First deal with 150-250k
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Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votesOriginally posted by @Ken Badziak:
I love leverage. If you can find a turn-key provider that will work with conventional loans, then great! They do exist, but most of them want cash.
That being said, even if you paid cash, you'd still be using leverage... When you refinance and pull equity out a year later.
I'm sorry Ken, but I have to comment here before Travis gets sent down a long path to frustration and confusion before he gets started. I have no idea where this notion that a majority of Turnkey companies will require all cash??? I know a majority of the best companies in this business and every one of them worked their backsides off to provide properties that will qualify for financing. Most have contact information for multiple different lenders that specialize in working with non-owner -occupied properties.
When lenders refuse to finance a purchase, it is because there is a high risk in financing that property. Why will they not finance $50,000 properties? Because the default rate of homes financed at those levels is too high. It is not worth the risk and the time spent on the file.
The same goes for refinancing that property. Banks that will not finance a purchase are not going to be rushing through the door to refinance them either.These price points you are talking about, three properties purchased free and clear for $150,000 and Turnkey for that matter is a disaster waiting to happen. $50,000 all in would include all closing costs incurred by the buyer and ignores that he would need to keep reserves off to the side, which at this price point should be a minimum of $10,000 per property.
That leaves him for $40,000 to buy the property, including closing costs from a Turnkey vendor. What will the buyer get...absolute junk! It has been shown over and over again that a Turnkey provider cannot purchase a property, fully renovate that property to a level eliminating most deferred maintenance and make a profit that allows them to make money, cover overhead (team, systems, physical location, property management) all for $40,000. It CANNOT be done at a level that an out-of-area investor should absolutely expect.
It looks great. It sounds great and the people selling low-cost, cheap junkers love to tell the story about how easy it is...but it is not and this is where investors get seriously hurt. This is where investors lose thousands and thousands of dollars and that is if they are lucky enough to be able to get any of their money back out.
@Travis M. gave you the best advice on here and that is to get your money working for you now. Earn a nice return on your money while you learn exactly where you want to invest and what you want to invest in.
You will be able to find opportunity in the single-family market and the multi-family market if and when you choose to physically own property. I would figure out what I don't know first, learn the best way to build your passive portoflio second and then decide the route you want to take.
Do not let your money burn a hole in your pocket and please do not waste it chasing high returns on risky investments. Right now it is more important for you to earn a smart return on your money. Much more important than buying assets if that is not the smart return.
42 Replies
- Investor · Fairfield-New Haven-Hartford County, CT · Member since 2013 · 825 posts · 413 votes10y
@Travis M. good for you for saving up money! I think it's the best way way to invest:
1) There is no right or wrong answer to this question, it depends what your appetite is? Do you plan to invest locally, or far away? Do you want to self manage or have a third party PM company manage it for you? Will you be partnering with anyone else on your deal(s), or will you go in solo (this will help determine how much you can leverage and what your buying power is)? After answering these questions you should get a better idea of what would work best for you.
2) You should definitely begin your search now and start analyzing deals asap. However , if you don't buy your first deal until a year from now that may not be the worst thing - because a lot of markets seem rather frothy now and waiting may not be terrible. But don't wait to start speaking to brokers and analyzing deal because the worst that will happen is that you will learn the markets, understand what makes a good deal, and learn more about what you want to invest in. The best case is that you may just find the perfect deal today!
3) FHA is not my specialty, so I will defer this to someone else.
- Miami Lakes, FL · Member since 2015 · 133 posts · 83 votes10yI would recommend you listen to Clayton Morris's podcast. He lives in Joisey, but refuses to invest there because, like Miami, it's absurdly expensive. Do some research on turn-key investing out of state, or just straight up long distance investing in markets not in New Jersey. I'm down in Miami and came to the same conclusion; its very difficult to find returns down here that even come close to anything up in Cleveland, which is where I'm buying my first duplex. 25% down on a $94k duplex bringing in over $1500 a month. My cash-on-cash return is north of 20%. Good luck finding that in New Jersey! But if I had $150k ready to go I'd look heavily into the turn-key model. You could buy three houses outright, wait a year, refinance some equity out then buy two or three more. Brie Schmidt (also here on BP) has a podcast called TurnKey Reviews. She interviews various investors who took the turn-key approach. You can learn a few good things there. https://itunes.apple.com/us/podcast/investing-in-real-estate-clayton/id1115024566?mt=2 https://itunes.apple.com/us/podcast/turnkey-investing-podcast/id1034671774?mt=2
- Miami Lakes, FL · Member since 2015 · 133 posts · 83 votes10yI love leverage. If you can find a turn-key provider that will work with conventional loans, then great! They do exist, but most of them want cash. That being said, even if you paid cash, you'd still be using leverage... When you refinance and pull equity out a year later. It's kinda like the BRRRR method, minus the Rehab part. Where in Chicago are you looking? The city itself is wonderful (except in the wintertime, which only lasts from October to oh about May or so!) but it's not very landlord friendly. I know plenty of very successful investors in the city with local rentals, but tend to all have the same complaints; high taxes, tenant-friendly laws, etc etc. (I was born and raised in Chicago, and have family still there.) But just outside Chicago, especially NW Indiana and areas like Dalton and Blue Island, seem very promising indeed...
- Howell, NJ · Member since 2015 · 37 posts · 6 votes10y
I was actually thinking about looking at a 4 unit multi family downtown as close to desirable tourist destinations as possible, and then renting out 3 of the units on airbnb while living in the 4th.
Wanted to use the FHA loan to do so, which would give me 750- 1M property range to look for, do not mind fixing something up to get some instant equity or just to make it an easier rent
- Miami Lakes, FL · Member since 2015 · 133 posts · 83 votes10yIf you're looking in the Chicago area I'd definitely reach out to Brie Schmidt here on BP. She does a LOT of investing up on the North Side. Good luck! Definitely do your homework before pulling the trigger!
- Miami Lakes, FL · Member since 2015 · 133 posts · 83 votes10yBut I think you'll find the prices will be out of your range for what you're looking for. $1m just doesn't go that far in Chicago, ESPECIALLY in the downtown area. My sister lives in Logan Square, one of the hottest neighborhoods now. (It was almost a war zone when they bought 7 years ago!) the duplex across the street from her sold for around $800k... as a tear down.
- Rental Property Investor · Indianapolis, IN · Member since 2016 · 200 posts · 87 votes10y
250k goes a long ways in indianapolis. Without leverage you could easily get 4-6 properties in decent areas. That was about my working capital when I started fix and flipping a few months ago and I have bought 6 properties with that much here.
- Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes10y
Originally posted by @Travis M.:
tough to invest in my first deal so far way from my primary residence though, I am hesitant to make that first step without complete control and ability to personally manage and monitor the property
Perhaps a publically traded REIT is an option. You might average 10% annually with dividends and equity growth. Some are in very profitable and growing RE niches. Like OHI if one had 100k back in 2006 that is now 490k. It is boring and not sexy but still a more sophisticated investment than a couple midwest rentals could be normally. It might be a smarter fit for someone who is not able to tend to property management personally. Good luck!
- Miami Lakes, FL · Member since 2015 · 133 posts · 83 votes10y"tough to invest in my first deal so far way from my primary residence though, I am hesitant to make that first step without complete control and ability to personally manage and monitor the property" Travis M, I used to think the same way. But you gotta just trust the system. WHEN you find a good reputable turn key provider and property manager (and there are a lot of them out there) it's actually pretty easy, in fact way easier than "doing it yourself", because you're taking all the emotion out of it. Do yourself a favor. Start listening to Clayton's podcasts, and Brie's podcasts. You'll hear plenty of interviews with investors just like yourself, who either live out of the country or live in areas where local investing just doesn't make sense. If I was in your shoes, with a year left before you return to America, I'd take $200k of your $250k and buy 4 turn-key properties in either Indianapolis, Dayton, Toledo, Detroit. All of which are within reasonable driving distance to Chicago if you REALLY get the itch to "check out the property". Start collecting the cash flow, get that clock working for you; many banks won't consider rental income as actual income until you've been a landlord for two years. So you'll knock out 1/2 of that by the time you come back to the land of the free. Then, once you're ready to buy something in Chicago, pull some equity out of your cash-flowing properties and use it as a down payment. In the meanwhile, learn as much as you can about the Chicago market; your idea is solid, but $1m just won't buy you much in the way of a 4plex (four flat in Chicagoese). Maybe even rent for a year to really know the city. In many neighborhoods the boat has already sailed, but you'll still find deals, but you have to go to areas like Avalon, Jefferson Park (if up on the north side, anyways). Lincoln Square is an amazing neighborhood, and has good Air BnB rentals, but it's kinda hard to get to for the tourist crowd... Anyways, that's it. Nothing to fear with long distance investing. I live in Miami but am investing now in Cleveland, with my eyes also set on other markets. Will I own in South Florida? Maybe, if a stupid good deal drops in my lap, sure. But by and large, the numbers just don't make sense. I think you'll find the same holds true for Chicago.
- Howell, NJ · Member since 2015 · 37 posts · 6 votes10y
solid advice Ill take it to heart, that first deal is so tough, specially after working so hard to have the cash ready for it. There needs to be a service where someone tells you here buy this, I would pay good money for it, just to get the first one out of the way
- Investor · Bushnell, FL · Member since 2016 · 456 posts · 224 votes10y
did someone say invest in Detroit ? I'm sorry but if your talking the suburbs then ok I might be able to get on bread with that, like Royal Oak, or Berkley, Birmingham but anything downtown is really, really risky . It's not a secret that Detroit is and has been declining over the years .. Your better bet would be Grand Rapids area. Still only a couple hr drive to Chicago and has the best growth right now in then any other city in Mi right now. Voted one of the best places to invest. That being said it all depends on your goals. In my humble opinion, a newbie investor should only invest in a area that he knows first hand and one gat he is near so they can have more hands on. Or like suggested invest in a reit. My sister has a hundred grand invested in one and sees a average of 14% return on a year long commitment. Her and her husband has been with them fit about 12 years now and consistently sees that return or higher. They just reinvest their 100k each year. As the matter of fact my parents invest in the same one, also with 100k increments. So if your looking to be free of your commitments in a year, that may be a better option for you at this time. Im sorry that I don't have permission to give out their investment contact info. You will have to find one on your own. But they are out there. Just make sure you do your due diligence . I wish you the best and God Speed.
- 10yEngelo RumoraBusiness MemberInvestor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
Originally posted by @Ken Badziak:
"tough to invest in my first deal so far way from my primary residence though, I am hesitant to make that first step without complete control and ability to personally manage and monitor the property"
Travis M I used to think the same way. But you gotta just trust the system. WHEN you find a good reputable turn key provider and property manager (and there are a lot of them out there) it's actually pretty easy, in fact way easier than "doing it yourself", because you're taking all the emotion out of it.
Do yourself a favor. Start listening to Clayton's podcasts, and Brie's podcasts. You'll hear plenty of interviews with investors just like yourself, who either live out of the country or live in areas where local investing just doesn't make sense.
If I was in your shoes, with a year left before you return to America, I'd take $200k of your $250k and buy 4 turn-key properties in either Indianapolis, Dayton, Toledo, Detroit. All of which are within reasonable driving distance to Chicago if you REALLY get the itch to "check out the property".
Start collecting the cash flow, get that clock working for you; many banks won't consider rental income as actual income until you've been a landlord for two years. So you'll knock out 1/2 of that by the time you come back to the land of the free.
Then, once you're ready to buy something in Chicago, pull some equity out of your cash-flowing properties and use it as a down payment.
In the meanwhile, learn as much as you can about the Chicago market; your idea is solid, but $1m just won't buy you much in the way of a 4plex (four flat in Chicagoese). Maybe even rent for a year to really know the city. In many neighborhoods the boat has already sailed, but you'll still find deals, but you have to go to areas like Avalon, Jefferson Park (if up on the north side, anyways). Lincoln Square is an amazing neighborhood, and has good Air BnB rentals, but it's kinda hard to get to for the tourist crowd...
Anyways, that's it. Nothing to fear with long distance investing. I live in Miami but am investing now in Cleveland, with my eyes also set on other markets.
Will I own in South Florida? Maybe, if a stupid good deal drops in my lap, sure. But by and large, the numbers just don't make sense.
I think you'll find the same holds true for Chicago.
I 100% agree with these markets - Indianapolis, Dayton, Toledo, Detroit
Very high cashflow and many micro markets offering that cashflow in solid B class areas.
We have done hundred of deals between Toledo and Dayton and still feel like kids in a candy store.
Much success
- Investor · Orlando, FL · Member since 2016 · 1k+ posts · 780 votes10y
I am working with a company to wholesale alot of their properties. The properties are all in the central Florida area. They range from SFR, Duplexes, Triplexes, Quads and small multifamily.
They also do everything else an investor could need. I just sold one of their properties to a Canadinan investor and they are handling all the title work, once closed all the rehab and later marketing the property at retail prices. If you want to hold the property they also do management. They can also do all the maintenance on any property. A real turn key system for out of state or country investors.
- Investor · Bushnell, FL · Member since 2016 · 456 posts · 224 votes10y
Stephen,
I would like to be on your buyers list, I'm always interested in the central Florida area. Thank you . Shortmichael at ymail .com
- 10yGordon CuffePro MemberInvestor · Roseville, CA · Member since 2009 · 1k+ posts · 583 votes
If you purchase a property using a FHA loan it will need to be a owner occupied property. If you do not have cash ,you might want to get pre approved for a loan first to see how much of a property you can buy. If you want to buy a 4 plex using FHA financing many lenders require that you have landlord experience in order to count the rental income in calculating your entire overall income for qualifying purposes. You received alot of advice on where to purchase assuming you were paying cash. If your not paying with all cash you might need to be more specific on your advice. The best way to learn about real estate investing is by purchasing an real estate investment. good luck
- Investor · Bushnell, FL · Member since 2016 · 456 posts · 224 votes10y
Travis,
I can call my sister and see if she can get permission to relinquish the contact info. But, just to be clear I'm not making a dime and don't want to be held responsible for any decisions someone might make by me posting the investment contact. Due diligence is always recommended. I myself don't have money in that particular investment yet! But I would if I had 100k laying around and didn't have plans for it for at least a year. There are heavy penalties if withdraw before the time stated on investment contract. If your interested let me know and I'll call her.
- Miami Lakes, FL · Member since 2015 · 133 posts · 83 votes10yEngelo Rumora , I'm gonna have to give you a call!
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