Buy and Hold Markets for Beginners

81 Replies

I've been doing research on markets for buy and hold for about a month now. I'm checking unemployment rates, population growth, purchase price, rent rates, percentage of renters, etc. and I'm still having trouble identifying a solid market for my price range. 

My main problem is I don't have a whole lot, but I want to begin investing. I've been interested in investing for about a year, but circumstances have propelled me to start taking action. 

I'm living in San Diego, and starting out here with a family and one income at entry level is relatively killer. I've been working two jobs and still barely paying our bills. We've cut down and cut back on every possible avenue and it's still not enough. My wife just got a part time job, and that will allow us to be positive monthly, but we will hardly see each other and never have the weekends off together. 

So my current plan is to find a good cash flowing property to "help" offset our deficit, though my main goal is to save the positive income for future investments. 

Right now I've got about $28,000 in the bank and $16,000 in comfortable playing around with.

Putting 20% down, I'm looking at buying two $30,000-$40,000 properties or one $60,000-$80,000. I'm looking for advice on which direction to go as well as what market falls into that category. 

I've looked at a few cities that seem to meet the criteria for a good market in that price range, but I have no idea if that's how much the ordinary house costs or if I'd be buying the dumpiest house in town.

I appreciate any and all insight either about markets or suggestions and how to take the few funds I have and put them to good use. 

@Traver Freeman Fort Wayne Indiana is my market. Interestingly enough I looked at other cities during the downturn and came back home realizing it was mighty good compared to so. With patience one can get a home close to the college for around 30-35k fixed up. Rents would be in the 675-825 range depending on number of bedrooms. Appreciation may happen fairly well for the midwest as the area is growing. Let me know of I can help, disclosure I am a broker, either way let me know.

@Jeremy Tillotson I would be open to Fort Wayne as I have relatives there and have been there a few times so I've got a basic understanding of the highway system.

When you say 700 a month are you meaning about 300 a month per room? And about college housing in general, are the rooms not occupied for 3-4 months out of the year leaving you foot the bill without income? How does that work? I live in a college town myself and have been told the only way I could make buy and hold work here is with college housing as I could easily rent for $600-$800 a room here. I just can't afford the down payments here. 

Have you looked at the high desert? There's 29 palms, NAS China Lake and Edwards AFB. I've seen some good deals when I was there and you can rent to Military, it's also relatively close to you. Maybe a couple of manufactured homes could work out.

@Traver Freeman

You might consider Memphis (Tennessee) for the purpose of buy and hold and that budget. We have been working with hundreds of investors who buy approximately 60-80K USD and earning 10-11% net rental yield on those properties.  

Good luck!

You should go with one nicer home then 2 cheap junkers. That one home will have better cash flow and ROI over a 5yr period then both cheaper ones combined.

@Traver Freeman

I second Curt do not buy low end of the spectrum in major Mid west markets those are generally the province of those that live there and work it.. the tenant pool in those homes is VERY tough to manage over time. 

PM me I just got a e mail from an LA investor who has two Memphis homes that I am sure she would love to owner finance in some manner to you.. she is a burnt out landlord and will be very receptive to setting something up were you have the time and energy needed to manage mid west rentals. She has stabilized them after the last tenant turn over so they are ready to go..   And I have no financial interest in this so it would be buy owner so no fee's or mark ups.. so you might get a pretty sweet deal.

Originally posted by @Traver Freeman :

I've been doing research on markets for buy and hold for about a month now. I'm checking unemployment rates, population growth, purchase price, rent rates, percentage of renters, etc. and I'm still having trouble identifying a solid market for my price range. 

My main problem is I don't have a whole lot, but I want to begin investing. I've been interested in investing for about a year, but circumstances have propelled me to start taking action. 

I'm living in San Diego, and starting out here with a family and one income at entry level is relatively killer. I've been working two jobs and still barely paying our bills. We've cut down and cut back on every possible avenue and it's still not enough. My wife just got a part time job, and that will allow us to be positive monthly, but we will hardly see each other and never have the weekends off together. 

So my current plan is to find a good cash flowing property to "help" offset our deficit, though my main goal is to save the positive income for future investments. 

Right now I've got about $28,000 in the bank and $16,000 in comfortable playing around with.

Putting 20% down, I'm looking at buying two $30,000-$40,000 properties or one $60,000-$80,000. I'm looking for advice on which direction to go as well as what market falls into that category. 

I've looked at a few cities that seem to meet the criteria for a good market in that price range, but I have no idea if that's how much the ordinary house costs or if I'd be buying the dumpiest house in town.

I appreciate any and all insight either about markets or suggestions and how to take the few funds I have and put them to good use. 

Hey Trevor, Welcome to BiggerPockets.com. As someone who works with a lot of investors and have assisted new and experienced investors, I would suggest you forgo buying a property for right now and look to build your nest egg in a different way. I would network here on BP and look for JV partners and opportunities - you may find them right there in SD.

I would look for opportunities to put your money to work by lending it in a partnership and letting it grow until you have a more comfortable position to invest in better properties.  

As Curt noted for you, lower price properties are a very, very risky route to take - especially if you are looking to create less stress on your household by providing extra income.  Then again, just buying one property that may cost a bit more can become an expensive headache for you so far from home.  You will only have one house so you will always be either 100% happy with your portfolio that it is occupied or 100% upset with your portfolio that it is vacant.  With one property there is no in between.

I would love to tell you how great certain markets are or all the great things you can do buying houses with your money - but, my advice is to keep building your investment funds by partnering your money first.  It is important to build before you buy.  You can build and provide some cushion for your household at the same time and take less risk than if you purchased just one property or two cheap junkers. 

DO NOT fear that the best time to invest in properties is already past.  You can find good investment deals every day - in every economic cycle and in every market.  You do not have to be in a rush, but you could certainly relieve some stress by earning 10% on your money or more by partnering.

Just my .02 worth of advice - best of luck to you with whichever way you go!

@Traver Freeman

Talk to other investors everyday, pulling in information to think and learn.  Getting into your first rental gets the mouse in the wheel turning.  Investing in real estate takes a low IQ.  Keep your analyzing simple. Your curiosity and focus will bring you more success.  I say that because I was a C student my whole life and many investors I have met with dozens and hundreds of properties are very unsophisticated. 

Frank

Hey Traver!

Have you looked into any other real estate investment strategies like tax liens or mortgage notes? These may have a little more risk at first, but more research and education before you jumped in would help you evaluate that risk. With one of these strategies you could start with a lower investment, wouldn't have to deal with the 4 Ts (tenants, termites, toilets, and trash!), and you could potentially get a higher return on your investment than investing in an actual rental property. I hope this helps! Good luck!

Liz 

Travor

Agree Memphis and also markets Indianapolis and some cities in Ohio as well are in the range your considering and provide decent cash on cash returns. I have a modest amount of funds and would be interested in possible JV. I live in San Diego and perhaps we can see if our goals align and meet up. There are many reputable turnkey rental providers That can assist with your goals like Some of the writers on this discussion post.

All the best

Cedric 

@Traver Freeman

I'm (obviously) biased as it's my local market, but Cleveland, Ohio and the surrounding suburbs is an excellent buy and hold market for those interested in SFRs and small multi-families. Rents are high relative to acquisition costs. You'll also find that many other midwest cities are similar in this regard.

Should you decide to invest remotely, make sure you have a good "boots on the ground" team in whichever market you choose.

@Traver Freeman you would be wise to listen to @Chris Clothier advise. One big capex item and you will be back in negative territory with your monthly expenses. Save up a bigger chunk while you continue your research/education on BP about potential markets to invest in.

Be careful with out-of-state investing, it can work, but I've seen a lot of people taken advantage of. I wrote an article about it here that might help; http://www.biggerpockets.com/renewsblog/2014/12/23/investing-out-of-state-essential-items-to-vet/

I would also try to avoid the super cheap properties. They can work too, but generally you need to specialize in those areas. I wouldn't trust a property management company with one. So I would lean toward a $60-80,000 property instead of two $30-40,000 one's. 

Some good suggesstions.

After narrowing things down to a few different markets I'd suggest taking a flight out there. Meet the local companies, drive the neighborhoods. Get a feel for the good, the bad and the ugly.

@Traver Freeman

 I'd go with @Chris Clothier 's advice, save up more. Consider doing some private lending for 8-12% returns. If you are going to buy out of state real estate, I'd definitely avoid the lower cost properties. As an investor in turnkey properties, I personally don't go even consider anything below $75k for SFR.

@Traver Freeman

I am a San Diego investor that is primarily working on deals in the midwest.  My startegy is to build a fairly large rental portfolio so that I can have a solid and passive monthly income.  I also do flip deals with my out of state partner in order to build the pool of funds available to invest, and to cover some costs, etc.  I'm currently raising funds from a few of my friends and associates to do a few more flips.  Let me know if you want to hear about the deals and market, etc.

I would have to second @Chris Clothier advice. Investing, especially out of state can be stressful. It sounds like money has been a source of stress at times for you and your wife. I believe it would be better to keep building your saving and learning as much as possible about re investing and specific markets as you can. I believe in the long run your patience will pay off and you will be thankful you waited. 

I am also in California and invest in Ohio, where I am from. I made a newbie mistake and hired someone to manage my properties who didn't have enough experience. I suffered 2 evictions because of it. In fact, the second eviction was in December and I just found out today the the tenant filed for bankruptcy so the chance of ever seeing a dime of the $6k owed is almost zero. If I wasn't financially and mentally prepared for such a loss it may led me to quit real estate investing all together. But I love it and learned an expensive lesson from the experience. Real estate investing is a game for the long haul and if thats what you really want I wouldn't jump into anything. 

Also, I would try to stick to B or better areas. @Larry F. 's idea of private lending could be a great way to build your money.

stick to your local market. I promise you, if you take initiative you'll find a great deal within a short drive from your residence. I only invest in SoCal, even with all the liquidity and competition, we still find gems here and there. Finally, I also agree 100% with Andrew's comment above. 

One major factor to note is that you typically won't be able to find mortgages for $40k properties. The lending minimum is usually $50k, which means a $60k+ house. So that right there could change that plan for you. Then from a more opinion-based standpoint, I think $40k properties have way higher risk than $80k properties, depending on the location you are talking about. 

The capital you have will easily buy you a $70k-80k house, and would also easily get you a $100k house if you wanted, which opens up the door for being able to get duplexes too...depending again on location. 

It sounds like you've done a lot of research and are ready to get going...what's the main hold-up for you at this point? Is it just not knowing where to find what kind of properties, or analysis paralysis, or....

Originally posted by @Jarrod Rayner :

Have you looked at the high desert? There's 29 palms, NAS China Lake and Edwards AFB. I've seen some good deals when I was there and you can rent to Military, it's also relatively close to you. Maybe a couple of manufactured homes could work out.

I have not, though I have looked at some inland cities close to here, and they have properties in my price point, but they also boast some of the highest unemployment rates in the nation (so does where I live, unfortunately). So they aren't very appealing areas for consistency and reliability.

I will check out some of the places you listed, though I'm not familiar with how renting to military would work. Could you explain that? And manufactured homes would come with land fees would they not? I looked at a manufactured home to live in myself about two weeks ago, and the fees just for the spot were $800. That might as well be an HOA fee. So the income has to offset that fee as well, unless I have the tenant pay it.

Originally posted by @Curt Davis :

You should go with one nicer home then 2 cheap junkers. That one home will have better cash flow and ROI over a 5yr period then both cheaper ones combined.

 That's what I was thinking, I just didn't want to "put all my eggs in one basket" so to speak. But if I buy a duplex for $80,000, I'd be able to take in two doors of rent but only one property expense to deal with. So I may look for something along those lines.

Originally posted by @Chris Clothier :
Originally posted by @Traver Freeman:

I've been doing research on markets for buy and hold for about a month now. I'm checking unemployment rates, population growth, purchase price, rent rates, percentage of renters, etc. and I'm still having trouble identifying a solid market for my price range. 

My main problem is I don't have a whole lot, but I want to begin investing. I've been interested in investing for about a year, but circumstances have propelled me to start taking action. 

I'm living in San Diego, and starting out here with a family and one income at entry level is relatively killer. I've been working two jobs and still barely paying our bills. We've cut down and cut back on every possible avenue and it's still not enough. My wife just got a part time job, and that will allow us to be positive monthly, but we will hardly see each other and never have the weekends off together. 

So my current plan is to find a good cash flowing property to "help" offset our deficit, though my main goal is to save the positive income for future investments. 

Right now I've got about $28,000 in the bank and $16,000 in comfortable playing around with.

Putting 20% down, I'm looking at buying two $30,000-$40,000 properties or one $60,000-$80,000. I'm looking for advice on which direction to go as well as what market falls into that category. 

I've looked at a few cities that seem to meet the criteria for a good market in that price range, but I have no idea if that's how much the ordinary house costs or if I'd be buying the dumpiest house in town.

I appreciate any and all insight either about markets or suggestions and how to take the few funds I have and put them to good use. 

Hey Trevor, Welcome to BiggerPockets.com. As someone who works with a lot of investors and have assisted new and experienced investors, I would suggest you forgo buying a property for right now and look to build your nest egg in a different way. I would network here on BP and look for JV partners and opportunities - you may find them right there in SD.

I would look for opportunities to put your money to work by lending it in a partnership and letting it grow until you have a more comfortable position to invest in better properties.  

As Curt noted for you, lower price properties are a very, very risky route to take - especially if you are looking to create less stress on your household by providing extra income.  Then again, just buying one property that may cost a bit more can become an expensive headache for you so far from home.  You will only have one house so you will always be either 100% happy with your portfolio that it is occupied or 100% upset with your portfolio that it is vacant.  With one property there is no in between.

I would love to tell you how great certain markets are or all the great things you can do buying houses with your money - but, my advice is to keep building your investment funds by partnering your money first.  It is important to build before you buy.  You can build and provide some cushion for your household at the same time and take less risk than if you purchased just one property or two cheap junkers. 

DO NOT fear that the best time to invest in properties is already past.  You can find good investment deals every day - in every economic cycle and in every market.  You do not have to be in a rush, but you could certainly relieve some stress by earning 10% on your money or more by partnering.

Just my .02 worth of advice - best of luck to you with whichever way you go!

 I greatly appreciate your advice. I was looking at possibly contacting you anyway. I just listened to your podcast (don't remember the number, somewhere around #27) and it really grabbed my attention and really gained my confidence in your business. 

I'm open to looking at other avenues of investing that don't require as much risk, and obviously don't net as much gains, but still investing that money rather than letting it just sit in the bank. You mentioned lending my money in a partnership. How exactly would that work? Basically just let someone use my money and they give me a 10% return when they sell? What ways would you suggest I get started for looking into something like that?


PS. Anyone else reading this message, I have full intentions of replying to everyone as you have all given me great advice, but I've got to run to my second job as the moment, so it probably won't be until tomorrow when I get some time. Thanks guys!

@Traver Freeman

YOu would not qualify for most current PPM type deals you must be accredited. but you can buy stock in a REIT.. or find a HML who brokers individual loans. or in CA. a broker that does fractionalized lending those you would qualify for .

The big game changer in my mind will come when Crowd funding is open to all. That will be a huge game changer and as Chris said MUCH safer for most then trying to buy  a rental home no matter were it is.

And to pony on @Chris Clothier

 thoughts  if you can't find a way to build a portfiolio of homes over a fairly short amount of time then owning rentals may not be the appropriate investment.. those that buy one or two can have real issues.. Again like Chris says your either 100% happy or 100% bummed.

best of luck

Originally posted by @Jay Hinrichs :

@Traver Freeman

YOu would not qualify for most current PPM type deals you must be accredited. but you can buy stock in a REIT.. or find a HML who brokers individual loans. or in CA. a broker that does fractionalized lending those you would qualify for .

The big game changer in my mind will come when Crowd funding is open to all. That will be a huge game changer and as Chris said MUCH safer for most then trying to buy  a rental home no matter were it is.

And to pony on @Chris Clothier

 thoughts  if you can't find a way to build a portfiolio of homes over a fairly short amount of time then owning rentals may not be the appropriate investment.. those that buy one or two can have real issues.. Again like Chris says your either 100% happy or 100% bummed.

best of luck

I would like to eventually own many rentals, not just one or two. My plan would be to scale it as fast as money allows me. The more I get the more I can afford. On paper anyway. But the first few years would be limited. My uncle has been doing buy and hold for years and he only has like 5 properties. But his model was to buy the house, live in it, fix it, then rent it out and start all over.

My goal is more than 5 properties, but I have to start somewhere, and I can't afford to buy 15 properties at a time. Nor do I think I ever will on my current income. I mean I can only put $100-$200 a month into savings. That's maybe $2000 a year. By the time I can save enough to put to good use, properties will cost more and I still won't have enough. 

So I'm in this situation of do something with what I've got, or sit and wait and not get anywhere. I'm more inclined to take action, but well educated and rational action. There's bound to be a way to make it work with what I've got. But I'm open to other options if they make sense. 

I know there are markets out there I can afford. And I understand the risk involved with having only one property. Which is why I'm trying to do everything I can to make the right decision without rushing in to the first "deal" that comes my way.

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