Investment Direction for First Time Investor

13 Replies

Hi guys, 

I am looking to invest in my first rental property with the goal of building a rental portfolio in the coming years. Bigger Pockets has been  a great resource of knowledge so far but the information on the internet is so overwhelmingly broad that I am finding it quite challenging to set up an action plan.

One of the places I have looked at is Roofstock to buy out of state properties in the affordable range within 100k. I am based out of Houston so Houston is also an option for me but I am willing to to look other cities and states depending on its future prospects.

If I could get some insights on what markets you have found to be the most appealing in recent time in terms job and population growth , stable rents and healthy returns , it would be a massive help for me find a starting point for doing my due diligence. I will mostly look at Turnkey Properties as I lack the experience and time to Rehab properties for better returns


Secondly, due to the economic downturn and high unemployment rate overall I am feeling that we may see a housing crash some time next year. For a first time investor like me , would you suggest that I play the waiting game or am I overcomplicating things?

Thank you so much.

Refayet



Regarding the waiting game: there's a big difference between sitting on the sidelines (i.e. using fear of a recession to sit out) and constantly evaluating deals, making offers, but not finding any that suit your criteria. The person who is making offers is moving forward, even though it may not feel like it.

Perhaps the latter is too conservative and needs to adjust his criteria, but also perhaps he's the sane one in the room. It's happened before. Additionally, the latter example is in the game and will be ready if there is a crash. He or she will see it coming. The one sitting on the sidelines will still continue to sit on the sidelines.

@James Wise has an amazing YouTube channel, and in one in particular he talks about a great system to reduce the risk in turnkey investments. If you haven't yet, go watch his videos on that and apply those lessons. 

At the end of the day you probably have not pulled the trigger because you have not mitigated real or perceived risks enough - right? After all, if you were comfortable with the risk/reward of any of the properties you've looked at then you would have made the investment. Also be aware that there are other passive options out there, and if turnkeys aren't for you then not all is lost.

Hi Tayor,

Thank you for the tips. I will definitely check out James Wise's Youtube channel. You are very right, I am still on the fence about perceiving the risk/reward scenario property offerings. 


Right now, I just want to keep things simple without over analyzing. That is why I have not yet looked at other means in depth even though I did download the pdf file from Passive Wealth Strategies.

 I am looking at markets like Indiana and Cleveland but want to make sure that the turnkey companies I would deal with in these markets have a solid reputation of backing up their financials with the results they claim. 

Aside from checking out James Wise's channel , if you have any recommendations with regards to markets and reputed turnkey companies, that would be great.


Thank you.


I don't expect there to be a crash. Everyone thinks a housing crash accompanies recessions, but....fun fact....of the last 5 recessions (including the Great Depression), only 1 of them had a housing crash associated with it, and that was the 2008 crash because the entire thing was due to the mortgage crisis. In addition to that, housing demands for residential properties has gone up with covid (de-densification, people working from home, etc.). Housing prices have been going up, not down. Demand is definitely up pretty noticeably. Residential real estate seems to be booming...but what is taking a major hit is the commercial real estate market. People are desperately trying to get out of crowded apartment complexes, which is driving them to the residential properties.

Anywho, for turnkeys or exploring your options or whatever... what would be most helpful for you? Like what information would help de-clutter the overwhelm of info you're getting?

I think that your idea to go with a reputable turn key investment is a good plan.  If you buy well (which they should walk you through) then your real risk is a few months of missed rent due to an eviction.  I would recommend visiting the market and providers you are interested in and walking through potential neighborhoods to see what the real feel of the area is.  Pictures and descriptions just aren't the same and while home inspections can be valuable they are so conservative in how they word their observations it is hard to really know what is going on.  I am in Cleveland so I can only speak for this area but more often then not I visit properties that look great on paper and then disappoint in person.  If you want any Cleveland market specific information I would be happy to discuss it with you.  

Originally posted by @Refayet Anzir :

Hi Tayor,

Thank you for the tips. I will definitely check out James Wise's Youtube channel. You are very right, I am still on the fence about perceiving the risk/reward scenario property offerings. 


Right now, I just want to keep things simple without over analyzing. That is why I have not yet looked at other means in depth even though I did download the pdf file from Passive Wealth Strategies.

 I am looking at markets like Indiana and Cleveland but want to make sure that the turnkey companies I would deal with in these markets have a solid reputation of backing up their financials with the results they claim. 

Aside from checking out James Wise's channel , if you have any recommendations with regards to markets and reputed turnkey companies, that would be great.


Thank you.

I've talked with a number of turnkey providers but it's not my investment strategy, so I can't give an informed recommendation. There are a number of providers who are active on BP and put themselves out there in the RE community. If I was going the turnkey route, I'd start with those folks who are active here and RE podcasts, have stellar reputations, and can provide references. Beyond that, James' advise on his YouTube videos re: vetting turnkey providers would be gospel for me. James is also based in the Cleveland area, so there's a double bonus.

Generally speaking when we evaluate a market in the multifamily space we look for job growth, population growth, rent growth, diverse industries and employment, MSA of adequate size (not too small), a friendly legal environment, and stable or falling vacancy rates. I expect evaluating a market for turnkey investment would be roughly the same. Ultimately it's about evaluating the health of the market not just from a real estate perspective, but from jobs and employment as well. At least, in my multifamily world.

@Refayet Anzir - house hack in Houston my friend.

Look into down payment assistance, buy a duplex and live in one side.

Honestly, $100K markets in 2020 are going to underperform on an appreciation basis and you'll be more out of pocket than if you just bought local.

Remember, there are 3 pieces of your return.

1) cashflow

2) appreciation

3) mortgage pay down

The goal is for the TOTAL of the three to be highest possible. A more expensive, nicer property in Houston will easily beat any total returns you'll get in tough parts of Baltimore.

@Ali Boone , you are very right; Housing demand are high now I am presuming because of an inventory issue as well as the low interest rate? My thought is as government relief programs like ppp and the 600$/week unemployment benefits end and if inventory level goes up next year, and as unemployment levels remain high this may have a negative impact on real estate prices right? Moreover, the tax programs that Biden is proposing are also a deterrent , so that is also a possibility. These are just I am thinking but then again demand for residential properties in the suburbs as opposed to ones in the city should be high post pandemic. You would obviously know better than I would since I havent really been following the industry closely until recently.


Nevertheless, I do not want any of these to stop me from taking action . I have been researching different ways and the BRRR strategy appealed to me the most because it seemed the most scalable way to me to build equity and a rental portfolio. Then again I will be moving overseas for work in a few months time so rehabbing wihout physically being here especially since this is brand new for me does not seem practical.


That is why I am looking for some quality turnkey companies that I can work with to get my foot wet now with out of state investing so that even while I am away I can continue investing and building my rental portfolio. 

What I trying to  to figure out is  an action plan with regards to financing and a systemic way to move forward. 

@Andrew Weiner , thank you . I will definitely reach out to you when Cleveland comes into the picture. 
@Taylor L. yes, all these factors are so important. There is a plethora of places with data on these but are there any fixed common websites that you check to verify the factors you mentioned? I know these data are not served on a plate , it takes time to do the due diligence but can you recommend some websites where  do some fast fact checking of these factors that you mentioned?

-job growth, population growth, rent growth, diverse industries and employment, MSA of adequate size (not too small), a friendly legal environment, and stable or falling vacancy rates.

Originally posted by @Refayet Anzir :

@Andrew Weiner , thank you . I will definitely reach out to you when Cleveland comes into the picture. 
@Taylor L. yes, all these factors are so important. There is a plethora of places with data on these but are there any fixed common websites that you check to verify the factors you mentioned? I know these data are not served on a plate , it takes time to do the due diligence but can you recommend some websites where  do some fast fact checking of these factors that you mentioned?

-job growth, population growth, rent growth, diverse industries and employment, MSA of adequate size (not too small), a friendly legal environment, and stable or falling vacancy rates.

Government sources like the Census, Bureau of Labor Statistics, local Chambers of Commerce, and other similar government bodies usually put out pretty good data, although it can be difficult to sort through. Regarding rental rates, I think that's best accomplished by compiling multiple sources to see if there is a consensus on any given location you're looking at. There are paid services you can access, but they can be pretty pricey and don't make sense for most new investors. It's a research project where you have to be resourceful. 

Originally posted by @Refayet Anzir :

@Ali Boone, you are very right; Housing demand are high now I am presuming because of an inventory issue as well as the low interest rate? My thought is as government relief programs like ppp and the 600$/week unemployment benefits end and if inventory level goes up next year, and as unemployment levels remain high this may have a negative impact on real estate prices right? Moreover, the tax programs that Biden is proposing are also a deterrent , so that is also a possibility. These are just I am thinking but then again demand for residential properties in the suburbs as opposed to ones in the city should be high post pandemic. You would obviously know better than I would since I havent really been following the industry closely until recently. 


Nevertheless, I do not want any of these to stop me from taking action . I have been researching different ways and the BRRR strategy appealed to me the most because it seemed the most scalable way to me to build equity and a rental portfolio. Then again I will be moving overseas for work in a few months time so rehabbing wihout physically being here especially since this is brand new for me does not seem practical.


That is why I am looking for some quality turnkey companies that I can work with to get my foot wet now with out of state investing so that even while I am away I can continue investing and building my rental portfolio. 

What I trying to  to figure out is  an action plan with regards to financing and a systemic way to move forward. 

Of course no one can say for sure what's going to happen, but no, I don't expect residential housing prices to drop. All indicators are showing residential is just becoming more and more in demand. Ultimately, regardless of PPP and the $600 going away, etc., people need somewhere to live, and that's not going to change. All that's going to do is shift who lives where, all the while people are flocking out of the commercial apartment buildings. So if you're buying single-family houses, for example, in a growing market... you should have a lot of demand for your property. But again, who's to say.

You would definitely be taking on a lot of risk to try to BRRRR from out of the country. As far as turnkeys, I started buying turnkeys in 2011 and have worked with people buying them ever since. I run a turnkeys Facebook group and have a lot of videos on YouTube about turnkeys, etc. Reach out any time if I can be of help for you! Happy to connect.

 

Refayet,

Finding a "quality" turn key property, let alone a "quality" turnkey compnay will be difficult. We provide investors with properties and we rehab them. My point is, when we go look at properties that are supposedly "turnkey," they're not. There always seems to be some kind of work that needs to be done. We also find properties that were recently rehabbed and when we inspect them, we find a lot of problems, when we start digging. So please be careful and if you buy out of your area, be sure the company you deal with has quality property management. That can make or break a deal! Best of luck.