Need advice - buying my 1st investment property

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Need advice - buying my 1st investment property

Bruce Zhou
Rental Property Investor · Seattle, WA · Member since 2021 · 1 post · 0 votes

Hey guys,

I am new to real estate investment and have some questions.

I have about 200K in the bank and I am hoping to use them to do some investment.

1. My plan is to start looking for houses in cities that only cost 100K so that I only need to pay 20K deposit. And then I can make profit using cash flow.

For example, I paid 20K and now looking for tenants to pay $1300 per month. Let’s say the mortgage and other costs are like $800, maintenance fee / tax/ property management fee is 300, so my cash flow is $(1300-800-300) =$200 per month. But since I already invested 20K, in order to get back my 20K, it’s gonna take 20K/200= 100 months, which means it’s gonna take more than 10 years to get back my deposit.

Of course I can keep buying houses to use up my 200K splitting it into the deposit of my 10 houses, but then what’s the point? I can easily get the money into stock market and get 15% profit every year.. or am I calculating it wrong? I am so confused..

2. Should I buy house instead of condo or townhouse to avoid hoa?

3. should I use these 200K to do other investment such as investing into a scuba diving shop, would it get me better profit than real estate?

I appreciate any feedback. I am also happy to connect with you all. If you don’t mind chatting with me via zoom and give me some advice that would be awesome. If you live in Seattle I would be happy to buy you coffee for in person chat.

Thanks a lot

Bruce

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Sherief Elbassuoni
Realtor · Bellevue, WA · Member since 2019 · 882 posts · 1k+ votes
5y

@Bruce Zhou,

1- I doubt you will be attracting good quality tenants for very cheap properties. Distressed properties attract bad tenants

2- I like single-family, and small multi-family. A lot of condos/townhouses have HOA which can restrict a lot of stuff while you are doing the rehab

3- With Real Estate you get many benefits like appreciation, cash flow, tax benefits,.... Not all of these benefits are there in other investments.

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  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    5y

    @Bruce Zhou

    Based on your numbers of a $200 monthly cash flow with a 20K down payment that equates to a 12% cash on cash return; it’s actually not bad.  Could you do better with other investments maybe.  Remember you do get to take advantage of tax advantage deductions such as; property taxes, mortgage interest and depreciation so your return is actually better.  Don’t forget mortgage pay down and if your fortunate appreciation.  Although, I do not consider appreciation.  If it occurs it’s a bonus.  So your return could actually be closer 20% depending on your particular tax return.

    You did not include any repairs to the property upon purchase.  Your numbers might need to be adjusted based on the condition of the property.  Let’s assume there are none.  If you were able to cash flow $300 per month then your cash on cash return is more like 18% plus the tax deductions so maybe your annual return is closer to 25%.   Then I think it’s better then the stock market or other investments.  My goal in this economy is a minimum of $300 cash flow.

    It really comes down to your type of investment vehicle. I typically invest in BRRRR projects where upon refinance my return has been as good as 100% within the first year. I was able to force the appreciation through the rehab and my return became infinite after the first year. No money left in the deal. I just bought a short term rental out of state (Florida). Those numbers are looking to be fantastic. Better then a 20% cash on cash return before the tax advantages.

    Just offering other opportunities to improve your returns.

    Good Luck.

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y

    Find out how much the bank will lend you for a mortgage first. If you are buying out of town, make sure you know the area well and have a good property manager. Anything with a HOA or condo fees will eat into your costs.

    As for buying less expensive homes, there is a balance between quantity and quality. The type of home you get, will determine they type of tenant you attract.  Go for something that doesn't need a lot of repairs (or budget for those and do them before you rent it out) and is a nice starter home.  

    1Reply
  • Sherief Elbassuoni
    Realtor · Bellevue, WA · Member since 2019 · 882 posts · 1k+ votes
    5y

    @Bruce Zhou,

    1- I doubt you will be attracting good quality tenants for very cheap properties. Distressed properties attract bad tenants

    2- I like single-family, and small multi-family. A lot of condos/townhouses have HOA which can restrict a lot of stuff while you are doing the rehab

    3- With Real Estate you get many benefits like appreciation, cash flow, tax benefits,.... Not all of these benefits are there in other investments.

    2Reply
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