Where is the best place to start?

[Michael Y.]

Hi All, 

Hope everyone is staying healthy and safe during this crazy time. I have been learning for close to a year now, and really looking to purchase my first real estate investment property soon. Where would you recommend to start? Single family? condo? duplex? 

I recently found a single family home near my home that I think could be a great opportunity. Purchase price I think I can get down to $75k and comps in the area support a $220k ARV, and could even go higher. After running the numbers; 15% down payment, rehab, holding cost, selling cost, etc I would be out of pocket around $110k plus mortgage amount (rehab being a vast majority of that). While that is possible for me, I still think that is a lot of cash to be out of the pocket on the first investment property. I don't necessarily want to take out a HM loan as I have the dollars to do it myself, and would seem like an unnecessary added expense.

How would you recommend that I start my real estate investment journey? Am i just being nervous, or should I start smaller, and if so how? 

[Evan Polaski]

@Michael Y. as @Howard Herrington mentioned, is this a buy and hold rental or fix and flip?  I would definitely steer clear of HM on a first deal for either.  You are just learning and might as well not add the stress of high interest mortgage on top of it.

I also agree with @Jonathan Greene that I would go for something with potentially less upside but an easier renovation.  My wife and my's first few flips were paint, tile cabinets.  We did not add any bathrooms, no walls being taken down, etc.  Very surface level.  Those had their own hiccups.  But honestly, they were the best returns we got due to the speed in which they can be done.  Yes we made more cash on larger renovations, but they took several months versus 1-2, and costs were much higher, so as a percentage the return was lower.

Finally, on your first couple I would go in with as much cash as possible.  Again, your return percentage might be lower, but when the renovation goes over by a month or it sits on the market longer than expected or seller wants a 75 day close versus 45, you aren't just watching money go out the door if you are all cash.  And you never run the risk of coming to closing table with a check just to get out of the deal.