make sure to reference your name Brad!

    0Reply
  • Connor Ryan
    OP
    Financial Advisor · Boulder, CO · Member since 2019 · 38 posts · 75 votes
    7y

    @Jason Martinez thank you Jason this was super helpful! I’m noticing that the house hacking and appreciation growth is a trend in this thread.

    If you don’t mind me asking, did you use turnkey to buy your out of state? Or did you work with an agent and build an out of state team? That’s awesome you were able to make it work!

    0Reply
  • Jason Martinez
    Real Estate Agent · Cypress, CA · Member since 2018 · 88 posts · 41 votes
    7y

    @Dan H. Thank you for clarifying the long term benefits of owning a rental. You are absolute correct in the fact that if you hold a rental for a long period of time it's proven that you will cash flow. I should have noted my example as a short term case. 

    @Connor Ryan No I did not use a turnkey company. I wanted to learn as much as I can  where as a turnkey you can't even form your own team, they already have the product, a rehabbed house, an agent, and themselves the PM. You are also purchasing a house that is AT or ABOVE the market price so you can't "make money when you buy". 

    I built my own team with an agent referral, lender referral, and I interviewed 4 PM's to find the right fit for me. The PM also had a trust worthy contractor that I did my own due diligence on. 

    0Reply
  • Connor Ryan
    OP
    Financial Advisor · Boulder, CO · Member since 2019 · 38 posts · 75 votes
    7y

    @Tanner Marsey thanks for the advice! Finding a discounted multi family property and house hacking it seems like the way to go.

    @Robert Comstock we are looking to live near downtown San Diego for rent/work but once we get a good feel for the area we will look to more areas that have opportunity and decent affordability.

    0Reply
  • Connor Ryan
    OP
    Financial Advisor · Boulder, CO · Member since 2019 · 38 posts · 75 votes
    7y

    @Jason Martinez That is motivating to hear! Sounds like you built a great core four and screened your PM’s diligently. This is an eventual goal of mine but for now I need to figure out if I want to go with what I know or branch out via referral into different markets. Thank you for the insight!

    @Dan Heuschele thank you for the firsthand knowledge of the San Diego market. It's good knowing that San Diego cashflow's well long term. I have long term plans of living here and know that there will be the eventual appreciation benefit as well. Dan do you know if it's better to go FHA or to do a first time home buyers mortgage at 3% down on a multi-family?

    1Reply
  • Robert Comstock
    Member since 2018 · 138 posts · 56 votes
    7y

    if your committed to move for multi ......near downtown (commute range) look in clairmont....next to mission bay.  a few have hit market recently

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y
    Originally posted by @Connor Ryan:

    @Jason Martinez That is motivating to hear! Sounds like you built a great core four and screened your PM’s diligently. This is an eventual goal of mine but for now I need to figure out if I want to go with what I know or branch out via referral into different markets. Thank you for the insight!

    @Dan Heuschele thank you for the firsthand knowledge of the San Diego market. It's good knowing that San Diego cashflow's well long term. I have long term plans of living here and know that there will be the eventual appreciation benefit as well. Dan do you know if it's better to go FHA or to do a first time home buyers mortgage at 3% down on a multi-family?

    I think you will have challenges getting 3% LTV financing on multifamily even with a FHA. In addition there will be challenges at that high of an LTV to not hemorrhage cash.

    If you have the finances, there are some nice benefits of 80% LTV as no PMI and will have less hemorrhage of cash. Of course that is a big if ...

    On the positive, the cash flow increases at a quick rate, historically there is great market appreciation, there is property tax protection, and value adds produce large returns (6 figures is possible).

    Good luck

    0Reply
  • Bill S.Pro Member
    Moderator
    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    6y

    @Dan H. I would buy the whole world (perhaps starting in San Diego) if I could figure out how to keep it all together for the next 20 years until appreciation and rent growth bails me out. The caution of buying in appreciation markets is that you have to be able to weather the storm of a market down turn. If rents go down, not up. I'm sure in the San Diego area there was a three year period where effective rents decreased or vacancies increased. You have to be able to feed the alligator until you can afford to wear the alligator boots. I have no concerns about owning properties in good markets for 20 years, the warning is to not make a bad purchase that sets you back or causes financial hardship vs rewards. Markets like San Diego tend to have more hardships for the young, inexperienced and under capitalized investors. 

    0Reply
  • Jonathan Oh
    Investor · Las Vegas, NV · Member since 2019 · 499 posts · 259 votes
    6y

    @Connor Anderson If 25k is your savings, I'd save up a little more for personal and property emergencies. BRRRR might be bit out of reach because it requires more capital upfront and its very tricky to pull off when you're located on the other side of the country. But if you're confident in your knowledge, skills, network and have access to a good HML, then by all means go for it. I also like house hacking idea. If I didn't have a good living situation, I would do that. Also, know that there are other options such as turnkeys and syndication, but these are passive investments and def has its share of pros and cons. I invest in both so if you have some question on those, feel free to message me.

    0Reply
  • Nigel Guisinger
    Rental Property Investor · Member since 2019 · 93 posts · 110 votes
    6y

    Start small and work up. You have enough for a down in many areas. Generate cashflow and use that cashflow to buy the next one. Your 25k is enlightening to be 50% down on a place in many Midwest markets. Text small and move up as your comfort level increases.  The key is to start. We all made mistakes when we started so use this start to educate yourself on what to do and what not to do

    0Reply
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