First time investor - give me your best advice!

22 Replies

Invest where you know the market and have a great team (property manager, repair people, realtor). It all depends on your risk tolerance, and if you want to be local or if you're comfortable with long distance rentals. Don't get in over your head, and think you are doing better than you are. The long game is most important with real estate.

If you’re looking for short term rentals, look for where you want to be and focus there. You can make money in any market, it’s just figuring out how. Get to know a property manager or team before you invest. They will be critical to the success of your investments and your sanity!

Beyond location, you can buy more faster if you can by distressed properties and fix them up instead of just buying turnkey retail priced properties.

I bought a house recently for 12k put 35k into gutting and replacing everything. A made this one a long term rental, but the same could be done for a STR.

Ok @Katie Ferguson , that sounds like a doable goal (I am assuming). Now, do you plan on self managing these? Are you located in a vacation area? Are you thinking of corporate or professional short term rentals as well?

There is a ton of things to figure out here. If you are focusing on vacation rentals only then that narrows it all down. If you want to do business travelers or medical professionals who do job swaps, then that adds a different facet to the plan.

If you think you will be doing this with a property manager, then you need to crunch some numbers as a PM will eat up all profits pretty quickly.

Originally posted by @Katie Ferguson :

My goal is to build up to 50 properties. Where have you had the most success? I am open to any location. What is your best advice? 

The most important thing you'll need to make a lot of money with Vacation Rentals is consistent year-round traffic. Look at a map of the continental US & focus on the lower half of the map - that's where the real STR money is made.

There’s hardly anywhere in the upper half of the US that will earn you the kind of annual revenue that you’ll earn in the lower half of the US - the weather simply doesn’t cooperate in the upper half of the country. No one wants to vacation in New Jersey, Ohio, Indiana or Nebraska in November. Yet those months are delightful in many southern locales.

If you live in the North, I’d strongly recommend you become comfortable with out of state investing. Otherwise you’ll be like that guy in Alaska asking why no one is renting your house

 

Not knowing anything about your knowledge or experience or resources  or anything else, I'm going to assume you don't have much short term rental experience.

if your goal is to try to build quickly and get rich, I would say that very high chance you wind up in bankruptcy.






Originally posted by @Katie Ferguson :

My goal is to build up to 50 properties. Where have you had the most success? I am open to any location. What is your best advice? 

 

@Ken Latchers you are correct-I do not have experience with short term rentals. My goal for this year is 2 properties. I understand that it takes time to build a portfolio. My goal is to make a profit and avoid bankruptcy haha. Do you have a specific reason you say that or any advice?

"Do you have a specific reason you say that or any advice?"

this is not like buying an apartment building. There's a huge number of factors that can ruin you.

you need to master a lot of stuff before jumping in and trying to build a portfolio short-term rentals

@Katie Ferguson , vacation rentals are all about customer service. Providing a fantastic experience is what you need to focus on. Here is what I would do.

Get one property and give it a shot. The Smoky Mountain region is a great area for cabins that have 4 season potential. I would also do the management yourself as you will eat up any profit using a management company.

Lucas and Avery Carl are who you want to chat with about that area as is Julie McCoy. You didn't state a budget, but you can get a good place there for 200-300k depending. Avery can help with that.

Once you get one rolling under your belt you can start to think of expanding. You might find that vacation rentals aren't for you. They are quite hands on. We have only one place and have had it for 3 years now and are just now looking for our 2nd.

Frankly, I can't imagine having 50 vacation rentals. That personal service would go right out the window. You would have to get a bunch of managers on your team. Anyways, really take a look at the Smokys. My 2 cents.

Originally posted by @Katie Ferguson :

My goal is to build up to 50 properties. Where have you had the most success? I am open to any location. What is your best advice? 

I am assuming you are looking at the turnkey markets for this portfolio of 50? If so in no particular order I have listed some of the most popular markets for out of state investors

  • Cleveland, Ohio
  • Dayton, Ohio
  • Toledo, Ohio
  • Youngstown, Ohio
  • Cincinnati, Ohio
  • Memphis, Tennessee
  • Birmingham, Alabama
  • Kansas City, Missouri
  • Saint Louis, Missouri
  • Indianapolis, Indiana
  • Detroit, Michigan
  • Erie, Pennsylvania
  • Louisville, Kentucky
  • Milwaukee, Wisconsin
  • Jackson, Mississippi

Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.

One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Google Clayton Morris and/or Morris Invest for a cautionary tale of what not to do when buying turnkey real estate
  • Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

Our vacation rental is along the Virginia coast, we get about 9 weeks in the summer, 2 in the spring, and 3 in the fall. Spring and fall are primarily birders and wildlife photographers. In an area like this it will be extremely difficult to cash flow, I haven't met anyone on the island who does (unless they don't have a mortgage). For me this is more about other people helping us build equity. We do cover the mortgage but that's only half of the expenses. Eventually, the property will be self-sustaining. Because Chincoteague attracts mainly families and Birdwatchers, there is not a lot of wear and tear on the property unlike Jersey Shore rentals or other places that attract large groups of college students.

 Our property managers are great, they charge 16%.  I usually implement every suggestion they make.  Because I listen to them they work to keep our house rented as much as possible, more so than my neighbors who tell them their house is fine the way it is.   I have friends with vacation rentals in Cooperstown, NY and Marathon in the Florida Keys.  The Property Managers in those areas charge 30% - 35% and have significantly high cleaning fees.  The property in Marathon Fl. rents for about 30 weeks per year because Northerners go there in the winter and mainland Floridians go there in the summer because it is cooler than the rest of Florida.  I've heard that Key West is a good vacation rental market but the upfront investment can be significant.

We live in NY and have several friends who have gone through the 6 -12 month process of evicting people.  With VRs you have to be of the mindset that you have Guests, not Tenants.   I like that our Guests come for a week or two, pay ahead of time, and leave.  I love that our PMs have it cleaned, check in our next Guest and mail us a check.

You can have 50 vacation rentals, I've met someone with 64 VRs.  However, if you self-manage, you'll have a job, not an investment.    

Originally posted by @Katie Ferguson :

My goal is to build up to 50 properties. Where have you had the most success? I am open to any location. What is your best advice? 

 Cleveland or any other untapped markets in the Midwest seem to be amazing right now for returns. 

Originally posted by @Mark Miles :
Originally posted by @Katie Ferguson:

My goal is to build up to 50 properties. Where have you had the most success? I am open to any location. What is your best advice? 

The most important thing you'll need to make a lot of money with Vacation Rentals is consistent year-round traffic. Look at a map of the continental US & focus on the lower half of the map - that's where the real STR money is made.

There’s hardly anywhere in the upper half of the US that will earn you the kind of annual revenue that you’ll earn in the lower half of the US - the weather simply doesn’t cooperate in the upper half of the country. No one wants to vacation in New Jersey, Ohio, Indiana or Nebraska in November. Yet those months are delightful in many southern locales.

If you live in the North, I’d strongly recommend you become comfortable with out of state investing. Otherwise you’ll be like that guy in Alaska asking why no one is renting your house

 

Great point! This is a great rule to go by. I have long term rentals in Anchorage. I am going to change some of them over to short term. While they are booked up 100% of the time in summer, they carry about 30% occupancy in winter. The rates tend to be about 3X what long term rates are so even in the winter they generate similar income. The exception is in our only little ski town of Girdwood. They stay busy year round. This may be a good hack to the rule. 

 

@Katie Ferguson It depends on what your objective is. If it's cash flow, I would recommend the Midwest. I like Kansas City and Indianapolis in particular, not just for good cash flow but strong economic and demographic trends. Both have growing population, jobs and modern, diverse economies. Both should be on your radar.

@Katie Ferguson Every market in the midwest is different. Markets with stagnant or shrinking populations and jobs are not good for long term holds, however, the midwest in general doesn't lend itself well to short term holds due to the moderate appreciation. I'm very partial to Indianapolis and Kansas City not just because of cash flow but also because of the strong economic and demographic fundamentals for both. I know both markets well. Feel free to reach out if I can help

@James Wise excellent write up. I recently started looking into the Cleveland area for long term multifamily and my initial numbers looked fantastic. Digging in a bit further it seems the jury is out on if the Cleveland market is a good place to purchase based on significant population decline and shrinking industry. On the other hand it seems to be experiencing an organic resurgence of sorts. Reading and watching these trends from NY is one thing but as you seem to have made notable progress and have become the equivalent of Swiss army knife in real estate in the area I'm more inclined to believe the latter. Would you be able to shed some light on what trends you're seeing, good or bad?