New investor in CA, looking to invest in the midwest

20 Replies

Hello! I joined BP just last week.

I've been casually reading some of the Rich Dad type books for several years - my husband and I are now finally in a position to consider real estate investing and I'm excited to be part of the community as we start our journey.

I live in southern California but intend to invest in the midwest where real estate prices are slightly more, ahem, reasonable. I intend to purchase at least one multifamily property in the next 6 months and hope to scale up in a consistent way. I plan to buy and hold my properties. My goal is to create enough passive income in the next 5 years to quit my day job (about $10k/month in cash flow).

I would love to connect with other Michigan-based experts and investors, and am certainly open to other areas of the country. We have about $20k to invest right now so we're eyeing about a $100k initial buy.

Hey there,

In Tulsa or Broken Arrow OK the 1% rule is alive and well. You should be able to buy at $90k in decent midtown neighborhood and rent for $1100 or so. I have 3 properties there and though I'm not killing it in terms of either cash flow or appreciation I'm doing good on both. Is just a safe get rich slow market. Would also just note that last year I was sharing an office at the Los Alamos National Laboratory with a guy that had just moved there from Sacramento. He was sort of a mover and shaker and we hit it off on talking about $$. I showed him the $’s on my properties in Tulsa and he transferred an old 401k over to self directed IRA or whatever and bought a couple properties there for cash. I’m no longer at lab but still get an occasional text or two from him asking about neighborhoods (I grew up there) / numbers so I guess he’s sold on it.

Cheers
Shane

Ps first post from long time listener and intermittent lurker who set account up like 2 minutes ago. Someone tell me if this isn't how it works lol..

Hey Courtney, Welcome!

New to it myself and continuing to get my feet wet within this forum. I couldn't help but notice the mention of Michigan. Being from the Grand Rapids area myself I may be a bit biased but we plan on moving back in a few years and I can't say enough about it. Before we left until current the West side of Michigan has been getting a ton of attention for Grand Rapids and the Great Lakes.

This market has been exceptional the last 5 years and has been booming. There is also news of an Amazon DC moving into the area just south of the city that will change the area even more (pros/cons to both sides of it). We sold a house there within the last 5 years that we flipped within a year after buying and ended up getting an offer for higher than we could even appraise for. I personally would highly recommend the general Grand Rapids MI area and would think you could get into it for right around your proposed budget.

Either way, best of luck from an MI born investor.

@Shane Michael Jones , thanks for the tip! I'm currently reading the Long-Distance Investing book so it's hard to narrow down the markets, but I will add Tulsa to my list for research! I'm looking for solid markets as well, that sounds great.

@Tim Wilson , I grew up on the east side of the state so I've been eyeing that market! But I hear the west side is pretty fantastic as well, I'll look into that general area too!

@Courtney M.

Everything you've mentioned sounds very reasonable, with one exception - your timeline (in my opinion).  It sounds like you and your husband have a great mindset for moving forward with your investing, which is probably one of the most important things.  I also think that going out of state right now is probably the wise choice if you're trying to build cash flow.  There are still ways to do it locally, but I think you need a ton of capital to scale them in a meaningful way (room rentals, air bnb, etc).

Back to the timeline, my personal opinion is that it's not very realistic based on the amount of capital you have at hand.  I'm not saying it's impossible, I just think for a beginner to get up to $10k in passive income will either take more time, or more money upfront (or if you're able to raise funding from others, but I don't know too many people who will trust a beginner with their cash, nor do I think it's very ethical to invest other's money if you don't know what you're doing).  When I plan out my future goals and objectives, I try to put a plan with conservative numbers to back them up.  For example, if I were in your shoes and I wanted to be at $10k/mo, this is what I would be up against:

Goal - $10k / month net passive income

Available capital to invest - $20k / year

Target minimum metrics (arbitrary numbers, you can set more aggressive or more conservative)

Cap Rate - 10%

Cash on Cash - 20%

25% down payment per investment, target house price ~$80,000 (this assumes you need $0 for holding costs, closing costs, repairs, etc. which clearly isn't the case, but to keep the numbers easy)

You buy a house in year 1 for $80k with tenants in place and earn 20% cash on cash that first year - $20k * 0.2 = $4,000.  Not bad at all!

Next year you add another house for $20k out of pocket, make another $4,000 in passive income.  You've also saved up the $4,000 from the previous year (assume you pay 0% income tax, which is possible on rentals).

Starting year 3 you have $8,000 from cash flow from house 1, $4,000 from house 2 for $12,000 which isn't quite enough for another loan, but you buy another house with the $20k saved up.  Add another $4,000 per year in income.

Starting year 4 you have $12,000 from house 1, $8,000 from house 2 and $4,000 from house 3, total of $24,000 so you can buy 2 homes this year.  You buy 2 for $20k each and add another $8,000 per year in passive income.

If you continue with this pattern, you will own 7 or 8 homes by the end of year 5! That's 8 x $4,000 = $32,000 per year in passive income. This brings it back to my original thoughts, that perhaps your numbers are a little aggressive because we made some very big assumptions here - that you will have $0 extra out of pocket expenses, $0 holding costs, and that 100% of your deals will be amazing and consistent 20% CoC.

You could always try to BRRRRR your deals and keep the cash moving faster. You would have to wait 6 months between purchases so you can pull the equity back out, but it's an amazing way to do it! That would speed you up a lot, but I still don't think it would be $100k in 5 years. Plus, finding BRRRRR deals isn't that easy in this market and often times it takes more out of pocket cash to do them (not always, but in my experience it does. I've done 3 in the past 10 months personally and I know others who have done a few each).

I'm certainly not trying to deflate your balloon, I hope i didn't come across that way! I'm just a very analytical person and have been in your shoes before. It's so difficult to really know what to expect if you've never been there before. I had a huge amount of luck play into my success, I started in 2012 and did room rentals when I could buy stuff in SoCal for $250k and get $5k per month in rents per house. There is no way I could achieve the same numbers in today's market, so I went out of state and started to BRRRRR properties. It definitely has taken a lot more money that I expected, but the results are great and I've recouped almost all of my cash back after the first set of purchases. That being said, if I was in the same financial situation as when I first started out and tried to do what I did in today's market, I probably would have lost my @$$. Several things came up that cost way more than expected - I spent $350k between 3 duplexes when I originally budgeted $300k for. Fortunately everything has appraised for right around $500k and I was able to get most of my capital back, but again if I didn't have $$$ sitting in reserve I would have been in a tough spot.

The only reason I bring any of this up is because it's so awesome to have big goals and be financially free, but it's not as easy and quick as most people think it is. Even if everything penciled out okay for a 5 year plan, you would still have to consider the intangibles - evictions, vacancies, extra rehab that you didn't expect, building up 6 - 12 months in reserves for each house, personal expenses that come up (getting married, having kids, medical issues, etc.). I have read a couple of your posts and I can tell you're very smart person and seem to have the drive that's required to succeed in whatever you want to. My personal opinion is that if you continue to add more income this year than you had in the previous year, you're on the right track. I can tell you I've hit your goal and exceeded it by a fair amount, and my goal is just to add at a minimum of $1,000 in passive income each year. I will probably do more, but I wouldn't be upset if I came in at $1,000 because I know how much work and money goes into making $1,000 each month. Always remember, if you get a stable investment setup that pays $1,000 per month, it will continue to do so forever (assuming you save up properly for CapEx, vacancies, repairs, etc.) without anything extra from you. Keep on pushin forward, I'm excited to see where you and your husband will be in a couple years!

@P.J. Bremner , thank you very much for your detailed reply! I really can't get over the helpfulness of this community.

I appreciate your candidness here, and that's part of the reason I'm part of this community - I frankly don't really know what I'm doing right now, I'm drinking from a firehose, and making assumptions about what can be accomplished in a relatively short period of time. I'd actually rather have a more "realistic" timeframe so I don't get started and then get dejected in a a few years. I surely have stars in my eyes listening to some of the podcast guests talk about how they were millionaires in like, 2 years. LOL. I'm not very interested in flipping and managing the rehab process so the slow and steady route is more realistic for us. 

My husband and I both have good jobs and I heard the advice you had stated last time - not to quit too soon! We are using those jobs to create the needed cash flow - and I had not thought of your point that without a job, securing financing will be that much more difficult. 

Thank you for spelling out your own yearly goal. I've been thinking in terms of houses/doors but $1,000/month seems like an excellent goal. And thinking realistically that's about 1-2 assets/year, which short of finding some killer deals/flips, is a more likely scenario for our situation.

This brings up another question - after doing some more reading and listening over the past few days, it seems like the path to quicker returns (and of course, probably quicker headaches) is multifamily. I don't want to start too big here, but I'm thinking we should at least be looking at a duplex for our first asset. We can't house hack (er, won't - we're in a 3,500 SF house for 2 people now LOL) but I don't see a huge downside to have an asset with the potential for at least 2 tenants initially. Thoughts?

@Courtney M. No problem!

I definitely like the smaller multifamily.  Anytime I get a chance to spread out my risk, generally take it.

I started out house hacking a single family, it's certainly doable.  The problem most people face is they are not willing to sacrifice their privacy to get ahead quicker.  It's not a bad thing, but I wanted out of my job ASAP so I made the sacrifice personally.  I lived in 3 out of the 4 properties that I house hacked - with 5 or 6 other people at times lol.  My 3rd property is 3,300 sqft, similar to yours.  I have 7 rooms there and collect just shy of $6k on it.  Unless you have little ones running around and need the privacy and safety, you might want to check out renting rooms out to students/young professionals to get a head start.

Originally posted by @Courtney M. :

Hello! I joined BP just last week.

I've been casually reading some of the Rich Dad type books for several years - my husband and I are now finally in a position to consider real estate investing and I'm excited to be part of the community as we start our journey.

I live in southern California but intend to invest in the midwest where real estate prices are slightly more, ahem, reasonable. I intend to purchase at least one multifamily property in the next 6 months and hope to scale up in a consistent way. I plan to buy and hold my properties. My goal is to create enough passive income in the next 5 years to quit my day job (about $10k/month in cash flow).

I would love to connect with other Michigan-based experts and investors, and am certainly open to other areas of the country. We have about $20k to invest right now so we're eyeing about a $100k initial buy.

Hi Courtney welcome!

I suggest checking out : A Simple Guide for Buying Out of State Turnkey Investment Property

Welcome, Fellow newbie! I'm also new to BP. I wish you good luck in your future endeavors. I certainly can help you with funding for your investments when the time comes. Just call or email me about you deal and we can get you approved and funded fast! 

@Courtney M. I just wanted to suggest to you, that if you only have $20k to invest, it isn't going to get you into a $100k home.  Even with 20% down, you have to have a few thousand for closing costs, plus reserves set aside for unexpected expenses that do come up.

Hey Courtney, if you decide to invest in Michigan you should look at using the homestead tax credit on your potential property taxes. You would have to reach out to your network in MI but if you collaborate with them in some type of partnership I think it might be a good first investment tool to utilize.

You would minimize your risk by partnering, reduce your capitol expenditure, taxes and you'd have eyes andears on your investment. Although the returns would be lower, it may be worth it for the knowledge you'd gain. In any case your relationships in MI are a great asset if you decide to use them in some function. 

Hi @Courtney M. , welcome to BP! Sounds like your'e getting a lot of good advice. Investment real estate is definitely trendy right now, but its not a get rich quick scheme...more like get richER slowly. Even so, as long as you're persistent and patient, I'm sure you can still reach your goals. 

If you want to chat more about investing in Michigan, let me know, I've made most of the mistakes in the book I'm sure and can help level your expectations with reality.

Bruce

Welcome to BP Courtney, it's definitely an amazing place to learn and connect! Currently my wife and I are in our first property (doing a live and flip) and plan to be exiting next year and hunting for a duplex to house hack. We are in the beginning of the investment journey as well so I may not be able to offer up the same experience as others on here but I am boots on the ground in the Grand Rapids MI area. Feel free to shoot over any questions, happy to help a fellow budding real estate investor!

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