Creative Problem Solving for First Time Investors

9 Replies

My husband and I are just starting out on our real estate investing journey. We are located in Sioux Falls, SD, and are looking to buy a small multi-family property to use as an owner-occupied first deal. Unfortunately, Sioux Falls is a seller's market and has been for years. All of the properties we have looked at (through our broker/realtor) are priced anywhere from $30,000-$50,000 above what would financially make sense in our current market (we go by the 1% rule in this area).

We're looking for long term cash flow, as our goal is for my husband to be able to work just part time in the next 5 years in order to have more time to spend with our growing family (#2 is on the way!). Is it ever worth paying more than what makes financial sense just to get into the market?  If not, what are some tactics we could employ in order to search out some great deals? Thanks in advance!

Hey! I'm a realtor around the Ft. Hood area. We also go off the 1% rule in our market. Luckily, we haven't had an issue of people starting to overprice yet like that yet. Have you looked into other markets around you that you may not move into though? It's a bit more difficult to get into it because you can't take advantage of the low down payment options when you move in, but it may be better than overpaying by a significant margin.

Another option you can go for is a short term rental. Are single-family homes priced better in your area? My first home was a 6bd house because I was moving in with 2 roommates (military life). After they moved out, I rented out the other sections through Airbnb and I continue to do that.

@Cassandra Brown I just did this with my fiancé, and you’re right the Sioux Falls market is tough for multi families right now. Although, there are good deals out there, just need to be patient and seek out motivated sellers (there are more than you think). I sent a PM.

I would definitely not ever overpay for a property just to get into the market. Keep looking and searching. As Tyler mentioned, keep looking for motivated sellers. They are in every market. It might take a while to find a good deal. 

The best advice I can get is to prepare yourself for when you find the deal. Have your bank financing ready, have cash set aside, and be ready to move quickly when you see what you want. If you know you will close on a deal, make a larger earnest money deposit. If you offer 10-20k down and the next person is only offering 1k down, you should get it. Make connections with Realtors and let them know what you want and what location you are looking in. Try to be specific so when a deal comes up they think of you. Hope that helps.

Several of my properties don't make the 1% rule as I'm in a seller's market too. That means it's a desirable area and therefore rents well (rent amount and demand). Mine are at 0.75% and cash flow between $200 & $300 a property, for around 5% ROI. It can be done.

@Cassandra Brown

I have bought a couple of duplexes in the last year in Sioux Falls that have been above 1%, one of them being a 2% deal. It was an off market deal and in a low C neighborhood, but it makes good money. Most of what I buy in Sioux Falls though is stuff I have to turn into 1% deals though. Stuff that needs some sweat equity or a tenant or two kicked out. You are right about it being a seller's market. I have my realtor's license and I only buy off market deals here.

@Cassandra Brown welcome to Bigger Pockets. If you are shopping the MLS here in SF, then even reaching the 1% rule could be challenging for a decent property. There is a lot of 100+ year old duplex in central Sioux Falls that could get you 1% or better, but some of those neighborhoods will give you nothing but trouble. The old properties can have very high repair expenses and the tenant class is very hard on the properties. The harder part is the growing crime. Nobody good wants to live in a neighborhood where gun shots or stabbings are common. Some of the neighborhoods have a registered sex offender in every other house. With a family, you don't want to be in a bad situation just to make the numbers work.

Off market deals can save you money, but can take more effort to find. Distressed properties are a good opportunity to build equity, but with a child on the way and time constrained, you may regret buying a money pit.

For owner occupied, I would look at the quality of the neighborhood first and be willing to pay a little more for a good location. Keep in mind that the economy is great right now, but when the economy turns, questionable neighborhoods get even worse.

I feel your pain. It is tough with competition for properties and tenants, landlords are getting squeezed from both directions!

@Cassandra Brown If the property doesn't cashflow, I would suggest not buying it. Perhaps, read "Long Distance Real Estate Investing" by @David Greene for some other options. I found pricing in Phoenix, where I am currently located too high for my initial investment and turned to easier markets for entry. Definitely worth a look if you can't find anything in the local market. That being said, if there is a will, there is usually a way to find the property you are looking for no matter the location.

On a side note, I can say after spending 3 years in Rapid City, SD at Ellsworth AFB, in the Airforce. I sure don't miss those winters up there ;) Stay warm!

If you are looking for an owner-occupied place for the better loan terms, it is difficult in this area. If you are handy you can get one to fix up but even finding one at the 1% range takes a lot of time. As @Joe Splitrock says, off-market will likely yield a better deal for you.
Have you considered medium multifamly? If you don't mind having one outside of Sioux Falls but within driving distance, there are still deals to be had every so often.