First Time Home Buyer Looking to Start Investing

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First Time Home Buyer Looking to Start Investing

Sam Michaels
Member since 2020 · 14 posts · 4 votes

Hi BP Community, 

I’m a first time home buyer and looking to start my real estate journey! I’d also like to take advantage of what seems like a good time to buy considering whats been going on with COVID and the economy. I live in Los Angeles and need to continue living somewhere in between Encino and Paso Robles and Visalia due to my occupation. I’ve been considering buying something in this region and living in it for at least a year to take advantage of the loan advantages and renting out my extra bedrooms to help cover the mortgage. However, real estate in California is expensive as I’m sure you all know and my understanding is that California is generally not the ideal location for income properties. 

This then makes me explore options in other states like Tennessee, Alabama, Texas, Alaska etc. where the prices are much lower and more likely to cash flow positive and the owner tenant laws are better for owners. Ive also heard of some great turn key operators in some of these areas that could make things streamline which sounds nice. In this scenario I wouldn’t live in the property obviously.

Should I buy in California and live in it and build equity until I can move that equity into purchasing another property possibly out of state, or should I just buy out of state off the bat? 

Any advice is appreciated. Thanks!

-Sam

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Denise Evans
JD, CCIM , Real Estate Broker · Tuscaloosa, AL · Member since 2014 · 1k+ posts · 1k+ votes
6y

@Sam Michaels, I agree with @Twana Rasoul. There is WAAAYYY too much risk for a newbie investor to start out of town.  Buy something locally, fix it up and live in it for two years, and then sell tax free under current federal income tax laws. Do that several times to build up capital, and then start buying modest rental houses within a one hour commute.  It is enticing to take your available cash and make down payments on 4 or 5 rental houses in Alabama (as opposed to one in SoCal) in order to spread your risk, but that is illusory. You magnify your risks by relying on out of town people for acquisition and management.  Buy locally with some deferred maintenance, supervise rehab personally, and manage personally. You'll be a lot happier.  If you insist on investing immediately, invest in one of the REITs.

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  • Tim Kendall
    Fairbanks AK · Member since 2019 · 2 posts · 1 vote
    6y

    @Sam Michaels

    Being a local Alaskan, I gatta say that this area has some serious weather situations that make it expensive (or largely hands on) to maintain my property’s here. There is opportunity tho if you don’t mind septic systems and otherwise rural investments.

    0Reply
  • Kirk R.
    Peoria, IL · Member since 2013 · 967 posts · 383 votes
    6y

    welcome to BP.  I'd call a banker to get qualified for a loan. 

    1Reply
  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    6y

    @Sam Michaels Welcome to BP, to keep it short for you....you'd be doing yourself a huge disservice by not starting locally with a house hack and jumping into a random of out state market in my opinion.  SoCal is a great place to invest despite what many on here may think.  Also, cashflow is an important factor yes but it is definitely not the only aspect of an investment to look at, you really have to look at total returns.  Just because you may start of with some negative cashflow in your market does not mean that a high cashflow market that gives you 100-200/month positive cashflow is a better overall investment.

    The biggest bang for your buck is house hacking a duplex using an fha loan (3.5% down payment) and actually right now you can even get that down payment covered through a program while funding lasts and there are no catches with like income limits or having to pay it back.

    Best of luck!

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    1Reply
  • Denise Evans
    JD, CCIM , Real Estate Broker · Tuscaloosa, AL · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    @Sam Michaels, I agree with @Twana Rasoul. There is WAAAYYY too much risk for a newbie investor to start out of town.  Buy something locally, fix it up and live in it for two years, and then sell tax free under current federal income tax laws. Do that several times to build up capital, and then start buying modest rental houses within a one hour commute.  It is enticing to take your available cash and make down payments on 4 or 5 rental houses in Alabama (as opposed to one in SoCal) in order to spread your risk, but that is illusory. You magnify your risks by relying on out of town people for acquisition and management.  Buy locally with some deferred maintenance, supervise rehab personally, and manage personally. You'll be a lot happier.  If you insist on investing immediately, invest in one of the REITs.

    2Reply
  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    6y

    @Sam Michaels I'd also recommend starting locally and househacking if you can. OOS is a lot more work than people make it sound until you have experience!

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

    @Sam Michaels Encino and Paso Robles are about 200 miles apart so there is a lot in between. You need to narrow down where you would consider buying and evaluate it on that basis. There's a lot of nothing out there so I'm not sure you would see much appreciation although I don't know the area well. Visalia might be your best bet but it has only appreciated a little more than 4% average over the last 10 years. You can easily have that kind of appreciation in some of the Midwest markets. Indianapolis for instance is running at around 10% so far this year and Kansas City is almost 5%, Personally, I wouldn't give up cash flow for that kind of appreciation rate, especially when you can get solid cash flow and better appreciation somewhere else.

    0Reply
  • Sam Michaels
    OP
    Member since 2020 · 14 posts · 4 votes
    6y

    @Tim Kendall

    Thanks for the feedback Tim! Alaska is on my radar due to the favorable taxes and high renter to owner ratio. Seems like there are a lot of people coming in and out that just want to rent for a bit rather than buy. 

    I’d be interested in Anchorage specifically. Im sure whether is still extreme there but is it largely septic systems there as well, or only in the more rural areas? Also, are there property managers out there that could help with weather related maintenance? Are property managers/maintenance too expensive because its so hands on in that market that its no longer a good investment? Thanks again!

    1Reply
  • Sam Michaels
    OP
    Member since 2020 · 14 posts · 4 votes
    6y

    @Kirk R.

    Thanks Kirk got that checked off the list so I should be ready to go if the right opportunity presents. 

    1Reply
  • Sam Michaels
    OP
    Member since 2020 · 14 posts · 4 votes
    6y

    @Twana Rasoul

    Thanks Twana! I would love to buy in CA first as this would obviously be most comfortable for me and I could potentially avoid needing a prop manager if I lived in it or if it was close enough to handle. I was originally looking for a duplex or mother/daughter type property and am still very interested in that. Issue is that in the area that I would like to buy in, these types of properties tend to be either at the max price within my range or far above and I’d rather than over extend obviously. Do you have advice on where I could find this type of property in SoCal that would be a good investment but still reasonably priced? Under 600k? 

    0Reply
  • Sam Michaels
    OP
    Member since 2020 · 14 posts · 4 votes
    6y

    @Denise Evans

    Thanks Denise! I agree that buying locally would feel much better and seems smarter for my first venture. Obviously the price points are different in CA than these other states which makes me wonder how soon I’d be able to start buying these additional properties. What do you think about buying locally and holding and then using my equity to get into my second property? Do you think that would take too long to get flowing with owning multiple properties compared to buying and selling and then buying again? Thank you so much!

    0Reply
  • Sam Michaels
    OP
    Member since 2020 · 14 posts · 4 votes
    6y

    @Jordan Moorhead

    Thanks Jordan!!

    1Reply
  • Sam Michaels
    OP
    Member since 2020 · 14 posts · 4 votes
    6y

    @Mike D'Arrigo

    Thanks for your feedback Mike! I’ll definitely be working on narrowing it down. 

    0Reply
  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    6y

    @Sam Michaels Depends on where in Socal you are looking...you can qualify for a higher loan amount on a duplex than you can on a single family home just fyi.

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  • Chris S.Business Member
    Property Manager · Anchorage, AK · Member since 2017 · 175 posts · 160 votes
    6y

    Anchorage is pretty much all city water. When you get more rural it goes septic. 

    2Reply
  • Jamie Rose
    Real Estate Agent · Anchorage, AK · Member since 2017 · 294 posts · 182 votes
    6y

    @Sam Michaels - What @Chris S. said - and I'd add - Anchorage is not really extreme weather. Fairbanks would be. Anchorage does have extreme dark in Dec/Jan compared to lower 48 - but temps aren't bad - and natural gas is relatively cheap. Plus no AC systems or bills! There's plenty of prop maintenance and mgmt companies around. 

    1Reply
  • Chris S.Business Member
    Property Manager · Anchorage, AK · Member since 2017 · 175 posts · 160 votes
    6y

    I cant link to Jamie since I'm on my phone but I highly reccomend him as an agent if you do plan on investing up here. Good guy and knows his stuff.

    1Reply
  • Denise Evans
    JD, CCIM , Real Estate Broker · Tuscaloosa, AL · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    @Sam Michaels, if you do not need current cash flow, but are building for the future, then buy, fix, hold, sell personal residence strategy for 4 or 6 years. THEN invest in a small multi family property, maybe a fourplex.

    0Reply
  • Tim Kendall
    Fairbanks AK · Member since 2019 · 2 posts · 1 vote
    6y

    @Sam Michaels in Anchorage for sure. Our transient population consists highly of north slope workers and Military. Also, there’s less of the rural investment atmosphere in that area. I’m a little farther north but a friend of mine and a top performer at the local KW Greg Merdes would be able to get you started in the area. Personally, I like to stick to the area I’m at with my investments. Just a heads up if your thinking about property management companies up here, make sure you get one that is able to maintain the property for you. I can’t stress enough weather happens fast up here and I’ve heard stories of people being cleaned out due to someone injured on the property due to slipping on ice or paying for a new car and repairs because of some jerk plowing the driveway.

    1Reply
  • Sam Michaels
    OP
    Member since 2020 · 14 posts · 4 votes
    6y

    @Twana Rasoul

    Thats really good to know, I’ll make sure to ask my lender about it. Ideally I’d like to buy in between Encino and Ventura and then live in one of the units at first.

    0Reply
  • Sam Michaels
    OP
    Member since 2020 · 14 posts · 4 votes
    6y

    @Chris S.

    Ok great thanks Chris!

    0Reply
  • Sam Michaels
    OP
    Member since 2020 · 14 posts · 4 votes
    6y

    @Jamie Rose

    Thanks Jamie! I’ll be sure to be in touch if I start narrowing in on Anchorage more.

    0Reply
  • Sam Michaels
    OP
    Member since 2020 · 14 posts · 4 votes
    6y

    @Denise Evans

    Okay thanks Denise! What are your thoughts on doing that with a duplex (rent out other unit) vs a single family home in which I house hack?

    0Reply
  • Sam Michaels
    OP
    Member since 2020 · 14 posts · 4 votes
    6y

    @Tim Kendall

    Thanks Tim makes perfect sense. I’ll be sure to reach out if I start looking at anchorage closer. 

    0Reply
  • Denise Evans
    JD, CCIM , Real Estate Broker · Tuscaloosa, AL · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    @Sam Michaels, that's perfect. Duplex, triplex or fourplex. You get all the benefits of cheap and easy home mortgage money but in an investment property, and you have hands-on management experience and the ability to fix problems quickly before they turn into expensive crises.  Rule Number One, though: This is business. Resist forming relationships with your tenants. If they default, kick them out. No sad stories. No extra time.  THAT will kill you.  You might as well rent to family if you're going to get personal with your tenants.

    1Reply
  • Sam Michaels
    OP
    Member since 2020 · 14 posts · 4 votes
    6y

    @Denise Evans

    Thanks Denise. How much should I worry about being in an area with good school systems and other indicators of value? What if I can only afford a condo or not very nice house in these nicer areas but I can afford a duplex/triplex in the not so desirable areas? Just to be clear, I’d be attempting to house hack the extra bedrooms or units on any property I’m considering. 

    0Reply
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