Lots of capital, no experience- how to start?
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Rental Property Investor · Baltimore, MD · Member since 2016 · 109 posts · 31 votes
6y@Lauren C. Condolences on your loss and congrats for taking a good first step by reaching out on BP. Here are a few things to consider:
1. What's your long-term strategy? Do you want to stay in NYC? Or will you move in the future? This could be a factor for markets you choose to invest in. Your short-term strategy is cash flow, so looking for good cash flow markets will be key.
2. Do you want to be an active investor and build up your portfolio deal by deal? Or do you want to be passive and partner up with experienced investors/operators?
3. Do you want to be a lender or an equity investor? Lending will cap your upside but your ability to be secured in the properties you're lending against provides some downside protection. Equity investing allows you to achieve unlimited upside but there are risks with every deal.
4. Do you want to buy and hold or do you want to flip? What type of properties are you most interested in - single/multi-family, mobile home parks, self storage, etc?
5. What kind of research have you done on markets, strategies? BP has a ton of books and podcasts that can help you out. Here are a few books to add to your list:
- Multifamily Millions by Dave Lindahl
- The ABCs of Real Estate Investing by Ken McElroy
- The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges
- Commercial Real Estate Investing by Dolf De Roos
- Trump: The Best Real Estate Advice I Ever Received by Donald Trump
- Tax Free Wealth by Tom Wheelwright
- Commercial Real Estate 101: How Small Investors Can Get Started and Make It Big by David Lindahl
- Raising Private Capital: Building Your Real Estate Empire Using Other People’s Money by Matt Faircloth
- The Definitive Guide to Apartment Marketing by Josh Grillo
- Investing in Apartment Building by Matthew Martinez
- Crushing It in Apartments and Commercial Real Estate by Brian H Murray
- The 7 Secrets to Successful Apartment Leasing by Eric Cumley
- 2 Years to a Million in Real Estate by Matthew Martinez
- Burn Zones: Playing Life’s Bad Hands by Jorge Newbery
- Commercial Mortgages 101: Everything You Need to Know to Create a Winning Loan Request by Michael Reinhard
- It’s a Whole New Business!: The how-to book of syndicated investment real estate by Gene Trowbridge
6. With $400k, you could carve out some of your capital, build a team, pick a good cash flow market, do 1 or 2 smaller deals, get some experience and then start to scale as you get more comfortable.
35 Replies
- Lender · Oceanside, CA · Member since 2014 · 39 posts · 50 votes6y
Good Morning Lauren,
You find yourself in a fortunate position to ease into the real estate investing space. Though you are based in NY, there are strong rental markets across the country that do not carry a high price point to enter and the overall return based on %'s, can be quite appealing. There are many strategies you could target but more times than not in the RE investing space, slow and steady wins the race.
I am not a fan of telling other investors what is the "best investment" strategy because there are so many out there.
Starting here on Bigger Pockets is a good start but you can also start building out our real estate agent, property management, turnkey investment provider, and inspector network in any target market. To some, spreading your initial capital stack across multiple assets may be a better way to diversify than acquiring one large multi-family asset while still achieving a comparable overall return.
Feel free to send me a private message with any additional questions. I would be more than happy to introduce you to anyone in my network based on what you decide.
- 6yLee RipmaPro MemberRental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
@Lauren C.
You’ll certainly make mistakes on your first couple of projects. Do something small on the first one, you’ll learn a ton, and you can scale it from there. You can also considering going passive a couple of deals so that you can ride along with experienced operators to learn.
- Investor · Brooklyn, NY · Member since 2019 · 185 posts · 205 votes6y
I'd start with the BP books. Long Distance Real Estate Investing by David Greene is a favorite of mine, as is his book on BRRRR investing. I am an "alum" of Paula Pant's "Your First Rental Property" course, and strongly recommend it. It got me up-to-speed on all of the basics to take you from "newbie" to "confident beginner" in a few weeks.
Parallel-pathing with the above, I'd start thinking about where you'd like to invest. I too am a New Yorker, and investing here is just silly for a beginner. Some suggestions on how to think about where you might look:
- I wanted something that was within a 2-hour flight/drive from NYC, so on the chance that I needed to go out there, I could do so and get there and back in a day
- Think about areas where you have family/close friends that either have a base knowledge of that location and/or can provide a secondary reason for you to travel there
- Make sure you pick a spot that has a diversity of industry, multiple universities nearby, and a compelling price-to-rent ratio (aka, low prices to purchase relative to the amount you can rent it out for)
Cheers,
Brian - 6yJohn FortesPro MemberMulti-Family Syndicator · Abington, MA · Member since 2017 · 603 posts · 347 votes
@Lauren C. Sorry for your loss on the possible reason of the inheritance.
I wouldn't rule out syndications. There are a few boutique firms that practice 506b offerings. That means up to 35 non accredited investors can participate in each offering.
It's the 506c opportunities which would make you exempt from due to accreditation status.
Happy investing!
- 6yMatthew Irish-JonesBusiness MemberReal Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
@Lauren C. I would start VERY carefully. I would trust but verify every single person I meet, and every single statement they make.
After that I would set up a team in a market that fit my investing criteria. That team would include an investor friendly agent, find a Property manager, insurance broker, home inspector, and an attorney.
Then... I would make my first purchase small and conservative. After 6 months to a year if they hit the projected numbers and all went well, consider a more risky or larger investment.Good luck!
Irish Jones Realty4.947 Reviews - Investor · Fort Worth, TX · Member since 2019 · 120 posts · 147 votes6y
@Lauren C. Kudos for doing your own due diligence and evaluating where to start! Like @John Fortes mentioned, you are certainly qualified for 506b offerings - my Dad and I are syndicators and a part of a large group of syndicators who accept sophisticated investors like yourself. Another consideration and a curveball... active investing ...meaning starting with large multifamily (100+ units)! We successfully went from 6 units to 173 units (and about to add 100+ more to the portfolio) with the right mentor. Many people think you have to start small and build from there - and you can...but you certainly don't have to. We quickly realized after purchasing a 6-unit that it ties up a lot of your capital and it's difficult to scale. The ROI is typically much higher in larger multifamily! It all depends on how active you want to be...you could passively invest in a syndication and double your money in 5-6 years OR you could actively invest and your ROI could be even higher. Happy to chat if you'd like ...feel free to reach out. Best of luck in your RE journey!
- 6yRoni E.Pro MemberSpecialist · Earth 2.0 · Member since 2019 · 598 posts · 271 votes
The first thing to do is education. Also, do your home work and triple check. I would see what type of investment is the one you like e.g. Multifamily,Single Family, Industrial, Office, Retail, Hotel or something else. If apartments I would read Joe Fairless book apartment syndication and get Michael Blank SDA course.
- Investor · Rochester, NY · Member since 2015 · 499 posts · 169 votes6y
I invest in Rochester Ny-- let me know if you have questions about the area.
- Investor · New York, NY · Member since 2020 · 33 posts · 19 votes6y
Thank you for all of your suggestions. Will continue to study up on the aforementioned ideas...the issue is that I am unsure of my preferred niche at this point, but in talking to people on the forums, I think it'll become more clear with time.
- Rental Property Investor · Baltimore, MD · Member since 2016 · 109 posts · 31 votes6y
@Lauren C. Condolences on your loss and congrats for taking a good first step by reaching out on BP. Here are a few things to consider:
1. What's your long-term strategy? Do you want to stay in NYC? Or will you move in the future? This could be a factor for markets you choose to invest in. Your short-term strategy is cash flow, so looking for good cash flow markets will be key.
2. Do you want to be an active investor and build up your portfolio deal by deal? Or do you want to be passive and partner up with experienced investors/operators?
3. Do you want to be a lender or an equity investor? Lending will cap your upside but your ability to be secured in the properties you're lending against provides some downside protection. Equity investing allows you to achieve unlimited upside but there are risks with every deal.
4. Do you want to buy and hold or do you want to flip? What type of properties are you most interested in - single/multi-family, mobile home parks, self storage, etc?
5. What kind of research have you done on markets, strategies? BP has a ton of books and podcasts that can help you out. Here are a few books to add to your list:- Multifamily Millions by Dave Lindahl
- The ABCs of Real Estate Investing by Ken McElroy
- The Complete Guide to Buying and Selling Apartment Buildings by Steve Berges
- Commercial Real Estate Investing by Dolf De Roos
- Trump: The Best Real Estate Advice I Ever Received by Donald Trump
- Tax Free Wealth by Tom Wheelwright
- Commercial Real Estate 101: How Small Investors Can Get Started and Make It Big by David Lindahl
- Raising Private Capital: Building Your Real Estate Empire Using Other People’s Money by Matt Faircloth
- The Definitive Guide to Apartment Marketing by Josh Grillo
- Investing in Apartment Building by Matthew Martinez
- Crushing It in Apartments and Commercial Real Estate by Brian H Murray
- The 7 Secrets to Successful Apartment Leasing by Eric Cumley
- 2 Years to a Million in Real Estate by Matthew Martinez
- Burn Zones: Playing Life’s Bad Hands by Jorge Newbery
- Commercial Mortgages 101: Everything You Need to Know to Create a Winning Loan Request by Michael Reinhard
- It’s a Whole New Business!: The how-to book of syndicated investment real estate by Gene Trowbridge
6. With $400k, you could carve out some of your capital, build a team, pick a good cash flow market, do 1 or 2 smaller deals, get some experience and then start to scale as you get more comfortable.
- Investor · Newport Beach, CA · Member since 2018 · 74 posts · 35 votes6y
Hey @Lauren C.
Before anything, I would say to educate yourself by reading a few books, listening to some podcasts or attending meetups if you can. Its a lot harder to get taken advantage of if you know what you're doing and know what's right and wrong.
I personally recommend that you start looking into out of state investing and begin vetting possible markets to jump into. For example, properties in the midwest markets are priced lower than those here on the coast, you can usually find a distressed property in a C+ and above neighborhood for about 70-120k, sometimes more or less, depending on whether its in a C,B or A neighborhood. Rehab can vary on how distressed the property is, we've had rehabs for flips around 40-80k and at times even lower or higher and rehabs for rentals ranging from nothing needed or 10k to up to 50k due to the amount of work required or if there was an issue with the contractor. You can even find way cheaper properties in these markets if you decide to venture in to D grade neighborhoods.
Your best bet would be to look into out of state honestly. It takes a lot less money to be put upfront, and you have a higher chance of obtaining a cash flowing property out there. If you use a hard money lender, you can possibly spread your 400k between 5 or so properties and possibly even more if you aim for D grade neighborhood properties.
If you're anxious and a bit afraid of investing out of state, look for a partner that has experience in a market you're interested in. If you have capital and no experience, find a partner with experience, a track record, boots on the ground and who might need extra capital (such as your 400k). Although make sure to ask as many questions, vet them properly, get it in writing/contract and to verify the info they tell you with other experienced investors.
If you have any other questions feel free to reach out at anytime. Hope this helped!
- Investor · New York, NY · Member since 2020 · 33 posts · 19 votes6y
@Account Closed You make an excellent point about things becoming "difficult to scale" and I can see how it would be easy to get into that predicament due primarily to anxiety. I've considered MHP for this reason. It seems like being prepared, educated, and surrounded by great partners would be enough to do larger deals initially if it's possible to mentally jump that hurdle.
@Obi I. I'm staying in NYC (so no househacking possibilities). We own a co-op but will likely move to a nearby NY county (Westchester/Rockland) in a few years' time. (Will people pay top-dollar for apartments here after COVID? Who knows.) I see that finding a steady cash-flow market is paramount and I'm trying to avoid analysis paralysis on this (and other things). This book list is great! It's been hard to decide what books to avoid or spend time reading. I've finished about 5 of the BP ones so far.
@Damian Ramirez Totally, I have to look out-of-state. I'll be avoiding the D grade stuff for now, but I see the upside there once I have experience.
Speaking of markets...does anyone have any thoughts on Upstate NY (at least a couple of hours from NYC), Connecticut (not Fairfield county, which is where I am from incidentally), South/Central Jersey, or Pennsylvania?
Also- I'm thinking more buy-and-hold on the active side, will also do some passive stuff, but I'm primarily focused on the former right now. So, my other question is: Do any of you do both buy and hold (BRRRR, really) AND flipping? I was wondering if it's a good idea to do mostly rehab/rent with a flip sprinkled in for income purposes, at least in the first few years. I know there are tax implications with that.
Grateful for you all!
- 6yJoseph ScoreseBusiness MemberBanker · Philadelphia · Member since 2009 · 2k+ posts · 632 votes
@Lauren C. from a lending perspective. Would suggest going turn key showing positive rental cash flow on all purchases, going 2-4 units with 25%-30% down leverage should provide solid returns and get you the landlord experience you need to grow.
Regards
Joe Scorese
- Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes6y
@Lauren C. I focus on SE CT and also keep my eye one Central CT. I think they're both great markets. From your perspective, since you're from the state, those areas may be easier to wrap your head around.
Feel free to PM me, if you'd like to chat through those markets and why I chose them.
- 6ySuzanne PlayerPro MemberAttorney · New York City / Long Island, NY · Member since 2020 · 597 posts · 248 votes
The 2 most important things to do right now are:
Educate yourself -
Listen to the Bigger Pockets podcast - I would suggest going backward chronologically (except as new episodes come in). At the end of each episode, they ask each guest what real estate book they would recommend, & what general business book they would recommend. I've read some of them myself & can say there are a lot of good resources right there. The most popular recommendation is Rich Dad Poor Dad by Robert Kiyosaki (probably the best to start with if you haven't read it).
Bigger Pockets has a bookstore also: https://www.biggerpockets.com/store
There is a lot to know but you are in this for the long term so it's a worthwhile investment. A lot of these books are really easy, often entertaining, reading. If you prefer videos there are probably lots out there as well.Networking -
Easier said than done with Covid 19 restrictions, but there are a lot of high quality discussions on this forum. Try Meetup.com in your area & search real estate investor oriented networking groups.
- Investor · Newport Beach, CA · Member since 2018 · 74 posts · 35 votes6y
@Lauren C.- I don't have much knowledge or experience in those markets other than Pennsylvania, although not very knowledgeable in that market as I am in SoCal and Cleveland, but perhaps you can go over to that state's/market's forum here on BP and chat with a few investors from Central Jersey, Connecticut, etc.
I actually do both flipping and BRRRR's, as well as wholesaling from time to time and do recommend while focusing on BRRRR's one should also complete some flips in between. Doing so can help you obtain more capital and keep you going as you invest most of your liquid cash and wait for the seasoning period for your refinances. We do this ourselves in order to have reserves in case anything hits the fan with an ongoing project and for personal expenses. For example, we have 6 ongoing rental rehabs at the moment and 3 flips; if timed well, once a flip sells and we continue to wait for the refi's we will have another net 40-60k plus our invested capital back to get started on another 1-2 rentals. This way we can continue to build up our track record, pay off personal expenses, make a profit and be able to keep acquiring properties instead of having to wait until we refi, which in turn allows us to scale our portfolio.
As for the tax situation/capital gains, I would recommend using an LLC to separate your personal taxes from your investments and flips. It has helped us in the long run and has saved us a good amount of money from not having to pay as much in taxes.
- Property Manager · Cleveland, OH · Member since 2020 · 268 posts · 315 votes6y
@Lauren C. I'm sorry to hear about your loss. I do think that the move into RE is a good choice. If I understood that you are looking to do this full time and will be moving out of the city you could do some local networking and possibly join some local investors who can help guide/mentor you.
I have a friend that was in a very similar situation to you but he found that acquiring properties at good valuations quickly was difficult and buying properties at market prices did not provide a good enough return on investment. In order to make RE investing a full time job he needed to mix flips in with his buy and hold properties. The BRRRR approach is great for building wealth long term but doesn't provide as much immediate income.
I caution a lot of out of state investors (I am in Cleveland) to be very careful when flipping houses out of state. Building relationships with tradesmen takes time so you are either going to overpay for a general contractor with a strong reputation or risk getting burned subbing out the individual trades to people you don't have a history with.
The other big question is what are your income requirements? If you could get 12-15% COC return on turn keys would that be enough for you? Would you travel to out of state markets to supervise and check up on rehab projects? I think that you should take some of the people here on the forums up on their offers to speak with you personally where you can have a better exchange of ideas. I can personally offer insight and suggestions on Cleveland specifically and share what our other out of state investors are doing.
- Investor · Fall River · Member since 2020 · 1 post · 1 vote6y
You could go practice in Rochester and gain some experience since there are many deals under in the 50-100k range.
My wife and I had 900k to 1031exchange and bought a 15 unit in Fall River,Ma for 1m which brings in 12500 a month, then bought an 11 fam 8 month later for 900k bringing in 9700 ( and bought it with 0 down utilizing a portfolio loan). So we turn potential huge tax loss into 21,500/m of rental income. This of course takes work to manage unless your ok being hands off and hire the management out. We tried this and I found its easier then you think. If your not actually fixing things your self might as well save ur self 8-10% and make the same phone calls your self. Plus I found esp during the pandemic tenants seem to respect an owner vs a management co more. Im an owner and management co and have 92% pay rate and the 2 that can't pay are paying small portions when able. 400k could get you into about 1.2million of property but a safer play might be 250k on 800K and save the rest for repairs and a next deal while you get ur feet wet.
- Rental Property Investor · Cleveland, OH · Member since 2016 · 653 posts · 769 votes6y
Don't forget that real estate can be incredibly simple if you want it to be. Since you're not stretching yourself thin on the first deal you can always pick a stable market and buy a relatively newer, rent-ready single house and just get a deal done so you're familiar with the process and you'll learn a ton just from that. Closing on a property and managing the process of getting it cleaned up and rented is a straightforward process if you aren't taking on a big rehab project or anything.
You can find tons of markets where you could put 25k down and get yourself a nice single house for $150k that will cash flow and get you into the game. Then, figure it out from there. I just see a ton of people wait for years and years to find the right strategy when the simple strategy is sitting right in front of them. Just a thought!
- Flipper/Rehabber · Cleveland, OH · Member since 2014 · 173 posts · 121 votes6y
@Lauren C.
If I was in your shoes I’d try one of each - not advice but my plan of attack if I had $1,000,000 with limited experience. I’d Find the best fit and get in that lane. From there build that lane to the best of my ability then have some offshoots.
Try 1 of each - Flip, cash rental, brrr ( if income situation allows debt) hard money lending and see what’s ultimately a good fit.
- Flipper/Rehabber · Sioux Falls, SD · Member since 2018 · 12 posts · 8 votes6y
@Lauren C. I think you’re on the right track with establishing a short term goal and educating yourself. I would continue the education along with connecting with other investors, brokers, etc. I would also put together a longer term strategy of where you want to end up. Beginning with the end in mind will save you many headaches in the future. Wishing you all the best!
- Property Manager · CT · Member since 2014 · 687 posts · 329 votes6y
Hey Lauren,
Great plan to invest in your future with Real Estate.
The first steps I would recommend as a new investor is to get a handle on analyzing the income, expenses and ROI of the properties you are looking into
You can use the Bigger Pockets calculators to start. Use Zillow and rentometer.com to get data and analyze a few from your home to see what type if returns there are.As an investor, you need to know your numbers, cold.
Whether you hire out everything or are more involved, plan from the beginning to be able to step away from the business if you need to.
That requires careful analysis of the properties BEFORE you buy, to determine if it meets your financial goals AFTER including all expenses.
If any turn key company sends you a cashflow analysis without at least TIMMUR:
1. Taxes,
2. Insurance,
3. Management,
4. Maintenance,
5. Utilities,
6. Repairs
Then run for the hills.
In Bridgeport, Connecticut and many North East regions we also include Snow Removal and Pest control.
Explore all markets but do your research, as to where net migration and jobs are heading.If these meet your investment criteria then start looking in person.
Let me know if you have any questions.-Craig Bellot
- Rental Property Investor · Pittsburgh, PA · Member since 2019 · 530 posts · 511 votes6y
Originally posted by @Lauren C.:
I would REALLY appreciate any ideas! $400K total out-of-pocket is possible at this point.
So I would break this up into 4 chunks. (All in a low cost market such as mine.)
$50k: Sit this aside, it is your emergency reserve.
$150k: This would be my flip money. Target homes with an ARV in the $125-$150k range that need less than $30k in renovations (no structural issues) that you can buy in the $50-$75k price point. These are not home run deals, but they are the type you walk away with $10-$25k after all is said and done. Once you have turned that $150k into $500k you can start to look at riskier projects.
$200k: I love RMR. (Recurring Monthly Revenue) RMR means I can take a day off and take my kids to the lake randomly versus have to show up and push papers or swing a hammer. Here I am going to target BRRRR with homes in the $75k-$100k range. I am going to look at rents between $800/mo and $1200/mo and I am going to make sure I am always north of the 1% rule. I am going to want to buy these homes between $20-$40k with no more than $20-25k in rehab. The rehab is tricky, as you will want to fix anything with less than 5 years of life left to reduce capital expenditures in the near term. This is where planning with an accountant comes in. Say a roof has about 10 years left. You won't fix it up front, but do you really want to wait 10 years. As you build a depreciation schedule to offset your flipping and rental income, you will be able to understand that after 7 years you have a drop in depreciation, so it will save you money to put that roof on 3 years early. How much you make cash flow per rental depends, but I target $400/mo (wishful), will run with anything over $250/mo, and will accept $100/mo if there are added benefits (say being next to other properties so I can begin to control a block). Using this model, you will pay between $40-$65k per property. You could do roughly 4-5 of these on your initial cash outlay. You now have roughly $4000-$6000 income per month with roughly $1000 profit. Now find a lender. This is the hardest part, because this is a LONG TERM relationship. You will want someone that will most likely do commercial lending against these and pull out 75% of the value. Ideally this will be on a 15 year note, but 20 or 30 can work. Just realize, the longer the note, the more CapEx savings you will need each month because items will go end of life. If you spend the full $200,000 and have 5 properties rehabbed and rented, with profit of $1250/mo that is a 7.5% ROI (this actually factors in already having a loan on the property, until you refi this isn't true). Not horrible and not earth shattering. BUT, now you refinance them. Your $200,000 was 65% of the value. You refi at 75%. That is $30,000 more than your original. You now have $230,000 to go and do this again plus monthly profit of $1,250 and tax benefits to boot. ***Note that be careful on 2 fronts, keep your credit score above 700 to avoid potential refinancing issues and beware homes below $65k in value after repair, those should be considered simple cash purchases as a lot of lenders won't touch them. I learned that one the hard way as I have a couple $50k places and was not able to get my money out.
- 6yElise Bickel TauberBusiness MemberReal Estate Agent · Cranberry Twp · Member since 2017 · 384 posts · 198 votes
Where to start is the age-old question. I think there is a TON of good advice here but would love to put my 2 cents in. I own a real estate brokerage and property management company that services most of Pennsylvania as well as I'm an investor myself. I've seen a lot of investors get into the game and not know what they are doing and it ends up costing them.
1. I personally think you should invest in an area like Pittsburgh where you can pick up your first few properties either single family or multi-unit at low risk as you can pick up single families in the $50-$100 range easily and rent at a 8-12 CAP and if things don't work out, or you change your strategy (i.e. decide to sell off your single family to focus on multis or vice versa) you can do so easily and for profit in most cases
2. Build a strong team of agents, management company, contractors etc. You want everyone working together for the same goal. Make YOU money! If they make YOU money, they will make money as well. Companies who are just out for their own gain are looking for a short term gain and tries to make as much as they can in a short period of time and aren't necessarily concerned about making a long term relationship.
3. Hope for the best, plan for the worst and expect something in between. No matter how much you learn and how much you prepare, things WILL go wrong. The more you do it, the better you will get at it but even the most experienced investor gets surprises (and not good ones) sometimes!
4. Enjoy it! If this is going to be a good portion of your focus, try to learn and enjoy the process.
Best of luck!
- Investor · Jacksonville, FL · Member since 2020 · 124 posts · 68 votes6y
@Lauren C.
You have so many options!
Ask yourself this: How much work do you want to put into it? How hands on do you want to be?
How much growth do you need from those money? Are you trying to live off the interest? Turn it into a billion? Somewhere in between?
How much time do you want to commit weekly?
We can go from there.
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