New to REI looking to house hack or for multi-family

11 Replies

Hi everyone. My name is Charlene. I work as a Physician Assistant in the Bay Area, but am really looking to start investing in real estate and building my passive income.  My 5 year goal is to make enough in passive income to quit my job in order to spend more time with my two kids, travel more, and secure retirement. 

I'm brand new to REI, but have been listening to the BP Podcasts nonstop during my daily commutes and am extremely motivated to get going with this. Ideally to start, I would like to house hack a 2-4 unit property, but it feels nearly impossible here in the Bay Area given the crazy housing prices. I am partnering up with a friend, but don't know how to make it a fair proposition. Does anyone have any suggestions?

If house hacking doesn't pan out, we are also looking at buying a small multi-family (again 2-4 units) in several areas, including Sacramento, CA; Reno, NV; Everett, WA; Tacoma, WA.  If anybody has any contacts to start building our core 4 in these areas, it would be greatly appreciated.

Can't wait to get started!  Thanks everyone!

Charlene welcome to BP!! Congrats on taking your first step in REI and creating a plan for your future. I would partner with a professional REA who can give you and your partner a realistic idea of what you can afford and how much the "cost of money" will be for you two considering your individual situations. From there you can begin to limit your search based on your price point and that can provide some clarity on the situation. Quick rule of thumb in REI is the "1% rule" which is simply, a good rental property will rent for 1% of the purchase price. Right now in California that's VERY VERY few and far between. House hacking may be your best bet to build equity, and maybe refi to pull funds or continue to save and put yourself in the best position a year or so from now to make the move to strictly investment props!! Again best of luck

@Charlene Chow

I'm an agent in Sacramento who works with lots of investors just like yourself, so believe me when I tell you that you're not alone. You want to get started in real estate investing, but you look around at the sky-high prices in the Bay Area and nothing seems to make sense... what's a beginning investor to do?

I would suggest staying in California if you can since you're new to this, because unless you have some boots on the ground in other states it might be pretty inconvenient to have to fly out there if needed for some property emergency (like the home catches on fire, flood, etc.)

With 25% down you can make the numbers work in Sacramento. No, you probably aren't going to be cashflowing out the wazoo to begin with, but with the rent growth and appreciation you'll likely make far more in the long run than buying in a place where the cashflow is high but the property sells for exactly what you bought it for 5-10 years from now.

For house hacking, it still may be plausible, but you should adjust your goal from making money to saving money. The idea is to get as close to mortgage-free as possible. Usually only achievable with fourplexes. That way you are able to control an expensive asset for far less than it would cost you monthly otherwise.

Feel free to ask more questions here and we'll try to get you pointed in the right direction :-)

@Wes Blackwell thanks for the advice. After considering your suggestions, it seems a multi family will be best for me and my partner. We are absolutely OK with the slow and steady approach. But for house hacking, agree the goal is to save money. Sounds great for me and my family if we can find something in our area that is affordable. Probably will have to be REO.

@Charlene Chow REO and foreclosures can certainly be a solid bet on diamond in the rough properties, but those props generally just that..."in the rough". Those may take some elbow grease to get to where you would like them from an appraised value standpoint. Multi families are the way to go from a mitigating risk standpoint (more doors = smaller risk per door), but more doors also = more tenants which CAN (not always) lead to more problems, just something to keep in mind. @Wes Blackwell is VERY involved in the Sacramento market and can provide you with more insight than I on specifics but if you have any questions about specific neighborhoods feel free to reach out, or if you are looking for a partner who can property manage as well as you are in the bay area I am at your service =)

@Charlene Chow

Don't assume that an REO is going to be sold for less than market value. Especially in hotter markets like Sacramento.

Back during the crash, banks were dying to get this inventory off their books and recoup what they could, and so you could buy them for pennies on the dollar.

But eventually banks got hip to the idea that the public started to think REO's were automatically a good deal, and combined with a booming housing market they're selling at full market value now. It's all about supply and demand, and currently there is way less supply than demand.

Further, if you end up buying one of these through Hubzu or something (quite common), be prepared to pay a 4.5% buyer premium on top of your purchase price. There goes all your savings. Plus, often you're at a HUGE risk buying these homes and have to waive all contingencies, make no request for repairs, etc. And because it's a foreclosure the banks don't have to disclose anything. The previous owner could've made an insurance claim for some major problem with the property and you'd never even know about it until it's too late.

Don't mean to scare you, but buyer beware. Do your diligence and make sure you're confident in moving forward before pulling the trigger.

Welcome to BP @Charlene Chow ! It's great that you are focused on obtaining a multi-family property to make passive income. I, myself, invest in multi-family and think it's a great way to scale your portfolio fast! A lot of times I hear people who are just getting started want to invest in everything right away. It's good that your narrowed down your focus and now you need to narrow down your market.

You've already had some great advice on this thread but before you get lost in the "weeds" and all the details, which isn't bad, I would suggest you attend some local REI meetups in your area. Meet and network with other investors and see what they are doing. That's another way to get some great contacts to build your team. Not sure where you are in the Bay Area, but there's a meetup I attend the first Wednesday of every month in SF. It's pretty chill, no pitches, no sales, just investors of all levels sharing their experiences. If you're interested, I can send you more info.

Partnering up with people, especially with experienced investors, is another great way to get into the game. Everyone shares the risks and rewards and you don't have to go into a deal alone. Just continue to do what your comfortable with and always have your end goals in mind and you'll be fine.

Good luck on your journey!

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