Equity Investment - SFH, is this a dumb Approach?

[Pavan K.]

New to RE investment and my Goal is Asset Appreciation.

Personal info : No debts , Emergency Funds in HYSA, paid off primary home valued at roughly 700K in today's market. Married and in  mid 40's

Came across a Single Family Residence in a developing community which is roughly at 600k$. I can put down 25% considering this will be a secondary home.

Reason for considering SFH - No prior RE experience, Tenant Class, Newer construction - no existing problems,newer townhomes are priced starting at 420k$'s ( higher HOA and still has a shared wall)

Looking at 4000$ max as monthly expense( mortgage+insurance+HOA+ Property Tax ).I say expense , assuming the residence is not occupied immediately (Vacancy) . I totally understand there won't be a positive cash flow ,infact Zero Cash flow which could last for months. If at all rented , expecting it to be 3000$ / month ,based on Zillow stats around the same size property/ location.

Pretty sure, this is not a best approach. But would you still recommend the approach? 

[John Morgan]

Quote from @Pavan K.:

Quote from @John Morgan:

@Rahul Tripati

Bad approach. Put 20% down on as many cash flowing SFR in C+ class hoods as you can find. Leverage your way to wealth. Put equity to use and create generational wealth. Trust me. You'll thank me in 10 years.

Thank You @John Morgan. I have changed my approach a bit like you said.

1. Tap into the Equity of my mortgage free home.Use HELOC to fund the downpayment .

2. Network to find a CPA who is good with Real estate investments and a Real estate Agent( considering my inexperience,untill I gain sufficient knowledge and confidence).

Im still paranoid about investing into c+ class hoods due to Tenant screening ,which I have no knowledge of.

May be I go with Class A neighborhood for this one SFR to be in a safe zone ,in the meantime ,gain knowledge/experience to know what it takes on how to exclude bad tenants

All the RE earnings are tax free including the cash out refis. It’s definitely not rocket science. I self manage my 25 SFR and do my taxes on turbo tax which is super easy. It walks you through everything. Class A properties probably won’t cash flow. And if you have a vacancy under 4 years, then you’re screwed. Turn arounds can easily cost you 5-10k without blinking. These types of tenants usually end up buying a home of their own so you’ll have to deal with turnovers every few years. Plus you’re out of rent for a couple months while you clean it up and get someone else in there. Working class hoods don’t have this problem as much. My tenants won’t ever be able to afford to buy a home or qualify. So they’ll be with me for many years/decades. So that saves me a ton. Plus the profits are way better on C class properties vs B and A class. Run the numbers and you’ll see. And when we have recessions every 8 years historically speaking, guess which tenants bump down to cheaper rentals when they take a pay cut? A and B rentals get hammered. C class rentals become more in demand and are able to raise rent during recessions. Talk to investors who were doing this in ‘08 and ‘09. A and B class rentals suffer  big time while C class landlords had waiting lists to get in. Just a couple things to think about. Good luck!