Fair Price Range for Beginner Investor on First Property

[Darrell Degrazia]

For a new investor like me, any thoughts on what is a fair price range to purchase my first property? Looking at homes in different parts of the state and mostly see anywhere from 200k-and up. Wondering what would be a good starting point?  Mahalo for any insight!

[Taylor Dasch]

Id say that the price range is less important and knowing your market is what you should focus on, do the homework on which of your markets are best to invest in for your goals. Then start finding deals, if you get a decent one you wont need much money at all! For me, my first actual investment property was 125k.

[Brett Deas]

My suggestion is to decide what you want out of the property first, that could be cash flow, appreciation, or tax benefits. My first property was about 300k below the avg price for the area but gave me exactly what I wanted. 

[Aj Parikh]

Hi Darrell, I have found value investing in Cleveland, OH because it is home to Cleveland Clinic, lot of good neighborhoods, landlord friendly laws, stable appreciation and good cash flowing properties. There are also abundant opportunities for small multi family and SFH. I have been able to scale up to 12 doors in 2 years so definitely recommend this area. Feel free to reach out and we can discuss

[Leo R.]

@Darrell Degrazia first, if you want to be a RE investor, I'd suggest not using the phrase "fair price". Why? Because "fair" is subjective, and the value of a property has nothing to do with whether a buyer or seller see the price as "fair". Moreover, a price might be viewed as "fair" by one buyer, and completely "un-fair" by another buyer, depending on their goals for the property, their priorities, how much money they have, etc., etc.  ...I've seen properties that other buyers thought were a total deal, but that I wouldn't touch with a ten foot pole for a variety of reasons...and on the flip side, I've jumped on properties that other buyers had zero interest in...

Your question seems to be asking what price you should aim for for your first property...obviously, this depends on a million different factors, such as: how much money do you have? how much loan do you qualify for? how much of a mortgage payment can you afford? what type of property is it? what type of market is it? what are your plans for the property? what are your investing goals? if you plan to rehab any of the property, what type of access do you have to GC's, tradespeople, and rehab funds? what is the forecast for rent and appreciation/depreciation in your market? etc., etc., etc.

In other words, it's not really possible to give you much of an answer to your question without knowing more information...

If you post the relevant details, then folks here will definitely help you out.  ...in addition to describing some of the details I mentioned above, I'd suggest posting a financial model of the type of property you're considering (including downpayment, rate, mortgage payment, rent income, and all other relevant income and expenses).

...if you're not yet sure about those details, then I'd suggest studying up on real estate--listen to BP podcasts, read articles, study the forums, watch YouTube videos, maybe even buy a book on the particular investing strategy you're interested in (since you're a beginner, I'd highly recommend reading up on house hacking).  Studying up will help give you a better sense of what you're trying to accomplish, which will make it easier for folks on the forums to answer your questions.

Good luck out there!

[Carlos Ptriawan]

Quote from @Darrell Degrazia:

For a new investor like me, any thoughts on what is a fair price range to purchase my first property? Looking at homes in different parts of the state and mostly see anywhere from 200k-and up. Wondering what would be a good starting point?  Mahalo for any insight!

 Mahalo. I think the key is you set your desired cap rate first. After that, you determine to buy a house within 10-15 percent standard deviation from the comparable median home. 

200k house today is like 125k in 2015 so that's about right. 

Be conservative with cash flow projection and appreciation as those number from 10 years ago are extremely meaningless for now.

[Eliott Elias]

Depends on what you can afford, you could buy a property for 50k and lose more than if you were to buy a property for 200k. More importantly you should buy a property you know is a good deal 

[Garrett Crosby]

It's 100% all about the deal. You can find an amazing deal for 900K - and you can find a terrible deal for 80K.The first priority is investing in yourself to be confident that the deal you secure is ACTUALLY a deal. :)

Personally, I started by investing out of state in North Carolina (specifically Fayetteville) and bought a few homes that were between 105K - 150K. It was less about price and more because of the $400+ each door provided in cash flow. 

Now I invest in LA and my hometown because I have the capital to do so - but nothing has changed in terms of finding great deals that make sense. That's the primary focus at all times. 

[Ruchit Patel]

It's less about the price point and more about having people you trust and knowledgeable for the first investment. Wherever you have those people, invest there in the deal they recommend. If you don't have those kinds of networks, better make that first, before deciding the price point of the deal! 

[Sam McCormack]

@Darrell Degrazia

I agree with others on here, I don't think price range is of concern as long as it is a good investment and you can afford it

[Mark H. Porter]

As you've seen, what you can afford depends on what you have in savings. If you have $50k and it's a 75% LTV you can afford a little less than $200k. If you have 30k then in the same scenario you could afford less than $120k. I say "less than" because you will have to cover closing costs.

As mentioned above, cap rate is an important factor when deciding between properties.  That’s all I use it for.  The higher the cap rate, though, traditionally you will face greater risk.

If I were you, and I was at one time, I would concentrate on pre-tax cash flow.  This is the extra money you have in your pocket at the end of the month to either enjoy with your family or spend on unexpected expenses.  It’s calculated by Operating Income minus Operating Expenses minus Debt Service minus a set-aside for Capital Expenses.

Good luck !