Newbie from Milwaukee, Wisconsin

[David Benson]

Hello Everyone, 

My name is David Benson, and I have lived in the Milwaukee area my entire life. I am new to the real estate game, however after getting my personal financial affairs in order after finishing up grad school, I am getting very excited to be purchasing my first rental with my wife in ~8-12 months. 

We have been saving consistently ever since we got married last September and within the next year we plan to pay cash for our first duplex/multifamily and househack for another year or two before we find a SFR to call home.

Right now I am learning all that I can by reading the "The Book on Rental Real Estate" by Brandon Turner, as well as consistently browsing Shorewest, Zillow, Realtor.com, and of course, BP. I am an engineer, so I tend to love crunching numbers and running detailed analyses to determine the feasibility of a property. 

I plan to build a relationship with a realtor and real estate investors in the Milwaukee area. I want to make sure that I have a decent grasp on the market before taking the plunge into duplex ownership, while also knowing that much of true knowledge is gained by experience. If possible, I would like to be an asset to fellow BP members so that I can benefit the community as a whole. 

I am looking forward to being able to provide valuable input for fellow BP members as well as learning a lot from all of your collective experience. 

Thanks!

David 

[Pat Parrillo]

welcome @David Benson. 

Congrats on the steps you are taking to get into real estate investing. I think your house hacking idea is a great way to get started, very smart. 

Quick question though, is there a reason you're leaning towards paying all cash for your duplex/mulit? Curious on your strategy. 

All cash is great from the standpoint of cash flow, however, your Cash on Cash return will be less and will make acquiring more properties a much longer process. I guess the real question is what are your long term goals? If it's to own a few properties free and clear and get the largest amount of cash flow from the least amount of properties that's a good start. 

Another idea to consider is using leverage on your properties. Leverage keeps you more liquid and able to do more deals. For example, let's say just for round #'s you have $100K in cash. 

A. Cash - $100K towards one duplex that generates $1,200 in rents a month. 50% goes to expenses so your net operating income (NOI) is $7,200 for the year. That's a cash on cash return of 7.2%.

B. Leverage - $100K and you put 25% down on 4 duplexes that are each $100K. They generate the same $1,200 in rents a month and have the same 50% expense ratio = same NOI of $7,200. Now let's take into consideration you have a mortgage on all those properties and let's assume the debt service is $4,800 so that leaves you with $2,400 a year per duplex. So the 4 duplexes generate $9,600 on a $100k investment or a 9.6% return.

So after 30 years (for the sake of this example let's assume no appreciation) you now have $400K in assets vs the $100K from the all cash deal and In year 30 cash flow (holding everything steady) would be $28,800 vs $7,200 all from the same initial $100K investment. 

C. FHA Loan - put 3.5% down on $100k and live in the property for a year or two and buy another and rinse and repeat and you could see your cash on cash return go up even more. Of course you have to buy the property right and be comfortable with debt, but in my opinion this is good debt as your tenants are paying the mortgage for you.

Wanted to share some ideas to consider. Best wishes on the real estate journey ahead and as others have mentioned check out the brew city meetups, REIA, or other events and keep networking and asking questions. Great community here to help.