Good afternoon Bigger Pockets forum. This is my first post, and of course I'm looking for advice. My wife, and I are taking the plunge into real estate investing, and I wanted to consult like minded individuals on a couple key items.
1) Location, location, location. I am fully aware that location is of the utmost importance. We have narrowed down are search to Austin, and Nashville. Both areas seem to be booming, and could quite possibly offer a good ROI. We would be investing long distance, and I wanted to mitigate as much risk as possible. Between these two locations which offers friendlier landlord laws, and the best opportunity in these uncertain times?
2) Price Point. In either location is 100k per unit doable? I would prefer to purchase a couple units in cash instead of getting financing. I understand loan rates are currently at an all time low, but I feel safer about this strategy. We are not risk adverse, but once again mitigating as much risk as possible. I would like to try to find a multi family, or a couple houses that need minimal work. In either location is my goal possible? I want to go after steady cash flow vs appreciation over time. In the next five years I will adjust my strategy to incorporate appreciating houses, but I need to see the housing market even out.
I want to thank anyone that takes their time to respond. I understand time is money, and you spending even a minute on me is a blessing. GOD BLESS.
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
5y
Paul:
Good luck on your journey. I had a few reactions to your post and am hoping to help.
Buying a property for cash, no mortgage, is a bad idea. First, it absolutely destroys your ROI. Second, it makes you a target for lawsuits. Third, it concentrates your risk in a fewer number of properties. (e.g. if you have two properties and one gets hit by a fire, it is worse than if you have 6 properties and one gets hit by a fire) With debt, you improve ROI, reduce lawsuit risk, have a greater number of properties to reduce other risks.
Austin is a great MSA. Be careful of Austin proper, as it has enacted several tenant-friendly laws that will hurt returns.
Also, if you restrict yourself to $100,000 properties because you don't want a mortgage, you are basically forcing yourself into either bad parts of town, very small properties that will be hard to resell, or your are going to have to buy pieces of junk that need a lot of work. You will have a harder time finding nice properties, of typical size, in middle class areas that are in good shape.
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
5y
Paul:
Good luck on your journey. I had a few reactions to your post and am hoping to help.
Buying a property for cash, no mortgage, is a bad idea. First, it absolutely destroys your ROI. Second, it makes you a target for lawsuits. Third, it concentrates your risk in a fewer number of properties. (e.g. if you have two properties and one gets hit by a fire, it is worse than if you have 6 properties and one gets hit by a fire) With debt, you improve ROI, reduce lawsuit risk, have a greater number of properties to reduce other risks.
Austin is a great MSA. Be careful of Austin proper, as it has enacted several tenant-friendly laws that will hurt returns.
Also, if you restrict yourself to $100,000 properties because you don't want a mortgage, you are basically forcing yourself into either bad parts of town, very small properties that will be hard to resell, or your are going to have to buy pieces of junk that need a lot of work. You will have a harder time finding nice properties, of typical size, in middle class areas that are in good shape.
Thank you Greg Scott for taking your time to reply to my post. Your insight on my strategy was extremely helpful, and needed. I had not considered reducing my risk by obtaining multiple mortgages. I am going to explore more financing options in the upcoming week. My only concern with multiple mortgages was over leveraging myself.
In addition I will rethink my price point of 100k. I want to avoid buying "pieces of junk." I do have a background in construction, but because this is going to be long distance I won't have time to do the renovations myself. Also because I'm just starting I don't want to get in over my head.
Your response was extremely helpful, and I thank you for your time! All the best, Paul B.
Have you ever looked into being a limited partner in an apartment syndication? In some cases you can receive cash flow, forced appreciation and a tax sheltering asset without dealing with tenants, toilets or managing the property manager. If you're interested, I recommend you read a book called: The Best Ever Apartment Syndication Book by Joe Fairless.
Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes
5y
@Paul Berard you can always purchase with cash, and do a cash out refi later to increase your roi. Buying cash can help you compete with other investors in a hot market.
Rental Property Investor · Tampa, FL · Member since 2019 · 128 posts · 166 votes
5y
@Paul Berard - what @Greg Scott said is spot on. You lose so many of the benefits of real estate investing (leverage!) when you pay cash. And that equity becomes an easy target for a pretend accident on your property in a law suit. Why not buy $1M of properties using your $200k (20%) and letting $1M of properties grow 3-5% YoY?! In this scenario your paper equity grows $30k-50k per year. When you burn your whole cash wad on $200k of properties paid for in cash your paper equity on that same money grows just $6k-$10k per year. #LeverageBaby!
PS You may need to come to grips with your level of risk aversion. It sounds to me like you’re HIGHLY risk adverse based on the small amount of insight from your post.
@Jesse Daconta Thank you for your response. I have not looked into "apartment syndication." I am excited to learn, and I'm ordering the book you recommended tonight. Thank you very much for your time! All the best Paul B.
@Jonathan Hulen We are definitely on the same page. I keep reading/hearing how "hot" the market is right now. Starting with a minimal amount of capital has made me want to take what I have to compete with other buyers for great deals. I am leaning toward the refi method. Cheers, Paul B.
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
5y
As mentioned above use a mortgage. Buying all cash gives you a very low total return (worse then stocks) and makes you a target for lawsuits. If buying out of state I would recomend a B class area with $1000+ a unit rents and getting a 4 unit building. Having 4 units will make finding a good manager easier and be less cap/ex per unit.
Investor · Tampa, FL · Member since 2017 · 589 posts · 251 votes
5y
Be careful mentioning how much money you have to work with in a forum post. Maybe in a private message. The strategy is completely up to you though, paying cash will have the asset completely paid off but does affect the use of leveraging real estate.
Investor · Irvine, CA · Member since 2009 · 259 posts · 183 votes
5y
Few things
By now plenty responders commented about buying cash vs w/ a mortgage. IMO there is no right or wrong, but what is right for you. ex, If you are someone who is looking to retire soon and need to put emphasis on cash flow (CF) it favors one strategy over the other.
BTW, between all cash or a 20% down there is a VERY nice middle ground - 50% down - which gives you both a better CF while still leveraging - just an idea.
As for your questions which seems to be mainly Austin vs. Nashville.; I'll assume you mean the metros of each and not the actual city.
I know both metros VERY well.
Few pointers:
Both metros are about the same size population-wise.
Austin (TX) property taxes are approx. 2.5 higher than Nashville
Ins. rates are approx double in Austin vs. Nash.
Austin had appreciated in a much higher rate than Nash. in recent years.
100k purchase price in both would be a crappy property.
For nice good schools, middle-class area you are looking at 175k +/- in metro Nash and 250k+/- in metro Austin.
All in all for many reasons Nash. wins, IMO.
That doesn't make Austin bad, not at all. There are many good things working in its favor.
BTW, as someone who has been investing in all TX main metros sine 2004 I'd say if in TX . . . than Dallas and not Austin.
BTW, what made you decide Austin and Nashville to begin with?
Just to be clear I live in CA not in Nash or Aus or DFW just in case it sounds I'm biased.
Real Estate Syndicator · Portland, OR · Member since 2014 · 453 posts · 312 votes
5y
@Paul Berard
There is always a learning curve in what you are doing. Let’s take this for example, first post on BP and you’re getting a good response. People are giving you great and not so great advice. You’ll wade through it and decide what works for you and what does not. Think of the same thing with your real estate career. It’s not always what you set out to be, but refines after you gain more knowledge and grows with you as you grow.
That being said, if you really do have that type of cash and are trying to figure out what to do. A few things, find a real estate agent that has bought and sold multifamily in the market. Ask for referrals from both buyers and sellers. Visit the area that you are going to buy. Most people start out in an area they are very familiar with. Real estate is about knowledge, you’ll get a ton here, but you need to know locally where you invest. That takes boots on the ground and figuring out where your money will be best placed.
Absolutely use leverage. Leverage is by far the real estate investors best tool (good debt please, bad debt drags you down). Keep buying or buy as big as you can that cash flows. I can’t stress enough cash flow. It hedges market downturns. If you plan on rental gains in the future to make profits your building your house on sand and hoping it doesn’t rain and sink.....
You’ve come to the right place, read a lot, listen a lot and talk a lot. Couple these things with some directed action and you will go far. Enjoy!
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
5y
Pretend you only have about 20k of that and figure this business out on that budget. You will know exactly how to place that 200-300k once you do that.
Specialist · Knoxville, TN · Member since 2012 · 66 posts · 59 votes
5y
I'm going to be very honest in my answer here. From your post, I can tell you are new to investing. Leverage is not a terrible thing despite what Dave Ramsey says. Your first investments should be local to you if possible, or at least a short drive away. You have a significant amount of money to invest and it could be spread across several type deals in several markets. Continue to research and look for opportunities to partner with experienced operators.
Investor · Ma/ Ri · Member since 2020 · 1 post · 1 vote
5y
@Paul Berard congratulations your are in the right place and on the right track The best investment you can make is in your self if you haven’t already educate yourself listen to the BP podcasts don’t know your schedule but from A to B great time to tune in read read read talk with your CPA tell him or her what your plans are education education application good luck feel free to p.m me if you have any questions.
Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
5y
A lot of silly fear mongering about the risk of a paid off home. First of all simple low cost insurance protects you against almost all foreseeable risk. Homeowners if your house burns down. Umbrella insurance if you get sued. Paying tens and hundreds of thousands to a bank to prevent something that can be protected by a few hundred dollars a year is pure foolishness. As is the tax deduction argument. Paying a dollar to save 30 cents is equally stupid. If you want to buy cash, don't let anyone here tell you not to do that. Some of the richest people in the world plonk down millions of dollars cash for properties. It depends on what your goals are.
Real Estate Agent · Nashville, TN · Member since 2020 · 31 posts · 14 votes
5y
Hi @Paul Berard and welcome! I am not too familiar with the market in Austin as I am an agent in Nashville. A couple of points. You will find a multitude of opinions and creative solutions for any investment deal you would look into here on BP. You will find that in the end you have to do what works for you. As for your specific numbers, in regards to the Nash market, if you are looking in the downtown area you might struggle a bit finding something that fits within the 100k range that doesn't need work. However, looking in the surrounding Mid TN regions would actually be a bit easier than you think. My brokerage works exclusively with investors for flips, buy/hold, and tear downs for new builds. I personally work with a lot of out of state investors sourcing deals who utilize the BRRR method. I don't believe that your goals or numbers are in any way unrealistic. It all just comes down to how you want to run your play. Feel free to reach out if you have questions. I would be happy to help!
@Greg Moore Thank you for your response. I am working on coming to grips with my "risk adversity." After reading your response I am going to spend some more time formulating, and dialing in my plan of attack. I was unaware that law suits were such a big problem with rental properties. I wonder if the threat of law suits can be avoided by proper insurance policies. I have always lived by the saying "Its better to have it, and not need it. Then to need it and not have it." Your insight was extremely helpful, and I thank you for your time. Paul B.
@Henry Lazerow I appreciate your response. You have confirmed that I need to adjust my plan so I can hit my goal quicker of "financial freedom." If bigger pockets has taught me anything its that there is more then one way to real estate. Thank you, and blessings to you and yours. Paul B.
@Zachary Ray Thank you for the warning. I am a very blunt person, and sometimes revealing your hand works in your favor. I feel the people on bigger pockets are already like family. I am going to explore leverage. I understand the concept, but I am still hesitant to over leverage. I need to find a middle ground. Cheers, Paul B.
@Dani Beit-Or Thank you for your response. I was looking for a middle ground, and putting 50% down seems like an excellent route to take. After reading your post I am leaning more toward Nashville. I am favoring cash flow over appreciation at this current point in time. Of course I would like to have my cake and eat it too, but that seems unlikely with my current capital.
The reason I choose Nashville, and Austin is because both offer a good environment for investors from my research. Both have increasing populations, good paying jobs, and decent land lord laws from what I have read. I also have "boots on the ground" in both areas.
I am also from CA. I was born and raised in a small town called Santa Barbara. Being from a smaller town I wanted a bigger "pond" to swim in. Ergo I'm now living in Miami.
Thank you for reaching out and helping me with both my questions. I appreciate you sharing your knowledge with me! Sincerely, Paul B.
@AJ Shepard Thank you for your response. I am working on networking with like minded individuals, and honestly this is my first attempt to do so. I am taking peoples responses with a "grain of salt." I value everyones opinion. I am working on taking the information given to me, and formulating a plan that I can best use to achieve my goal. "Leverage" has been brought up a few times, and is looking to be a common theme in people real estate strategy. There for I am making a list of lenders to discuss rates, and getting pre approval. I am going to continue to dive deep into this, and I know with enough knowledge I'll be able to build a sturdy foundation. Storms are inevitable. Thank you for your time and enthusiasm about helping others with real estate. Best regards, Paul B.
@Ian Walsh Simple, sweet, and to the point. Thats a perfect exercise, and just what I needed. Thank you! Cheers, Paul B.
@Kent Leach Thank you for your response, and I respect your honesty. I am a rookie! Everyone has to start somewhere. That being said I appreciate your advice on looking in my own backyard for real estate deals. I am currently living in Miami, and the more I research the more that is making sense. I know there is a lot of opportunity here. I just need to spend more time "driving for dollars," and networking. I am seeking out the counsel of a mentor. I have heard from BP its about adding value to their life opposed to being a leach. I am working on the "adding value" part. I appreciate your response and your time. All the best Paul B.
@Ian Decosta You are completely right. I need to read, educate myself and network. I am spending every day listening to BP podcast on my drives, and searching the internet for potential leads. After reading so much good commentary I am jumping from location to location. I need to pin point my investment location so I can have laser focus, and dominate my investment strategy. I am going to reach out to a CPA next week when I have a clear picture of my exact strategy. I have learned by reading these comments that my strategy is far from ready. Thank you for your time! Cheers, Paul B.
@Account Closed Thank you for addressing the fear mongering. I agree with you that having a good insurance policy is the equivalent to having good breaks on your car. Very important! After reading the previous comments I am definitely looking into leverage as it seems like a "key" to many peoples success. My goal is to retire in the next 20 years with rental properties with excellent cash flow. I appreciate your time. All the best Paul B.
@Angela Dulin I am looking forward to reaching out to you to discuss investment opportunities in Nashville. I am going to do some more research on my market here in Miami before I do. After receiving incredible responses I am leaning toward starting here where I currently live. I know opportunity is everywhere, and we just have to do a little searching to find it. As you mentioned its about finding out what works best for me, and I am working on deciding that. I appreciate you, and your willingness to help new investors like myself. Cheers, Paul B.
By now plenty responders commented about buying cash vs w/ a mortgage. IMO there is no right or wrong, but what is right for you. ex, If you are someone who is looking to retire soon and need to put emphasis on cash flow (CF) it favors one strategy over the other.
BTW, between all cash or a 20% down there is a VERY nice middle ground - 50% down - which gives you both a better CF while still leveraging - just an idea.
As for your questions which seems to be mainly Austin vs. Nashville.; I'll assume you mean the metros of each and not the actual city.
I know both metros VERY well.
Few pointers:
Both metros are about the same size population-wise.
Austin (TX) property taxes are approx. 2.5 higher than Nashville
Ins. rates are approx double in Austin vs. Nash.
Austin had appreciated in a much higher rate than Nash. in recent years.
100k purchase price in both would be a crappy property.
For nice good schools, middle-class area you are looking at 175k +/- in metro Nash and 250k+/- in metro Austin.
All in all for many reasons Nash. wins, IMO.
That doesn't make Austin bad, not at all. There are many good things working in its favor.
BTW, as someone who has been investing in all TX main metros sine 2004 I'd say if in TX . . . than Dallas and not Austin.
BTW, what made you decide Austin and Nashville to begin with?
Just to be clear I live in CA not in Nash or Aus or DFW just in case it sounds I'm biased.
Curious what it is you like about Dallas over Austin and how that compares to Fort Worth?
Rental Property Investor · Seattle, WA · Member since 2020 · 8 posts · 2 votes
5y
@Angela Dulin I’d love to connect with you on the subject! My partner and I are new investors. We live in the Seattle area, but it’s HCOL, and so we are considering OOS investing in locations same as OP. I’d like to connect offline and see if you have recommendations on a “boots on the ground” team for TN (agent like yourself, PM, contractor, etc). Lmk if you’re open to connecting!
Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes
5y
Going to have to agree. Buying leverage is not always the best idea. Ideally, you should have some leveraged and some paid off. As long as it is in a separate LLC and you have decent insurance, then you will be fine. Start with your first property in cash, and then see if you want to expand. Grow slowly and learn the ropes. Getting into heavy debt now is not a wise idea. Especially with the COVID popping back up and wrecking havoc. Rest assured more issues with tenants paying will come forth. Best part of owning a property without a mortgage payment, no mortgage payment in the lean times.
I like DFW better as it is 3.5 times bigger economy than Austin which for me means much stronger and stable local economy. + the rent-purchase ratio in DFW is for the most part better than Aus.
Austin, TX · Member since 2018 · 17 posts · 10 votes
5y
Welcome to BP. Since you are just getting started with REI, suggest not plonking down your entire cash reserves on a single transaction. If you're considering Austin, there are several Single-family options available in the suburbs in the mid to high 200s. They usually cash flow at 3-5%. You can get in for 50k leveraged, try it out for a few months and then scale. The MF market is also pretty hot here in Austin and 800k won't buy you anything that cashflows. Good luck!
Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
5y
@Paul Berard in your post you said you're in Miami. Why not buy there or within an hour or so of there? I always recommend people buy where they live first. I've done really well in Austin but I also live here and know everything about the area because of it.
Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
5y
@Paul Berard I agree with @Jordan Moorhead. When you are just starting out, there is so much you don't yet know about owning an investment property. Have you walked the neighborhood? Can you personally identify if it is B or C class? Do you know how to identify issues without a home inspector telling you? What do the neighbors look like? These things take time to get good at and if you purchase closer to home you can spend time learning them on your first deal. Once you've got a few deals under your belt, you will know a thousand times more than you know now and you can take that knowledge to any market and replicate it.
