Your Help Needed: Analyze My 'Getting Started' Plan

16 Replies

Hello everyone! First I wanted to say thank you to everyone for reading my first post and all of your years of amazing contributions on BP. I have already learned a tremendous amount from you and this is only my first post!

My goal of getting into REI is to generate passive income to allow me to semi-retire in 10 years and live a more flexible lifestyle. I also want to diversify my investments. I look at the below chart and think, hmmmm what could possibly happen next to the stock market?

I currently have a rental property in Virginia and have made most of the beginner mistakes by treating it like a hobby and not a business. I’m the property manager, do my own taxes and also renovated it when I first bought it. This has been a learning experience and so far my key takeaways are:

  • I don’t want a second job as a property manager
  • I don’t want to be a general contractor
  • I'm a bad CPA
  • I love it when other people do work for me.

I currently reside in Santa Monica and would like to own in this area, but I'm heavily leaning towards outside markets for higher long term cash flow. I recently talked to a RE Agent in Hawaii and he said 1/3 of his calls are from CA investors because CA has gotten too hot. I'm primarily looking for long term buy and hold residential properties. I would like to buy multifamily, but if I'm investing remotely I would prefer to start small on a SFH so my initial mistakes are less expensive.

I would greatly appreciate your thoughts on my below 'Getting Started' plan:

1. Learn, learn, learn. So far I’ve read:

  • Rich Dad Poor Dad
  • The Weekend Millionaires Real Estate Investing Program
  • The Compound Effect
  • The Richest Man in Babylon
  • Rich Dad Poor Dad ABCs of Real Estate Investing
  • Bigger Pockets: Investing with No (and Low) Money Down
  • Rich Dad’s Cashflow Quadrant
  • Many BP Threads

2. Pick an area to invest: I would prefer Santa Monica/LA area, but I think it will be difficult to get the 10-15% COC returns I'm looking for.

3. Setup Business Structure and begin establishing business credit. Long Term Goal: Have a completely self contained business entity that doesn’t require my person credit or savings to build wealth.

4. Setup team:

  • Accountant
  • Lawyer
  • Bank/Financing relationship
  • Local Agent
  • Local Broker
  • Local Property Manager
  • Mentor

5. Start spitting out offers!! I love analyzing deals. I’m really excited for this part!

Sorry for the length and I would appreciate your input.

@Nick Hedberg ,your setup Team also importantly requires Contractor/s (seeing as how you "don't want to be a general contractor"). Also, because in Santa Monica/LA area it IS difficult (read: miraculous) to get the 10-15% COC returns you're looking for, the trickiest part might be finding/trusting that setup Team local to your yet-to-be-chosen investing location.

Enter BP to the rescue. Network, Meetup, Invest. All the best...

@Brent Coombs - Thanks for your input! I ran into some issues with my contractor while renovating my VA property and it became a huge headache. I'll make sure to do my due diligence. Have you used a Turnkey company? They seem like a tempting way to go.

@Nick Hedberg , no, I haven't used Turnkey, but I am developing a setup Team to help me with my research and to be ready for me or my sourced Investors to pull the trigger (ie. not turnkey).

Companies that specialize in selling Turnkey Properties will often/usually have the required after-market services available through them too - at their (full retail, plus admin fee) prices. Again, the good ones might be found through referrals that you have learned to trust. Takes time and research, like anything else of value.

Be aware that Turnkey Sellers will be leaning towards hyperbole. Likely appreciation? Potential Rent? Minimal future expenses? Neighborhood grading?

From what I have heard and read, there will rarely be ANY appreciation in the foreseeable future after buying through a Turnkey Company (because the person who later buys off you won't have the same assurances from you as you are supposed to have from the Company you bought from, so will be pushing for a discount). But, if your CONSERVATIVE analysis of the numbers can result in acceptable Return On Investment to you, then you shouldn't need to bank on appreciation. Right? Cheers...

@Brent Coombs - Excellent points. Are you setting up your team in the Cleveland area? Good insights on Turnkey investments. It seems like Turnkey properties can make it easier to find a property to cashflow, but the upside will be limited compared to a property you find on your own.

@James Wise - Thanks James, any advice is always appreciated.

@Nick Hedberg , You have a solid plan. Don't fall prey to analysis paralysis (You've read a couple rich dad books, you should get the reference). That was my first thought when I looked at your initial post. 

Pick a location you want to invest, pick the criteria for the type of property you want to target and then get going. Your team will come as you realize you need them. Don't be so focused on building the team that you don't get the deals going. It's like spending all your time picking out the right gear to climb a mountain, and no time actually learning the ropes of climbing. No sense in having a lot of people on the payroll that are sitting around doing nothing. 

@Matt Motil - You hit the nail on the head. I've been falling victim to analysis paralysis and have really stalled in the last couple weeks. I just setup a meeting with a CPA to force myself to take a step forward thanks to your post.  Last night I was working on my areas to invest, and once the list of cities hit 39 I stopped because I felt overwhelmed.

Fortunately someone on BP sent me a local potential deal last night. Even though it's way too expensive for me to purchase I said that I'm interested.  

Don't say "I can't afford that". Say "How can I afford that?"

Originally posted by @Nick Hedberg :

@Matt Motil - You hit the nail on the head. I've been falling victim to analysis paralysis and have really stalled in the last couple weeks. I just setup a meeting with a CPA to force myself to take a step forward thanks to your post.  Last night I was working on my areas to invest, and once the list of cities hit 39 I stopped because I felt overwhelmed.

Fortunately someone on BP sent me a local potential deal last night. Even though it's way too expensive for me to purchase I said that I'm interested.  

Don't say "I can't afford that". Say "How can I afford that?"

 No doubt! You might decide partially through the process that the deal makes no sense, but you will have gone through the steps to evaluate the deal. You will be learning on the job. That's the most important step. If you are going to invest outside your local area, you really should pick one or two choices and make trips and hook up with some locals in the area. You will need boots on the ground to help manage your assets and those people really are the keys to your success over CPA's, attorneys, and others on the list. A strong, investor friendly agent, and management company will be essential. 

One thing I don't think people put enough thought into when they are picking a remote city to invest in is that it's a built in tax write off to visit your properties. Pick a place you want to visit on a regular basis, otherwise checking in on your rentals is a drag. 

Originally posted by @Nick Hedberg :

@Brent Coombs - Excellent points. Are you setting up your team in the Cleveland area? Good insights on Turnkey investments. It seems like Turnkey properties can make it easier to find a property to cashflow, but the upside will be limited compared to a property you find on your own.

@James Wise - Thanks James, any advice is always appreciated.

 Nick, because one of my friends has started investing in Youngstown OH, the setup team is geared there, so far. Cheers...

@Matt Motil - I was recently sent a deal for a premier beach front property that is way outside my comfort zone and financial abilities.  I thought of this conversation and decided to go for it. I will need to network, get a team and financing in place. There is no better motivation then the excitement of a good deal!

Good point about a tax write off to visit the place. There are a couple places I travel to on a yearly basis and will make sure they make it on the short list. Thanks for all of your wisdom and advice, it is much appreciated. 

@Brent Coombs - Glad to hear it, it sounds like you have a good team going. Thanks again for your insights and best of luck!

@Nick Hedberg I like your plan, and also that you seem to like reading!

Can I suggest a few books? These are dense reads, but very good. 

Real Estate Finance and Investments (14th Ed), William B. Brueggeman & Jeffrey D. Fisher

You will need a bottle of Advil (and vodka) to get through this one, but if you manage to get 1/4 of it, you're going to know more than a lot of folks. Very complete - everything you need to know. I think it has a lot of the coursework Ben teaches in his CFU (just a guess).

The Depression of 2008 - by Fred E. Foldvary

A good overview of the moving parts in RE cycles and some economics as well. It's only 30 pages, but very informative. 

The Complete Guide To Real Estate Finance For Investment Properties (How To Analyze Any Single-Family, Multifamily, Or Commercial Property) Steve Berges

An easier version of Real Estate Finance and Investments, very good, though I have not read all of it. This has a lot of the analysis formulas you can find here on BP and other places. PM me if you're interested. 

Regarding areas to invest, a lot of folks on BP have extolled the virtues of CA's lower central valley (ie Stockton down to Fresno and then through Bakersfield), saying that it's just like the Midwest except the winters are very mild. I like those areas a lot, and there's quite a population base, larger than a lot of US states in those MSA's, maybe 3mm+ and another 2mm including Sacramento. https://en.wikipedia.org/wiki/California_statistic...

You could easily commute up/over there in a day trip from Lovely Santa Monica™, and there's likely to be property for you in every class, price range and demographic. Not all of CA is overheated. 

Keep us posted on your offers, I'd like to know what you decide on!

@Doug M. - I appreciate your advice on the books. I'm normally not a big reader, but I've gotten hooked on these real estate books. I just found a free PDF version of the Depression of 2008, and it looks promising. I've also added your other suggestions to my list of books to read.

Thanks for the tip on the lower Central Valley. I drive through Bakersfield at least once a month to go to backpacking in the Sierra's.  Tt would be easy to swing by and check on the property.  I'll definitely check it out.

The more I learn about the CA real estate market, the more I keep learning that there are still plenty of places to invest.  Just because the averages don't make sense, it doesn't mean you can't still find deals. If you can add value and help someone, there are always options to make money.

@Jo-Ann Lapin - I appreciate the vote of confidence. Do you have any recommendations for mortgage brokers and loan officers in Santa Monica?

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