A bunch of questions about getting my first door

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A bunch of questions about getting my first door

Daniel Lopez
Member since 2020 · 3 posts · 2 votes

Hello everyone. This is my first post and have a lot of questions. About me? I am a single father living in Denver, CO. I want to start investing in rental properties. I have been listening to the Bigger Pockets Podcast for about 5 months and love it! I have been reading anything I can find on real estate investing and I think I have my plan. I am hoping to get more eyes on it in the hopes that I may get some good advice!

I currently live in a one bedroom condo with my 11 year old son. I have roughly $50k in equity in my condo. I plan on selling to get the equity. I will then rent and use the cash to start to BRRRR. I am looking into markets where I can buy a property, probably around $20-25k and put and additional $20-25k into it and rent it out. The hope is to get at least 75% ARV so I can refinance and do it again, all while creating a little cash flow from renting it out (obviously after paying for a PM, taxes, insurance, capex, etc first). I would then BRRRR again, and again, and again, assuming all goes as planned.

I do want to mention that I do not believe I can qualify for a mortgage at the moment which is a challenge right now. I believe buying something cash will allow me to start earning some rental income while I work to repair my credit at which point I can take out a mortgage and start to BRRRR.

Also, yes, I have ordered David Greene's long distance real estate investing book. It is in the mailbox at home, but I wanted to get the conversation going here first. 

Here are some of the questions I have:


- Are there markets that should be avoided? One major difficulty I have is that I the market in Colorado is insane and I think with the limited cash I have I am best off investing somewhere with a not so insane market. I have been looking at Kansas City, Indianapolis, and Milwaukee, but to be honest, I have not done much research other than checking available houses on Zillow and Redfin. Does anyone have any feedback or suggestions on markets where my plan would work and reasons why? As much as I want to jump right in I also want to select the right market first if possible. I will be building a team in a far off city. If I am going to BRRRR long distance, I hope to only have to create this team once (at least for the foreseeable future). Any suggestions on a market to start looking into would be appreciated!

- The long distance rehab kinda scares me. My family here in Denver flips, builds, and rents houses. While I have fantastic resources here at home I do not have those resources anywhere else. How to you deal with a long distance rehab? I worry that without being able to keep close tabs on my contractors I will run into problems. You hear nightmare contractor stories when they live down the street... Halfway across the country? This worries me. My initial thoughts are to keep is small and simple but I think the appreciation would also be minimal if I do it this way. Can anyone offer any advice here? 

- Is the ARV I am looking for obtainable with $50k cash to put into the deal? As in, does finding a home that I purchase and rehab with $50k cash that then appreciates enough for me to refinance and get my money back out exist? I know this is a large and vague question, but there are so many moving pieces right now, and so many deals to analyze. I have never calculated an ARV before, I am trying to find the sweet spot, the best way to split purchase cost and rehab cost to get the most from each dollar. Any advice here?

I appreciate you taking the time to read this. I am a newbie (I have yet to do a deal), but I am motivated. I am hoping to make a move sometime this summer, likely the first one being selling my condo and moving into a rental. Once that is done, I want to start BRRRRing. 

Thanks!

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Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
6y

@Daniel Lopez you are asking the right questions, but here is something else first; and what I am about to say, I am sorry, may sound a bit harsh, but it's not meant to be.

To be brutally honest with you, I think investing in real estate with no-cash/no-credit is generally a bad idea. Investing will amplify your personal and your financial patterns, no matter what they are. The results that you have today in form of your savings account and your credit score will translate into similar results, just on a larger scale, when you start to invest in RE. More money, more problems..

So step one is to start with yourself and master your own finances before you take it to the next level, where the rewards are bigger, as well as the risks. Lot's of great books to read about personal finances and personal development. Your credit score and your savings are a result of your systems and your behaviours. Once you change your systems and how you think and what you do, as a result your credit will change and your bank account will change. Many of us have not been financially educated by our parents, so now you have to teach yourself as an adult which is a lot harder - I speak from personal experience.

It may not take you that long, but this is going to be your foundation and it is important. If your foundation is not solid, whatever you build on top of it will collaps. Worst case you may find yourself living in a rental and having not only lost your condo, but also your equity. That's really a step in the wrong direction!

From a Milwaukee perspective your plan has two problems: first is that a $25k property will put you in the middle of the worst area. A lot of contractors will not go there; they fear for their tools, their wallets, their vehicle and worse. Property managers are the same. There are some who will work there, but usually that is because they can't find work elsewhere, so you know you are going to be in for a ride. And that's all before you have experienced the tenants.

The second issue is that you need enough spread between purchase price and ARV to cover improvements and generate equity. The cost of improvements does not change with the price of the property. A roof on a $25k property costs the same as on a 125k property. Your repair cost is disproporportionate to your property value and your appraiser will not see the value you need to come out ahead when you refi.

I should mention that I have been BRRRRing in Milwaukee since before it has been called BRRRR. And I almost never walk away with a clean 25% in equity as described in the book (which to be fair is also a little by design, because we try to fix everything the right way the first time).

To put things into local perspective: as of January our local median sales price has been $175.000 for single family homes, up 8% over 12 months ago. So you can see where sub 100k properties are compared to the median. We only have a few neighborhoods were property values are really low and that is for a good reason. Most local investors who have been around the block once or twice and have now deeper pockets will not even consider these parts of town. It can be done, but it is far from an easy business.

It sounds like you have a great family with REI background you can lean on for advice and support, they know you best and I am sure they are happy to work and brainstorm with you. I wish you much success!

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  • Joe Kaliher
    Real Estate Agent · Denver, CO · Member since 2020 · 18 posts · 7 votes
    6y

    Welcome to BP, Daniel!

    Regarding out of state markets: You want to look for the below options :

    Population: Is it a growing area that people want to live in?

    Local Economy: Job growth, unemployment rate, good school districts, favorable rental laws for Business owners, lower crime area 

    Cash Flow Potential (e.g. Rent-to-Price Ratio). 

      David Greens book will address many of your questions and will be a great resource.

      There are deals to find in every market. Finding a local realtor and property manager who are experts in their area will be a great resource. 

      If you are not comfortable taking a big risk on this first deal, then start small and go from there. You will figure it out :)

      1Reply
    • Mona Mohamed
      Member since 2020 · 8 posts · 2 votes
      6y

      @Joe Kaliher do you think realtors /property managers are helpful when I try to wholesale? I tried asking for help but realtors made me lose hope i can do it :(

      0Reply
    • Joe Kaliher
      Real Estate Agent · Denver, CO · Member since 2020 · 18 posts · 7 votes
      6y

      @Mona Mohamed I think it depends on how you approach the conversation. 

      No one wants to feel taken advantage of. You don’t want to use a lot of their time asking questions under the assumption that you will work with them when you have no intention to. 

      If you approach realtors / property managers with the intention of networking then you can get a lot of good info from casual conversations . People who love real estate love the opportunity to talk about it :). 

      I would try to find some local meet ups and start networking! 

      0Reply
    • Kody Crouch
      Investor · San Mateo · Member since 2015 · 14 posts · 16 votes
      6y

      @Daniel Lopez Are you sure you want to sell your home in order to do long-distance BRRR? In most situations, this would be an example of sacrificing long term goals for a short-term goal. Your home is not an investment strictly speaking, but your home equity can be put to work toward your investment goals. Every mortgage payment you make is giving you additional equity in your home, and you will lose that by renting.

      1)  If the numbers are right, you may be able to BRRR your condo. You didn't say what city you're in, but in a 1-bedroom condo you can probably put in recessed lighting, change the light switches and outlets, put in hardwood floors, re-finish or paint the cabinets, install granite countertops, and paint all the walls and ceilings for less than 15 grand.  After that you can do a cash-out refinance to get more than you put in.  Granite countertops and recessed lighting might even be overkill for your neighborhood, but those are just some examples of what you can do in a condo.  Some very successful investors would even recommend vinyl floors instead of hardwood. Maybe you can save even more by doing the painting yourself.

      2) If you analyze the idea above and saw it won't cash flow, or you won't get enough cash from the refinance to be able to buy a new place, then you can do the same renovation as above, except you sell it. If you've lived their for more than two years you can keep the profits tax-free.  Use some of that profit to buy a modest new home, and put the rest toward future investing. After two years you can do the same thing with your new home. If your new home has more bedrooms you can house hack that too and you've got another piece working toward your investing goals.

      3) If you have equity in your home (or you can force a little more equity by doing some cosmetic renovations), you may be able to refinance and lower your monthly payments, then take out a HELOC to use for real estate investing. You still get to access some of the equity without having to give up your house.

      4) Are there duplexes or triplexes near where you live? Selling the condo to get into a House-Hack might be a good option to remain an owner while bringing in some rental income.

      5) If there are no duplexes, a 2-bedroom condo will work.  My wife and I used to rent out our second room on AirBnB and that paid two thirds of the mortgage on our condo in Mountain View, CA.

      There are lots of ways to do it without going back to renting. Try to be creative and find a way to get started in real estate without giving up your home.



      1Reply
    • Kody Crouch
      Investor · San Mateo · Member since 2015 · 14 posts · 16 votes
      6y

      A second answer to address your specific questions.

      Market - @Joe Kaliher answer and David Greene's book will give you a lot of good info. All the cities you mentioned should be do-able with 50k, but not in the types of areas where BRRR is most successful. Sometimes a smaller city near the metro areas can be a great place to find similar appreciation as the city, but with better cash flow and lower entrypoint. I'm not an expert on Colorado, but think about a place like Broomfield except cheaper.

      Long-Distance is scary - yes! You have to put so much faith in other people for it to work long-distance. David Greene's book gives very detailed advice for how to vet your "team". He emphasizes that the team (realtor, lender, contractor, property manager) are the most important determining factor.

      Is BRRR do-able with 50k? - absolutely.  When you find the deal, run the numbers, and sanity-check it with your team, you will know if it's going to work.  I have seen deals on this site at exactly that price point, but most people working at those low-value homes are experts in the local market and usually live nearby.  You'll definitely be relying on your team to give you good advice and execute. A small miscalculation of the cost can completely change the outcome.  Search around this site, try to find the podcast episodes featuring people that have done it like that, and figure out a plan.





      0Reply
    • Nicholas L.Pro Member
      Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
      6y

      @Daniel Lopez a few things:

      1 - you mentioned selling your condo to get the equity, but selling a property is typically expensive due to the need to spruce it up to prepare for the sale, pay an agent, pay closing costs, etc.  You don't get the sale price!  Have you run the numbers at a few different sale prices to determine exactly how much the actual proceeds to you would be?

      2 - you mention you don't believe you can qualify for a mortgage. Even if you successfully BRRRR a property, qualifying for the re-fi is similar to qualifying for a mortgage. So if you don't qualify for a mortgage now there is no guarantee you'd qualify for a re-fi. I strongly recommend working on repairing your credit now.

      3 - remote investing is possible, and finding a property in the price range you mentioned is possible, but doing BOTH on the SAME TRANSACTION is daunting because you're going to be buying in lower-rated neighborhoods if you're trying to be all-in for $50K - higher turnover, higher expenses, etc.  I would not recommend doing this on your first deal.  I'm hoping other BP-ers will chime in on this specific item ($20K properties).

      4 - I like @Kody Crouch's suggestion to house-hack in Colorado.  Even if you have to wait while you repair your credit, you don't want to cannibalize the hard-earned equity in your condo via a sale.  Just because prices continue to go up doesn't mean you won't be able to find a good deal later this year if you're patient.

      Hope this helps.

      0Reply
    • Anthony Michael
      Lender · Miami · Member since 2019 · 37 posts · 8 votes
      6y

      I am an out of state investor and I can't emphasize enough how major a good partnership can be for you. I teamed up with my business partner who is a fix and flip investor, and after structuring an ironclad Joint-Venture agreement we've now done 4 flips together and I've never been happier. I realized that my market was saturated and everyone was fighting for a 10-20k payday. So I began researching new markets and found one that yields roughly 60-100k per flip which was the exact criteria I was looking for. I networked a ton in that area and found my business partner which had done over 100 flips at the time and brought him value. The rest is history!

      0Reply
    • Marcus Auerbach
      Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
      6y

      @Daniel Lopez you are asking the right questions, but here is something else first; and what I am about to say, I am sorry, may sound a bit harsh, but it's not meant to be.

      To be brutally honest with you, I think investing in real estate with no-cash/no-credit is generally a bad idea. Investing will amplify your personal and your financial patterns, no matter what they are. The results that you have today in form of your savings account and your credit score will translate into similar results, just on a larger scale, when you start to invest in RE. More money, more problems..

      So step one is to start with yourself and master your own finances before you take it to the next level, where the rewards are bigger, as well as the risks. Lot's of great books to read about personal finances and personal development. Your credit score and your savings are a result of your systems and your behaviours. Once you change your systems and how you think and what you do, as a result your credit will change and your bank account will change. Many of us have not been financially educated by our parents, so now you have to teach yourself as an adult which is a lot harder - I speak from personal experience.

      It may not take you that long, but this is going to be your foundation and it is important. If your foundation is not solid, whatever you build on top of it will collaps. Worst case you may find yourself living in a rental and having not only lost your condo, but also your equity. That's really a step in the wrong direction!

      From a Milwaukee perspective your plan has two problems: first is that a $25k property will put you in the middle of the worst area. A lot of contractors will not go there; they fear for their tools, their wallets, their vehicle and worse. Property managers are the same. There are some who will work there, but usually that is because they can't find work elsewhere, so you know you are going to be in for a ride. And that's all before you have experienced the tenants.

      The second issue is that you need enough spread between purchase price and ARV to cover improvements and generate equity. The cost of improvements does not change with the price of the property. A roof on a $25k property costs the same as on a 125k property. Your repair cost is disproporportionate to your property value and your appraiser will not see the value you need to come out ahead when you refi.

      I should mention that I have been BRRRRing in Milwaukee since before it has been called BRRRR. And I almost never walk away with a clean 25% in equity as described in the book (which to be fair is also a little by design, because we try to fix everything the right way the first time).

      To put things into local perspective: as of January our local median sales price has been $175.000 for single family homes, up 8% over 12 months ago. So you can see where sub 100k properties are compared to the median. We only have a few neighborhoods were property values are really low and that is for a good reason. Most local investors who have been around the block once or twice and have now deeper pockets will not even consider these parts of town. It can be done, but it is far from an easy business.

      It sounds like you have a great family with REI background you can lean on for advice and support, they know you best and I am sure they are happy to work and brainstorm with you. I wish you much success!

      5Reply
    • Teri Feeney Styers
      Real Estate Agent · Grand Junction, CO · Member since 2015 · 1k+ posts · 736 votes
      6y

      @Daniel Lopez - I didn't read the entire thread here; so forgive me if I am repeating some of the advice. However, I'd like to make two points:

      Colorado is a big state - not all of it is "insane".

      You have a family network of investing experts - you need to tap into that as much as possible. Talk to those family members and ask them how you can get on their team in some way. Instead of selling your condo and renting (which I understand can be "insane" in the Denver area) perhaps one of those family members would allow you to use some of that equity (ie: a second, private mortgage) to buy into their projects. If the numbers make sense, maybe eventually your condo can become your first rental property. 

      1Reply
    • Erik Williams
      Investor · Parker, CO · Member since 2015 · 11 posts · 2 votes
      6y

      @Daniel Lopez, I think your plan is doable, however I wouldn't recommend  it for a first time investor.  Properties at that price are in low C or D neighborhoods.  That means you will have lots of crime, high turnover and/or evictions, and lots of damage to your property.  Plus getting a loan for a $50K property could be problematic bc banks just don't like to loan at price point. On top of all that, you will be managing it out of state, it seems like way more than a new investor should take on.   I should know, I jumped at investing in bad areas without knowing what I was doing, and I paid for it.  I still made a little money, but I don't know if the time I putt into it was worth the trouble.  

      I would suggest that you work on your credit and your cash reserves.  Once you are able to qualify, I think selling you condo, and using that money to house hack a multi unit place in state, where your team is already established, would be your best options.  You will gain experience as a landlord, and equity, with only a little bit of your money invested.  Plus with $50k down, at 3%-5% down, you can get a very good, cash flowing property in Colorado. Do that a few time over the next 10 years, and you will be very well off.  

       I know what a lot of us are saying here isn't what you want to hear right now, because you are excited and ready to go, but getting that strong base set up is key to a successful investing career.   Remember the long game, 

      “Most people overestimate what they can do in one year and underestimate what they can do in ten years.”  Bill Gates. 
      1Reply
    • Tato Corcoran
      Investor · Milwaukee, WI · Member since 2019 · 68 posts · 12 votes
      6y

      @Anthony Michael you willing to share what general market you’re in?? Thats sooo impressive!

      0Reply
    • Anthony Michael
      Lender · Miami · Member since 2019 · 37 posts · 8 votes
      6y

      Central Florida can't give away all my secrets haha

      0Reply
    • Mike D'ArrigoPro Member
      Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
      6y

      @Daniel Lopez Indianapolis and Kansas City are strong markets but you really have to buy in the right areas. If you're talking about being all in for around $50K with a 75% ARV, that's going to put you in a high $60K price range. That's going to be a pretty marginal area in Indianapolis and a rough area in Kansas City. Get to know the neighborhoods and prices very well before doing anything.

      2Reply
    • Daniel Lopez
      OP
      Member since 2020 · 3 posts · 2 votes
      6y

      Thank you all for your feedback! I was trying to cover the main points in my OP so some details were left out. I need to move in order to be closer to my sons school. We currently commute too much and the goal is to get close enough for him to walk. Unfortunately one half of a duplex is selling over $400k in the area I need to be in. I would love, love, love to be able to house hack but this market just is not allowing me to do it. Condo's are equally ridiculously priced. I would like to rent my condo however after running the numbers I am looking at about $100/mo cash flow which just is not worth it for me. So, that is where the idea of selling and using the equity to buy something cash in a market that will allow it came to be. 

      The credit thing... I am not that far off, but I also am not in a position to get approved for a mortgage right now. That being said, here are some options I have been thinking of and would love some input. 

      - Let's say I can get myself approved for a loan in the next 6 months. What are everyone's thoughts on selling the condo and putting 20% down on a $150,000 duplex somewhere far away that needs minimum work (paint/floors). This is assuming I have $50k to play with.

      - Selling the condo and buying something cash under $50k that is "turn key" in an area like KS, Indy, etc. (I understand that the area may not be the best)

      - Mostly ignoring ARV and finding something in another market that I can buy cash that requires very minimum repairs (floors/paint) and start renting that out.

      Just thinking out loud here. I have been reading the comments and they are all spot on and I genuinely appreciate the feedback. 

      0Reply
    • Teri Feeney Styers
      Real Estate Agent · Grand Junction, CO · Member since 2015 · 1k+ posts · 736 votes
      6y

      @Daniel Lopez I'm standing by my original advice to somehow partner with the family experts here. Not everyone has that opportunity or connection. If you had good boots on the ground elsewhere then I might reconsider an out of town investment. All IMO. 

      0Reply
    • Kody Crouch
      Investor · San Mateo · Member since 2015 · 14 posts · 16 votes
      6y

      @Daniel Lopez that's a tough spot. You didn't say how bad your credit score is, but I know most banks require 620 for any kind of mortgage, but FHA can go much lower. They can do 10% down payment loans if you have a 500+ credit score. They also will sometimes count the proposed rent on the second unit towards the income requirement. That means your 50k might even get you into that 400k duplex you mentioned. https://www.fha.com/.

      0Reply
    • Samuel Pentowski
      Member since 2019 · 33 posts · 41 votes
      6y
      I'm not too keen with the particulars but utilizing a 1031 exchange on your condo to jump into that 400k duplex you mentioned might also work.  That will have you pay the least amount of taxes and should also reduce the principle of whatever mortgage you need to a more acceptable amount.  Another option is to refinance your condo to extract some equity and use that as a down payment on a duplex somewhere and keep that property as an income generator.  Yes it would "only" be $100 a month as you say, but you would gain valuable experience as a landlord and then be the proud owner of 2 rental units (your condo and the other half of the duplex) at the same time.  I do not have any properties yet, like you I am trying to fix my debt situation.  However I think you have an enviable starting situation using your family's established network and your condo to your advantage.  Good luck!
      0Reply
    • Teri Feeney Styers
      Real Estate Agent · Grand Junction, CO · Member since 2015 · 1k+ posts · 736 votes
      6y

      @Samuel Pentowski My understanding is that this is his primary residence. Thus it would not qualify for a 1031 exchange. Nor would he be required to pay any capital gains taxes. @Daniel Lopez

      0Reply
    • Samuel Pentowski
      Member since 2019 · 33 posts · 41 votes
      6y

      @Teri Feeney Styers That is good to know.  This is why I browse the forums of BP to learn things like this.  

      1Reply
    • Daniel Lopez
      OP
      Member since 2020 · 3 posts · 2 votes
      6y

      I want to reiterate that $400k buys only one HALF of a duplex, not the whole thing. This isn't some super nice area either, just a standard suburb (Arvada, CO). That is the market I am in. I really just don't think anything local is in the cards. I have racked my brain trying to find something local that will work and I cannot find it. Not with $50k, not in Denver.

      0Reply
    • Joe Kaliher
      Real Estate Agent · Denver, CO · Member since 2020 · 18 posts · 7 votes
      6y

      @Daniel Lopez

      Have you considered a mobile home? They can have a bad reputation with some people, but I think they are a great option if the deal is right.

      There are lots of options for parks across the Denver area. Your park rate will be around $800 for the area. Depending on how nice/big of a place you are looking for , you could easily find something for under $50,000. 

      Something to consider depending on your long term goals. 

      2Reply
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