Realtor · Upland, CA · Member since 2016 · 13 posts · 7 votes
Hello BiggerPockets,
So I have saved my first 10k and I have been looking for a good market to invest in rentals (I currently live in Southern California), So far from my online research the Midwest area seems like the best place for me to invest. What should my first step be? All feedback is welcome.
Thanks in advance
Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
9y
@London Robinson $10k, even with a 20% down conventional loan will only get you a $40 something house (there will be closing costs) and frankly houses in that price range most lenders won't loan on. Further as an out of state investor buying individually in that range is asking for trouble - it isn't likely to be a happy investment. I have found a way to invest in a diversified portfolio of 10 houses at a time in the Midwest. It involves buying an interest in the portfolio with a minimum of $10k, and as an investor I co-own with the managers. I blogged about these very passive and low stress investments quite extensively
So I have saved my first 10k and I have been looking for a good market to invest in rentals (I currently live in Southern California), So far from my online research the Midwest area seems like the best place for me to invest. What should my first step be? All feedback is welcome.
Thanks in advance
Hello,
Congrats on getting to this step! Do you know what kind of investment you are looking to do in the Midwest? Are you looking for a flip, turnkey, buy and hold, or something else altogether?
I guess it all depends on your strategy and what your goal is!
Rental Property Investor · Chester, VA · Member since 2016 · 123 posts · 32 votes
9y
Ryan Dossey how did $10k cover a full downpayment if you don't mind me asking? Is that 20% down? Maybe it's just my market, but $10k down doesn't get much house in my area sadly.
Rental Property Investor · Potomac, MD · Member since 2016 · 115 posts · 64 votes
9y
@Ryan Dossey I hate to be a Debbie Downer, but I'll have to agree with
@David Sanford. Especially in Southern California, $10K isn't going to get you far. Perhaps if you LIVED in the Midwest, you could perhaps get something for $10K (5% down financing).
Perhaps you should try partnering with others ... bring them the deals and they'll reward you for it. You'll learn a lot and earn some cash to build towards your first solo deal.
I have not done this approach, but others here have, so I'll let them chime in.
Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
9y
@London Robinson $10k, even with a 20% down conventional loan will only get you a $40 something house (there will be closing costs) and frankly houses in that price range most lenders won't loan on. Further as an out of state investor buying individually in that range is asking for trouble - it isn't likely to be a happy investment. I have found a way to invest in a diversified portfolio of 10 houses at a time in the Midwest. It involves buying an interest in the portfolio with a minimum of $10k, and as an investor I co-own with the managers. I blogged about these very passive and low stress investments quite extensively
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
You might want to keep saving. I don't think you'll find anything in SoCal where $10K will get you started and if you want to look out of state you have to factor in travel costs in addition to the normal closing costs. Plane tickets, hotel rooms, etc. will eat away a (relatively) large percentage of that $10K that you've saved. Not to mention that assumes an out of state visit nets you a profit. You would end up easily spending $1,500 (or 15% of your nest egg) on a round trip flight, hotel room, car rental, etc. Not to be a downer, just food for thought.
Financial Advisor · Atlanta, GA · Member since 2016 · 256 posts · 350 votes
9y
@London Robinson, congratulations on beginning to build a nest egg! If you have only $10,000 liquid, slow down. Put it in a savings account as the beginning of an emergency fund. I know this is boring, but the standard advice to keep 3-6 months living expenses liquid is born out of a lot of pain from people that overextended themselves in real estate and other illiquid assets. If you already have an emergency fund and the $10,000 is your "risk on" money, then I'd just say be very careful buying real estate in areas you've never visited.
hi @London Robinson, that's great that you saved up 10k, I know in Cali wont take you that far unless if you analyze some great deals using biggerpockets calculators and present it to your potential partners or here... I live in NY, I understand the feeling, but dont let that stop you, like @Brandon Turner always mention if you really want it, you'll find a way instead of excuses... =) good luck to you
@London Robinson $10k, even with a 20% down conventional loan will only get you a $40 something house (there will be closing costs) and frankly houses in that price range most lenders won't loan on. Further as an out of state investor buying individually in that range is asking for trouble - it isn't likely to be a happy investment. I have found a way to invest in a diversified portfolio of 10 houses at a time in the Midwest. It involves buying an interest in the portfolio with a minimum of $10k, and as an investor I co-own with the managers. I blogged about these very passive and low stress investments quite extensively
Hey man, congrats on taking the initiative and making something happen!
The self-directed IRA company I use Quest, has a fantastic seminar turned to webinar called The Little IRA that Could. Using real life transactions, it details going from something like 2k to 200k in a few years (I forget the exact #s). It is definitely worth the 60 minute time investment.
Have you also explored your hard-money options?
I can think of 5-6 ways you can get started with 10k!
Maspeth, NY · Member since 2016 · 75 posts · 62 votes
9y
I'm not that familiar with SoCal other than the weather is nice and property is expensive, but you would have to look outwards a bit to where property is cheaper and suck it up when it comes to a commute. A quick dive into MLS listings, I found this duplex (2br each unit) in fair shape. It's priced at $149k. If you finance thru FHA, you can put $5,500 down as a down payment. At a 4.3% interest rate, your mortgage and PMI would be $827/month, or $9,924 a year. Taxes on the property are $1,710 and insurance is $870. All together it will be $12,500 a year, or $1,040 a month. It looks like market rent on a 2br in the area goes for $700/month on a 2br unit, or $8,400. Budget aside 10% for maintenance/repairs, and 10% for vacancy, and if you house hack and live in the 2nd unit for the FHA requirement of 1 year, you will just be paying $480/month to cover the rest of the monthly payment. If you decide to move out after 1 year, it will bring $16,800/year rent, minus 20% for maintenance/vacancy and you're looking at $13,440 and after expenses you will cash flow roughly $1k a year. If you can get $725/unit each, then your cash flow can go to $1,400 a year. If you can cash flow $1,400 a year off of a $5,500 down payment, then that's a 25% cash on cash return... and once the PMI which is $115 comes off, your cash flow will increase $1,380/year.. so in a couple years the property can cash flow you around $230/month; and in a couple years rent goes up another $25/month/unit then your cash flow increased to $270/month.
Atlanta, GA · Member since 2016 · 81 posts · 45 votes
9y
@London Robinson Use it as a down payment. However, make sure you have other savings. You don't want to throw all of your savings at an investment. As easy as REI can be/sounds/is, there's always potential for the unforeseeable to happen, especially if you are just starting out. Best of luck on your journey!
I don't invest away from my area so I personally wouldn't do it (But many people do and are quite successful). In Rochester/Buffalo/Syracuse there are plenty of places that the 10K would get you into a 30-50K property in not a horrid area. with decent rents.
Take the 10K and put it into a easily accessible low risk passive investment. Curtail all wasteful spending and keep saving until you reach 50K ,100K whatever until you reach a level that will afford you the flexibility to begin and provide a emergency fund to continue.
10K is a insignificant amount to start which although in some areas will work involves far too much work to succeed. Simply by taking your time and saving enough to elevate you to a level requiring far less work will pay greater dividends in the long term.
It is the difference between C and B class investing, SFHs and multi units. Getting in sooner is not always better.
Investor/Agent/Entrepreneur · Dallas, TX · Member since 2016 · 464 posts · 564 votes
9y
Nice, just keep saving as much as you can for now! I agree with the others in that you definitely should have some emergency funds set aside. Investing in lower priced markets might be an option in the future, but I wouldn't necessarily recommend it for your first property being an out of state investor. I was able to learn the most out of my first few properties by managing them myself too, being local.
I had $20k saved up when I made my first purchase. I used it all to buy a 3 unit commercial building, with 2 units occupied totaling $1k in rent. No rehab/repairs required at all. So you can find some great deals at super low prices, but something I would only consider if it was in my backyard and I could oversee it.
If I could go back, I would definitely assist an experienced investor in my local area and learn more as I was trying to save up. I also like @Larry Fried's approach in investing in a portfolio and taking whatever share your $10k will get you. That way you can still be a part of a deal, save up for your own solo investment, and still learn a ton from your partners.
I would currently look at your income, budget and see when you will reach 15k 20k etc. Map out the next 6 months with your income ( if you get paid bi weekly) to see what you can save over the span. You could cut your expenses or increase your income to save quicker. The quicker you can save, the quicker you can invest.
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
9y
@London Robinson The best use of the 10k would be as a down payment on a rental. With that 10k you can get yourself into a 40k rental. You could take it a step further and save up 15k and put yourself in a 60k rental. 60k can buy you a pretty decent single family house in many midwestern markets. Good luck to you.