NEWBIE FEELING MAJOR PARALYSIS

19 Replies

Hey guys, I have been watching the BP youtube videos and have been totally inspired to invest in rental property. I am a physician in Southern California with about 400k in educational loans to repay although I have some capital to invest. I can't afford the real estate in my area and have been more interested in long distance real estate. The first step is to choose a location and I'm having a lot of trouble with that. I'm not sure if it's analysis paralysis or I'm just being indecisive. I'm thinking I want my first investment property to be relatively close to California (i.e Arizona, Nevada, maybe even Texas) but I also want my first property to be a 3Bed2bath, less than 200k, and in a state that is land-lord friendly. On the other hand, I keep reading that the midwest is good for renal property investing so I'm just not sure. I'm hoping that someone can help with some direction (i.e. potential cities to look into) or advice. Would be much appreciated.

@Kais Rona Taking action is going to be the best advice I can offer. The first deal more than likely is not going to be a homerun of a deal, but what you will learn will set you up for the next deal and all other future deals. 

Your first step should not be to choose a location to invest in. It should be to figure out your why in investing. What goals do you need to accomplish your why? Are you in it for cash flow or appreciation?  Do you need immediate cash flow or can it wait? What is your appetite for rehab?

Answer these questions first and then this will start to guide you in where you should invest.

Best of luck!

What is your investment goal? Buy and hold for short or long-term rental, flip, create notes, etc? 

And I think it's wise to take your time on your first investment. Even some highly educated people make huge mistakes and lose tens of thousands of dollars on their first investment because they follow the "just jump into it" philosophy. At this point, you don't know what you don't know and jumping in with both feet would be a major mistake. Also, in this industry, believe none of what you hear and only half of what you believe as there are more actors in this industry than there is in Hollywood. Understanding how to conduct due diligence on people and properties will serve you well. 

So, think about what your investing goal is and then spend your time researching that thoroughly. If you're wanting to buy and hold as a rental, what is your desired cash flow minimum? Will you pay cash or do an institutional loan? Do you know how thoroughly vet a property management company? Personally managing a long distance rental seldom works. And attempting to flip long-distance is even more difficult. 

There are many questions that you need to consider before jumping into the game. You will be in a better position if you have a clearer picture (and on paper) what investing goals and strategies are most suitable for you. 

Promotion
Ashcroft Capital
A national multifamily investment firm
Three Reasons Investors May Prefer Real Estate
Read three reasons why investing in real estate private placements may provide several advantages.
Read More Here

@Kais Rona

Hey id like to encourage you that it’s not just analysis paralysis but wisdom to be patient. I’m guessing you are relatively young if your student loan is still that high. You’ve got time! Now, having said that, I’m a fan of my area for OOS investors, being NE Oklahoma and specifically the Tulsa area. I work with a lot of people from California and other states. There are other good markets like ours to consider in the Midwest and no matter where you land I would just suggest adding to the analysis certain metrics that go beyond if it’s affordable for you or not. Things such as the “1% rule” which you can research… and in some cases in my market you can even outperform.

Again, doing a lot of analysis won’t mean you are forever in paralysis. It will mean that you have made an intelligent and informed decision, one that you do not regret.

We think the Midwest is a GREAT place to invest! 

YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cityes & neighborhoods: https://www.biggerpockets.com/...

Your biggest question shouldn't be WHERE to invest, but HOW you will invest!

Do you really have the time to be a DIY landlord or should you hire a PMC?

Here's some other things to SERIOUSLY keep in mind:)

Many OOS investors set themselves up for failure because they don't truly take the time to understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That OOS property Class rankings are usually vastly different than the local market they live in.

7) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

8) Class A is relatively easy to manage, can even be DIY remote managed from another state.

9) Class B usually also okay, but needs more attention from owner and/or PMC

10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage.

11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Indiana is a great midwest, landlord friendly state! You could easily get a 3/2 for under 200k or even a nice duplex if you don't want any repairs for under 200k! Best thing is to jump in feet first! It's scary and you might genuinely fail, but really the worst that could happen is you have a bad tenant or unexpected repairs. You sound like a very smart person though so I imagine you're going to do just fine and take all the necessary steps to avoid those kind of mistakes! Just make sure you network with plenty of realtors and property managers in the area you choose so you meet the best people and make the best decision!

Originally posted by @Kais Rona :

Hey guys, I have been watching the BP youtube videos and have been totally inspired to invest in rental property. I am a physician in Southern California with about 400k in educational loans to repay although I have some capital to invest. I can't afford the real estate in my area and have been more interested in long distance real estate. The first step is to choose a location and I'm having a lot of trouble with that. I'm not sure if it's analysis paralysis or I'm just being indecisive. I'm thinking I want my first investment property to be relatively close to California (i.e Arizona, Nevada, maybe even Texas) but I also want my first property to be a 3Bed2bath, less than 200k, and in a state that is land-lord friendly. On the other hand, I keep reading that the midwest is good for renal property investing so I'm just not sure. I'm hoping that someone can help with some direction (i.e. potential cities to look into) or advice. Would be much appreciated.

Kais, the best first action you can take, is interview a few realtors in a few market areas where you are considering investing. Ask a lot of questions. A seasoned realtor is going to have great local advice for you on next steps. The more I help first time buyers and seasoned investors to purchase real estate, the more it's reinforced- buying property is not complicated, unless we make it so.

Find an area you decide to focus on with a realtor you can trust, get qualified with a lender/mortgage broker- with financing that helps you support your investment strategy goals, dial down on the best investment properties that achieve your investment goals, make some offers and buy a property. Make adjustments to the property to maximize the outcome you want- and rent or sell it. Repeat and build your portfolio and financial independence.

I'm excited for you and wish you the best. I know it's easier said than done- but get started- 1 step at a time.

Kais - This is a completely normal feeling and one that I have recently experienced myself. I started by writing down one action per day that I could complete that would get me towards my goal. I spent months calling different realtors, investors, and brokers in different cities that I had an interest in, and eventually went with a market where I really connected with my agent. When investing out of state, I found that a lot of markets had the numbers I was looking for, but I didn't have that connection with the agents there.

There will be a lot of fear to take the first leap, but it's totally worth it after you do! Most people don't invest in real estate because they can't overcome the fear of jumping in and just doing it. With that said, I personally tackled all my major debt first before I felt comfortable investing, but everyone is different so do what you are comfortable with and makes sense for you.

Hope that helps you. Best of luck!

Kais, taking action is a good thing, but it depends upon "what" action you take first! Buying a property long distance without doing proper due diligence and not having a team or boots on the ground, is a recipe for disaster. Like others mentioned, figure out your business plan. Is cash flow most important to you or is it appreciation or both? You mentioned a price point and some other specifics, which is good. You'll need to run the numbers. The numbers are absolutely critical. Also many new investors allow their feelings to get into the way of their investing. That can be a huge mistake. It's business and should be kept as such. We work the Midwest market and yes, you can easily get a duplex for $200k. I would suggest that you only look at properties that will bring you at least an 8% cash on cash return or higher. Some people call it cap rate or "other" names. But basically it all comes out the same in the wash. 

A realtor is a good start but you also need a solid contractor and/or handyman crew and a very solid property management company. What if the property is a good deal but needs rehab work? Someone reliable has to do that work. I would strongly suggest you find a realtor that works mainly with investors. Relying on a realtor to find you a property listed on the MLS is not the way to invest in today's market. Prices are way up and deals are very scarce. Trying to find an investment property on the MLS, that's listed well below "list" (ARV) price, is almost impossible right now. But a realtor that works with investors, might have off market properties available through their investors network at a good price. Off market deals right now is the way to go. But building a solid team is what's critical to your success. I hope this helps you. Best of luck.

@AJ H. Thank you for your response. My goal is to create cash flow through long-term investments. I do not want to be dependent on my practice as a physician and would like to create some passive income. I am really interested in BRRRRing the future but at this point I just want to purchase a rental property with positive cash flow (at least $200/month) that will not require too much rehab. 

@Guy Gimenez   I am looking for long-term rental property to build passive income. I understand and don't expect to score big on my first investment but I also don't want to make a bad decision and allow that to deter me from pursuing investment real estate further. At this point I'm learning how to analyze properties using 1% rule, neighborhood grading, etc. I'm not a very risky person in general but just afraid I might stay in the analysis phase for way too long. I appreciate the advice!

@Kais Rona

You're stuck because you're not ready.  You have a goal but that's not enough.  You're looking at process and a large geographical area to start and even setting a price point for the first investment.  And, with all that, I am so relieved that you're stuck.  Until you have a trusted resource who specializes in investor real estate, you should do nothing.  Several times a week I am contacted by "BP investors" who are seeking my help to undo a "deal" that is breaking their backs.  Many found that they actually bought from a wholesaler and that they were immediately underwater on valuation and more than a few found themselves being sued by tenants.  

Please give yourself credit for not plunging in...that old "old fools rush in."  You need expertise at this point - not general information, podcasts, or enthusiastic realtors.  Again, you need expertise.

Bottom line:  I'm proud of you.  Knowing when NOT to get in is even more important than full speed ahead.  Build some bench strength first...then you'll be ready to go.

Best,

Patricia

Promotion
Roofstock
Buy & sell single-family rentals online
Radically accessible real estate investing
Get access to exclusive property listings, proprietary data, and support to build your portfolio.
Learn More

@Kais Rona

The Midwest is great to invest in rental properties where you can find homes starting under $100k. I’d suggest to pick a market to invest in, find an investor friendly agent in that market who can then connect you with lenders, contractors, and property managers.

@Kais Rona , You have a lot of great resources and posts here on this thread. Overall, I think you're still in a good position moving forward. If you think that you're stuck in analysis paralysis, that means you still may not have everything you need moving forward, which I would recommend talking and meeting with a lot of other investors at meetup groups, REIA's, learn more here on BiggerPockets, etc.

Building up a team in the area you are thinking about investing in is crucial! Make sure you find good people or other investors in the area too that are heavily active in real estate and are doing a lot of business. By building connections in those areas you also tap into their teams, connections, contractors, vendors, experience, etc.

It sounds like you are in a great position with your work currently and would definitely recommend focusing on education, your business/profession, personal finances, learning and talking to people around you to find some like minded people!

@Kais Rona This thread helped me out a whole lot.  I posted about this very issue today.  As a newbie, I think we can get in our own way sometimes but it doesn't sound like thats the case with your situation.  I also have a hefty amount of law school student loans but as long as you are in a IDR, or similar, then you should be okay since you will have a consistent amount that you have to pay each month for your student loans.  Don't even think about paying off your loans before investing in RE because that will take a lifetime.  Find the right area, do lots of analysis reports, and put a good team together for yourself if you are investing long distance.

I set a goal for myself to analyze at least two properties a day.  The more you analyze, the better you will be at knowing which area or properties are best for you.  Once you have those in place, get your pre-approval, plan a trip to where you want to buy, meet with your team, and jump in!

Hi @Kais Rona . As someone starting my 3rd decade or real estate investing, who talks to hundreds of investors annually, I’d encourage you to carefully weigh your most limited resource: Time.  

I would calculate your projected dollars per hour in whatever type of real estate you plan to invest in. Factor in risk (like vacancy and repairs).  And compare that to what you’ll make at your job.  

You may discover that the # of $200 monthly increments to add up to a meaningful move of your income needle is daunting in a per hour calculation.  You may conclude there is a better way to get into real estate than buying single family rentals.  Or not!   Happy investing.