Would like advice on strategy

22 Replies

Hello!

I'm a 30 year old newbie investor looking to make a go of it as an REI. I'm stuck with a little analysis paralysis and I was hoping to get some feedback through the bigger pockets community.

Current situation:

-Full time employed as an Electrical engineer making six figures currently

-primary residence is on a 15yr note @2.65%. Owe $180,000 and home is worth about $260,000

-Have $50,000 liquid cash to begin investing in real estate

Goals (lofty I know):

-Retire from day job by age 50

-own home in San Antonio (primary residence), own home in Port Aransas, TX ( beach home), and own home in Winter Park, CO (mountain home). Wife and I would like to live in each home throughout different parts of the year.

-have enough rental income to live off of in retirement

I have done a lot of reading and research but I seem to be just tying myself up in knots as to which direction to go. I'm leaning towards multi family rentals but I figured I would reach out to more experienced investors on the site to get some ideas on strategies for starting out in my position. Thanks in advance,

Matt

@Matt M.

With 50k to play with I believe you can definitely reach your goals. I started out wholesaling since I didn't have as much cash to play with and I had an assumption that if I learned how to find great deals then eventually when I have the capital I can capitalize for myself as well as wholesaling. I still am happy with this route. You have more flexibility so I will let some buy and hold investors give you some advice on different strategies.

Matt, you will surely get a ton of advice from a ton of experienced investors. That may or may not add to your paralysis since you may get pulled in different directions. As you may have heard, invest in what suits your personality. 

I have a similar background as you. CompE degree working full time in possession of cash looking to retire much earlier than the rest of America. I have experience in REI but am no where close to an expert. I'm about a year in. But what I've found to suit my personality and situation is buy and hold SFR. So far the expenses have been minimal and the tenants have been low maintenance. So for me it's been more hands off and more along the lines of being passive. Maybe I just got lucky so far. Maybe I ran the numbers good and chose great tenants. Either way, I'm hooked. I'm now looking for a third property.

There must be some niche that stands out to you. Start by scouring the MLS, run some numbers on paper, drive by properties, talk with realtors, run more numbers, and make offers. The confidence and knowledge will come.

Good luck. 

thanks guys. I guess my biggest issue up to this point is the analysis of the deal. I have been using the MLS but I get this feeling that if it's on the MLS still it's probably not a good deal or else other investors would have snatched it already. Has anyone had experience with buying from wholesalers for long term buy and holds? Seems like it could be a good way of "partnering" with someone who might have better skills in findings deals.

My advice is: 1)choose a market/markets that work for you. (Cap rates, location, weather, economy, ect) 2)research what the best options are for that market (ex SFH vs Multi Family, C vs B class, ect) * multi units not recommended for beginners 3) establish your team. Lenders, insurance, agents, turnkey, property management ect. 4) start slow and educate your self every step of the way. Lots of help here on BP for that.

@Matt M.

 use the 50k as down payments on a bunch of high quality rentals. save the cash flow and over time use it as down payments on the next one. Also, read Mrmoneymustache.com and lots of BP. Good luck!

Mark,

Ok this is where I would need some more education, you said "use the 50k as down payments on a bunch of high quality rentals". Seems like all investment loans I know about want 20-25% down so are you saying look for a bunch of extremely cheap properties?

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Your goal is achievable, it comes down to how hard you want to work to get there.

20 years until your 50

Purchase and finance 1 house a year (your income should allow this considering your salary, cash flow your will be making, and equity that you will be gaining from rentals).

$300 cash flow per home x 20 homes = $60,000 / year total cash flow.  

Hypothetically, lets say your purchased 20 homes worth 100k and used 20% financing on all of them.  Your equity gain on each home will be $222 per month.  So your net worth will be increasing per month by 222.  222 x 12 x 20 = $53,280 (in equity)

Your total net worth increase once 50 = $113,280

One your primary home is paid off, use that equity to use as down-payments on your dream homes.  Buy them as rentals and rent them out for the times that your not there.

Matt M. Find a few Mentors and take notes! Local investors in the area of interest love to help newbies out and talk shop. Then you buy them dinner :) Also read BP forums and Podcasts every night. No joke! If you don't enjoy these readings and podcast regularly then perhaps real estate investing is not for you. It takes commitment and passion to make it in this game. Some got it and some don't! At least that's what I think from my 8 months in as a real estate investor.

Im down the road in Austin and started about 1 yr ago.  My goal is to retire in 10 yrs.

Bought 6 duplexes, 1 condo.  I project my Free cash Flow to be about $50k this yr.  

I will then use the 50K to down on another SFH/duplex next yr. I hope to have these homes generate all future buys. So in about 5 yrs, i should have about 100k free cash flow.

Then i will go to 2 homes a year.  

Hopefully in 10 yrs I will have about 20 Rentals.  

I hope in the next 3 yrs when my duplex value goes up ( I think the value has gone up atleast 50K already), I could sell one duplex.  take the equity (about 120K), and buy 2 more homes with it via a 1031.

Initially its slow, but soon start to snowball.

Originally posted by @Matt M. :

thanks guys. I guess my biggest issue up to this point is the analysis of the deal. I have been using the MLS but I get this feeling that if it's on the MLS still it's probably not a good deal or else other investors would have snatched it already. Has anyone had experience with buying from wholesalers for long term buy and holds? Seems like it could be a good way of "partnering" with someone who might have better skills in findings deals.

You could still find some deals on the MLS. It depends on where you live. It's a good place to start. By running the numbers yourself in order to find out the quality of the deal, you gain REI 101 experience. Sure everyone wants to find that grand slam deal but it's all what you put into the acquisition. Good-enough deals are out there that fit within the 1.5% rule (my augmented 2% Rule criteria) and still cash flow great. And if you have a scalable business model, think about your first deal x10, then x20.

As for relying on wholesalers, you would have to be skeptical of the wholesaler and the deal. You would still have to vet the deal through some sort of analysis. 

Someone mentioned it before, network locally and talk other investors. Either way, keep reading, start doing and you'll gain more and more confidence/knowledge. 

OR if you really didn't care to get into the nitty gritty of REI, use a turnkey company. You could find out from investors here what turnkey companies provide solid service and true numbers.

I would start with using one of your current properties as an investment property.  The simplest might be to rent one of your vacation homes for the prime season.  You get more on a weekly basis, but you should have fewer hassles if you only have one tenant.

While some investors get a tax benefit from having a paper loss - I would be a little more picky.  If you aren't phasing the passive loss deduction you are probably close.  Depreciation will allow you to tax defer some of your cash flow.

Do you own your vacation homes outright?

You might consider renting out your primary home and finding a home that could be used as a rental.  If the rental numbers make sense you should be able to get owner-occupied financing on a similar priced property.  I would only worry about living in the place for a year and then move on if you want to acquire another property.  It looks like your income should support 450K to 600K+ of mortgages without applying rental income, so you should be able to get 4 mortgages on high quality properties.

sorry to say, the screaming deals are gone...and they didn't necessarily look like screaming deals at the time. The MLS is the only marketplace unless you get out there and find your own deal. You have to run your own numbers, estimate inflation and all the other variables and come up with something you are comfortable with. It sounds like you want to trade RE investing for EE...but both require effort. RE is only mailbox money with property management and only generates a lot of money if it is held free and clear or you own a bunch (which neans more hands on if only to watch your pm company).

Have you thought about what areas of your EE field you could consult in?  Working remotely from your beach or mountain homes?  You can also retire early by cutting your standard of living...maybe the next house you buy can be your retirement home...1600 sq ft in a nice but cheap area on a 15 year note...and sell your primary to live off of and supplement with consulting.  (You could buy some modest homes outright when you sell your primary or use the proceeds to buy/payoff a couple of small homes purchased now).  I think small homes with good schools, not a lot of apartments or duplexes close by, near employment, but maybe not airforce base, ...in a desirable enough area that most homes are owner occupied will hold value.  I like big lots, but there are pros and cons.

Also, banks seem to like only like 5 regular mortgages.  Then you are a business portfolio account.  They want more liquidity, etc.

@matt 50k wouldn't stretch on a ton of deals. Some lenders will loan on 15% down. You also need to be aware of the market you are buying in. Sub 40k rehabbed houses can get pretty dicey in Milwaukee but 60k will get you a solid place in a good neighborhood. Other markets 60 is also far too low end.

@Matt M.

 20 years is a long time. You do not need steals to retire in 20 years. Just buy some decent 2-4 unit MFs in SA and you should get there. You do not need to cashflow much today. 

If you are not seeing deals on the MLS then you can make your own deals if you want to. I would say the best way to do that in SA is to rehab. There are lots of distressed houses on the MLS and maybe even some distressed sellers. However, it seems like this is not really necessary if you are looking at a 20 year timeframe.

Is there a duplex(or 3 to 4 unit property) that you could buy with conventional financing and live in one unit? It may not have the appreciation potential of a SFH, but cash flow should be easier. That can really get you started even faster, since it lowers your housing cost and increases your amount of rental units.

@Jesse T,

That would be my preference but the wife loves her current house. I do think buying a multi family with conventional financing will be our first purchase.

Hey Matt-

You sounds like us 3 years ago.  Similar debt, similar salary, and we wanted my husband out of his engineering job by 50 as well.  

We purchased 2 triplexes in 2013 ($60k in down payments and closing costs) with the plan to reinvest the profit plus anything else we could scrape together and keep buying rentals.  We just closed on our 3rd rental (a quad that grosses as much as the first 2) and are planning to buy another 1-2 properties shortly and 1-2 properties every year for the next few years.  At this rate, the rentals will be bringing in more than my husband's job in 2-3 years, he will be 40 or 41!

I am a stay at home mom and I manage the properties- I handle the tenants, lawn care, minor repairs.  Bigger items we work together on, there is not much my husband can't do, but occasionally I have to hire a contractor (heating or electrical) to handle repairs due to his day job.  Once he quits, we will likely get into flipping houses and rehabbing our own apartments when they are vacant as well.  

So good luck to you, your goal is entirely possible in my opinion, and you will find Bigger Pockets a great resource!

Kelly

A 2 or 3 unit property in the 150K range, would probably be an ideal starter property.  That should leave some reserves after the down-payment.  You will probably have to supplement your cash flows with personal savings to build up properties to reach your goal in 20 years.

Hey Matt M,

I live in North Carolina. I became a full time real estate investor this year.

I am strictly a real estate wholesaler at this time, because I love the thought of creating income out of thin air!!!!

I have read your post and nearly all of the replies thus far; and all of the folks have given you good information to consider. However, with real estate you have to decide what is best for you based on your OVERALL CURRENT SITUATION. I also developed analysis paralysis, while reading books, attending webinars, emailing, and talking to folks.

Dear Matt, with your income, and available funds to begin investing, my suggestions are as follows:

#1 Join your local rei association. (Here, you will network with like-minded individuals that have different levels of knowledge. You will also, find cash buyers who can guide you towards areas to target for investing purposes).

#2 Create real estate investing business cards. (Make them memorable......by choosing a good, but short, simple message........bold yellow color- at least on one side........great "feel" choice; then, send some to local probate attorneys....... reo, foreclosure, and/or distressed asset management officer of local banks.......pre-foreclosure homeowners (which your county may have a publication of, if not call throughout local courthouse until you find the right office for a list of them-a subscription may be available for a couple hundred dollars/year). This is enough different sources for now to "take off" at warp speed!

#3 Create a free account with Zoho or another (crm). (Use this for information management). I started out with blank index cards hahahaha!

#4 Keep TRACK OF EACH CALL MADE AND DATE OF EACH MAILING TO LOCAL PROFESSIONALS. Follow-up each week or two- You goal is to make them know your name and what you do. (You are a real estate investor in your city, state)!

#5 Use Zillow, Forsalebyowner.com, and other by owner sites to call property owners in your target areas. Record property basics, asking price, and will they take just what they owe on property. (Learn how to find fair market value either online or your chosen realtor!) 

#6 Always multiply your fair market value by either .65, .70, or .80 to get a reasonable deal for yourself or to pass along to another real estate investor!!!!

#7 After number six, make your offer!!!!!!!!!!

#8 Repeat process, repeat process by contacting new people as you expand speed, knowledge, and CONFIDENCE!!!!!!!!!!!!

Anthony

[email protected]

Matt,

I am also starting out, and have been reading bigger pockets for over a year, getting ready for my first move. Agree with everything said here,the only suggestion I would add is to build your real estate actions around a plan. 

For example, if you want to retire at 50, how much cash flow and/or savings do you need to achieve this? If you want to cover living expenses plus account for additional play money starting at age 50, figure out what this means as a monthly expense, and build a REI plan which gets you at least that amount free cash flow. Or, if you don't want to rely solely on buy/hold income, factor in a few flips or wholesales per year.. For example.

Im building is plan for myself, and it's helping me make decisions about what type of investing I am more interested in purely by doing the analysis, but it also is making myself accountable to specific actions over time that I can measure myself to. 

I've also found that writing down my goals on paper on a regular basis help to solidify the above plan and keep me motivated.

Hope this helps

Erik

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