I am relocating to Katy, TX in the upcoming week and am looking for my first real estate deals. I've been listening to BP podcasts, reading books, and reviewed this forum. Currently my strategy is to purchase a 3-4 bed, 2ba home for less than $200k and live in it on a standard 15 year fixed mortgage. I will pay this down with an extra monthly payment towards the principal to build equity. I have never purchased a home, so this will be my first.
I then want to use my savings to purchase a second home, similar value that is new or newer (10 years) for under $200k that is rental ready. I am seeking lendors in the Houston area that will assist me with this on a 15% or less downpayment, 15 year fixed.
My goal is to then continue adding one property per year (single family), and in 3-4 years look at my first multi-family. I am 28, and ultimately want to continue the one per year trend to create a nice portfolio and cash flow in 30-40 years for myself in retirement.
Do you see any red flags or misteps in my high level strategy?
Any feedback is appreciated. I'm taking the leap forward and am excited, but know that many have done this before I have and have great insights. Thank you everyone!
Welcome to Katy and BP! In general, the strategy seems fine. Not sure I understand the first property. Do you intend to rent it at some point....or always make it your primary residence? Are you looking for a fixer-upper or move-in condition?
Sounds like cash flow is not your goal, but rather equity and wealth accumulation. Just be careful if you put your rentals on 15-year notes. It may be tough to cash flow them, especially if you get close to or over $200k as I have found that rents don't usually fit the 1% rule in the area. I have a home worth $220k in Cypress and can't get much more than $1700/mo (it's flip-quality rehabbed). You might be able to command higher rents in the Cinco Ranch area, but much harder to find homes at that price point....unless you are willing to take on a flood project.
Even if cash flow is not your goal, you do not want to be dipping into your pocket every month to cover the mortgage, taxes, insurance, etc. What would happen if you lost your job or encountered a major unforeseen expense? Cash flow is what allows you to hang onto properties while you are building equity. At least break even on cash flow....and make sure you deduct for maintenance, vacancy, capex, property management, etc. My 2 cents.
Thank you for your assessment. To clarify, my intention of the first property is to live in it for 5-8 years, pay it off, and then as we relocate or buy the home we want (I.e. larger) I can then rent the property and cash flow to fund future investments.
This is great information. I will reevaluate my numbers for cash flow to ensure I am not risking my own financial position.
@Tony Castronovo makes a great point about the cash flow. Even though it may not be your primary goal, it could seriously inhibit your ability to continue to add to your portfolio if your future existing properties do not at least break even on a monthly cash-flow basis.
I like your overall strategy, though I am not sure that I would pay down your first property faster by making extra monthly payments. Your interest rate on that loan will likely be low and I would recommend using that cash to instead move quicker toward the purchase of your next (rental) property.
I would recommend not limiting your search to Katy, there are areas very near Katy that offer properties that make good rentals from a value/cash-flow perspective. I wish you luck with everything. Let us know if you have any questions, I am available if you want to throw around any ideas or if I can help in any way.
People will argue round and round as to whether a 15-year or 30-year mortgage is best for your primary residence. Don't worry to much about it. If you get into a mortgage and decide you made a mistake on the timetable, you can either pay down faster (if you got a 30-year) or refinance into a longer term (if you originally opted for the 15-year). It all depends on your goals, but you need to remember that your goals will probably shift over time.
The best thing you could do is buy this first house like an investment property. Look for a deal. Buy something at a 20–30% discount. Maybe even look for something that needs a rehab. Pretend like it's a flip, but keep it to live in. If you do that, you'll start with equity in the house.
There are so many houses in the Houston area. Don't jump at the first thing a realtor shows in the space of a weekend.
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