First Time Real Estate Investor - Looking for cash flow in the US

Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes

-For a first time investor, do you use all the equity and money you have to get the biggest unit you can afford? Or start with one unit and go from there? Go big or go home is my normal thinking, but playing it safe to start is cautious, but also there is lost opportunity by holding back equity I have.

Use as much equity and buy as much cashflowing rei as you can. But start slow.

-Is investing in California just stupid because price are so inflated and the tax situation? Yes! San Francisco, Hawaii, Los Angeles, Seattle, Boston are examples of primary markets which are NOT ideal for cashflow investing.

It could appreciate but I consider that gambling. Sophisticated investors invest on cashflow where the rents exceed the mortgage plus expenses (and enough money to pay for professional property manage to do our dirty work).

Sophisticated investors look at the Rent-to-Value Ratio and look for at least 1% or more to be able to cashflow after expenses. You find the Rent-to-Value Ratio by taking the monthly rent dividing by the purchase price. For example a $100,000 home that rents for 1,000 a month would have a Rent-to-Value Ratio of 1%. Most people I work with live in primary markets (as opposed to Birmingham, Atlanta, Indianapolis, Kansas City, Memphis, Little Rock, Jacksonville, Ohio, or other secondary or tertiary markets) where the Rent-to-Value Ratios are under 1%.

Most investors don’t follow this prospectus but then again most investors only own a few rental properties at most. Why is it most sophisticated investors who invest for cashflow own over 20–50–1000 units? They realize that sfhs or under 30 units will not lead to FI and only another job. But personally I transitioned from turnkeys to syndications as I learned myself.

-Is the money I save by being local and being the landloard not a reasonable offset to a higher earning property in Texas etc? Be an investor not landlord... that is if you have a good paying job.

-Is going for MF something most people would do if they could afford it over a SF unit when the goal is most cash flow and many rentals? Buy for cashflow especially in this market.

-If you have a regular job that pays a salary in the 6 figures is it a no brainer to not waste time on property management and property upgrades? I like and am really good and home improvement but not sure if the whole TimeMoney equation works out.

For those who are able to save more than $30k a year or have substantial liquidity (over 200k), being a landlord and especially flipping is a lot of work. If you like it cool/good for you... but just remember why we got into this... I always urge people to start with the end in mind and take a more passive approach.

Do the math here… with 300 dollars per property (2 months of work to buy a turnkey rental) you are going to need 20-40 of these to replace your income. I have 10 of these and have systems in place but have 1-2 evictions a year and 3-4 big things that happen. Image if I had 30, just 3 x those numbers.

Directly investing in a turnkey rental or small MFH is a good way to start to learn and build up the war chest to go into my scaleable investments such as private placement syndications. Whatever you do, try to be as close to the investment as possible. This is the fundamental problem I have with Wall Street who takes too much fees off the hard-working efforts of the middle class.

If your net worth (income minus expenses) is under $200,000 or barely save $30,000, syndications are not for you. Stick with these Turnkey rentals despite what Gurus (who are trying to sell you their program) tell you for now. They have a little higher gains (a lot more volatility) but a syndicator who is willing to put you in a deal with more than 10-20% of your net worth is asking for trouble.

1 Reply

Zeke Liston

Real Estate Agent · Columbus, OH · Member since 2018 · 1k+ posts · 1k+ votes

6y

Welcome to BP @Jase Machado!

3 Reply

Gordon CuffePro Member

Investor · Roseville, CA · Member since 2009 · 1k+ posts · 587 votes

6y

@Jase Machado the only way to get positive cash flow around the Sacramento area is by getting a great deal on a duplex . Pay 350k or less for a duplex in Citrus Heights that rents for a total of 2800 to 3k per month. You could also try buying a duplex in the Yuba City, or Marysville area at a lower price. The new hard rock casino just went in so hopefully more rentals are needed.

If you want some real good cash flow then buy duplexes or 4plexes in midwest states like Kansas City or St Louis. You can find duplexes for 150k or less that rent for a total of 1500 per month or more.

2 Reply

Jase Machado

OP

Member since 2020 · 11 posts · 3 votes

6y

@Gordon Cuffe

Thanks for your comment. It seems it’s very difficult to get close to 1% in CA. Your example in Citrus Heights for 350k is a little hard to find and at $3k income still below 1%. It’s becoming very clear Texas, Ohio, Midwest etc are much better cash flow oops but for a first time investor feels a little risky being so far away here in Sacramento. Is it smart to get a local duplex or fourplex, even is not the ideal cash flow to cut my teeth in something local and then branch out to Midwest? Considering how much equity I could pull, I could almost get a fourplex in each location (CA and TX) starting local then learn for 6 months and go out to Texas and start scaling. So many options ugh! Good problems to have though! 🙏🏻

1 Reply

Bryan Noth

Realtor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votes

6y

@Jase Machado Every strategy is going to have it's pros and cons. If you invest locally you feel like there is more control and that proximity is comforting whereas if you engage in long distance investing it feels out of touch. If you haven't gone through David Greene's book Long-Distance Real Estate Investing it's worth the purchase if you are considering the strategy.

I think an interesting question to start with is what is your end game look like? Own 100 units? Great. Do you envision self managing or have a property manager? If the goal is passive income and scaling then at some point you will want to delegate tasks not worth your time. Eventually you have to let go of controlling everything to control key pivotal aspects, ideally where you enjoy or have strengths at, in order to grow. In summary, if scaling big is your goal, at some juncture you will need to make this move, when you are comfortable with it is up to you.

Now the cashflow variable is totally up to you. As you said, there is not a shortage or markets out there. Generally, Midwest has better cashflowing markets but there is a lot to consider.

Is that state laws tenant or landlord friendly?
What is the trend of growth for the state and specific municipality?
Stable and diverse employers?
Appreciating market?

Austin, TX has been a rocket ship for appreciation but rents lag, making cash flow is tighter. The potential security of the investment due to high desirability is a consideration. Other major metroplex areas in TX have less appreciation but better cap rate percentages / CoC / cashflow. And go to the midwest and you can snag 1%+ deals, but the market may not see much appreciation. Ultimately, the best investment strategy is one you feel comfortable with.

2 Reply

Remington LymanBusiness Member

Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes

6y

@Jase Machado I have worked with many out-of-state investors that are first time home buyers here in Columbus, Ohio. You just need to find the right team. If you find a good Realtor, general contractor, and property manager, you should have a successful investing experience.

[email protected]614-541-8475 Podcast Guest on Show My Job Laid Me Off, So I Replaced My Salary with Rentals

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3 Reply

James Wise

Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes

6y

Originally posted by @Jase Machado:

I have about 250-350k in my California homes equity that I’m going to tap into. My goal is to get as many rental properties and as much cash flow as possible. I was recently listening to the Old Dawgs podcast (End of Dec 2019) about an IT engineer like myself that took $50k in home equity and the husband/wife team turned it into $54M worth of rental properties in Texas after 4 years (I know this rare, but illustrates the art of the possible). I got the message about Cash flow is King! So trying to follow that path of getting rentals and cash flow and tapping equity and getting more and more rentals is my goal. Good thing my regular job pays pretty handsomely so I’ve got additional income sources to help float a few creative ideas. Here are the options I’m looking at in the order they have become apparent to me:

1.) Get a MF duplex or fourplex nearby me in Northern California (Sacramento) for anywhere between $500-700k, each unit can bring in $1250-1400. Units are built around 1965-1975. I’m super handy and willing to play landlord so I can save that extra money and would want to put in sweat equity with floors etc to add $50k+ of value over a few years. Con is that this is California and prices are already kinda high.

2.) Get a MF fourplex in farther Northern California (Redding) for about $400-600k, each unit brings in about $800. Units built around 1970-1980 can be upgraded. I have local family and friends there to help play landlord.

3.) Get a MF fourplex or more units in Texas. I see lots of great deals around San Antonio and other parts where I can get a fourplex for around $400-600k and are like brand new, meaning no upgrades needed. Rents are decent on these newer an larger units, maybe like $1250/unit. Because I’d be making a bit more on rental income vs mortgage ratio I could afford to use a local property manager.

4.) Same situation as above in Cleveland and other areas.

My main questions:

-For a first time investor, do you use all the equity and money you have to get the biggest unit you can afford? Or start with one unit and go from there? Go big or go home is my normal thinking, but playing it safe to start is cautious, but also there is lost opportunity by holding back equity I have.

-Is investing in California just stupid because price are so inflated and the tax situation?

-Is the money I save by being local and being the landloard not a reasonable offset to a higher earning property in Texas etc?

-Is going for MF something most people would do if they could afford it over a SF unit when the goal is most cash flow and many rentals?

-If you have a regular job that pays a salary in the 6 figures is it a no brainer to not waste time on property management and property upgrades? I like and am really good and home improvement but not sure if the whole TimeMoney equation works out.

Thanks for any comments in advance!

-Jase

Saw Cleveland was on your radar. If you end up looking deeper at Cleveland, Ohio you'll want to read The Ultimate Guide to Grading Cleveland Neighborhoods. Another similar market to Cleveland is Kansas City, Missouri. If you go deeper there check out The Ultimate Guide to Grading Kansas City Missouri Neighborhoods.

0 Reply

Tom Ott

Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes

6y

Originally posted by @Jase Machado:

I have about 250-350k in my California homes equity that I’m going to tap into. My goal is to get as many rental properties and as much cash flow as possible. I was recently listening to the Old Dawgs podcast (End of Dec 2019) about an IT engineer like myself that took $50k in home equity and the husband/wife team turned it into $54M worth of rental properties in Texas after 4 years (I know this rare, but illustrates the art of the possible). I got the message about Cash flow is King! So trying to follow that path of getting rentals and cash flow and tapping equity and getting more and more rentals is my goal. Good thing my regular job pays pretty handsomely so I’ve got additional income sources to help float a few creative ideas. Here are the options I’m looking at in the order they have become apparent to me:

1.) Get a MF duplex or fourplex nearby me in Northern California (Sacramento) for anywhere between $500-700k, each unit can bring in $1250-1400. Units are built around 1965-1975. I’m super handy and willing to play landlord so I can save that extra money and would want to put in sweat equity with floors etc to add $50k+ of value over a few years. Con is that this is California and prices are already kinda high.

2.) Get a MF fourplex in farther Northern California (Redding) for about $400-600k, each unit brings in about $800. Units built around 1970-1980 can be upgraded. I have local family and friends there to help play landlord.

3.) Get a MF fourplex or more units in Texas. I see lots of great deals around San Antonio and other parts where I can get a fourplex for around $400-600k and are like brand new, meaning no upgrades needed. Rents are decent on these newer an larger units, maybe like $1250/unit. Because I’d be making a bit more on rental income vs mortgage ratio I could afford to use a local property manager.

4.) Same situation as above in Cleveland and other areas.

My main questions:

-For a first time investor, do you use all the equity and money you have to get the biggest unit you can afford? Or start with one unit and go from there? Go big or go home is my normal thinking, but playing it safe to start is cautious, but also there is lost opportunity by holding back equity I have.

-Is investing in California just stupid because price are so inflated and the tax situation?

-Is the money I save by being local and being the landloard not a reasonable offset to a higher earning property in Texas etc?

-Is going for MF something most people would do if they could afford it over a SF unit when the goal is most cash flow and many rentals?

-If you have a regular job that pays a salary in the 6 figures is it a no brainer to not waste time on property management and property upgrades? I like and am really good and home improvement but not sure if the whole TimeMoney equation works out.

Thanks for any comments in advance!

-Jase

Cleveland is a very solid market for finding these kinds of investments. Give it a look! Best of luck to you.

1 Reply

Noah Chappell

Investor · Minneapolis, MN · Member since 2016 · 254 posts · 228 votes

6y

I'll try no to reiterate what others have said. For stable relatively recession proof investments with decent cash flow & stable modest appreciation I'd look at one of the midwestern urban centers with diversified economy and positive population growth. I would take a 1-2 week "vaca" to one of these cities and walk specific neighborhoods each day to look at properties on the MLS, to get a feel, take notes. During that time I would build a team by connecting with a realtor, prop manager, credit union/community bank, bounce ideas of these ppl. By the end you'll have a good understanding if the neighborhoods & prop values, & have a decent team in place. Then jump in. I'd advise against a big fixer upper at first, a ready to go property should be ok - these markets are forgiving given the good rent/price ratio. I would DEFINITELY advise walking the cities before investing, these places can be spotty with one block good, the next horrible.

1 Reply

Calvin OzanickBusiness Member

Property Manager · Janesville, WI · Member since 2017 · 708 posts · 297 votes

6y

I would look in an area that has lower prices that allows you to get into more units first. For example:

Here in Southern, WI 350k could get you into 1.4 million in real estate. There is a 30 unit property available that cashflows roughly 3k per month after all expenses (including estimated taxes, insurance and mortgage). I am not saying this area has to be the way to go, but, that cashflow goes a lot further than a California 4 plex which probably cash flows about $600 after it is all said and done. Best of luck in your search and feel free to reach out if you have any questions.

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2 Reply

Matt Ward

Specialist · San Francisco Bay Area · Member since 2018 · 221 posts · 160 votes

6y

Originally posted by @Lane Kawaoka:

-For a first time investor, do you use all the equity and money you have to get the biggest unit you can afford? Or start with one unit and go from there? Go big or go home is my normal thinking, but playing it safe to start is cautious, but also there is lost opportunity by holding back equity I have.

Use as much equity and buy as much cashflowing rei as you can. But start slow.

-Is investing in California just stupid because price are so inflated and the tax situation? Yes! San Francisco, Hawaii, Los Angeles, Seattle, Boston are examples of primary markets which are NOT ideal for cashflow investing.

It could appreciate but I consider that gambling. Sophisticated investors invest on cashflow where the rents exceed the mortgage plus expenses (and enough money to pay for professional property manage to do our dirty work).

Sophisticated investors look at the Rent-to-Value Ratio and look for at least 1% or more to be able to cashflow after expenses. You find the Rent-to-Value Ratio by taking the monthly rent dividing by the purchase price. For example a $100,000 home that rents for 1,000 a month would have a Rent-to-Value Ratio of 1%. Most people I work with live in primary markets (as opposed to Birmingham, Atlanta, Indianapolis, Kansas City, Memphis, Little Rock, Jacksonville, Ohio, or other secondary or tertiary markets) where the Rent-to-Value Ratios are under 1%.

Most investors don’t follow this prospectus but then again most investors only own a few rental properties at most. Why is it most sophisticated investors who invest for cashflow own over 20–50–1000 units? They realize that sfhs or under 30 units will not lead to FI and only another job. But personally I transitioned from turnkeys to syndications as I learned myself.

-Is the money I save by being local and being the landloard not a reasonable offset to a higher earning property in Texas etc? Be an investor not landlord... that is if you have a good paying job.

-Is going for MF something most people would do if they could afford it over a SF unit when the goal is most cash flow and many rentals? Buy for cashflow especially in this market.

-If you have a regular job that pays a salary in the 6 figures is it a no brainer to not waste time on property management and property upgrades? I like and am really good and home improvement but not sure if the whole TimeMoney equation works out.

For those who are able to save more than $30k a year or have substantial liquidity (over 200k), being a landlord and especially flipping is a lot of work. If you like it cool/good for you... but just remember why we got into this... I always urge people to start with the end in mind and take a more passive approach.

Do the math here… with 300 dollars per property (2 months of work to buy a turnkey rental) you are going to need 20-40 of these to replace your income. I have 10 of these and have systems in place but have 1-2 evictions a year and 3-4 big things that happen. Image if I had 30, just 3 x those numbers.

Directly investing in a turnkey rental or small MFH is a good way to start to learn and build up the war chest to go into my scaleable investments such as private placement syndications. Whatever you do, try to be as close to the investment as possible. This is the fundamental problem I have with Wall Street who takes too much fees off the hard-working efforts of the middle class.

If your net worth (income minus expenses) is under $200,000 or barely save $30,000, syndications are not for you. Stick with these Turnkey rentals despite what Gurus (who are trying to sell you their program) tell you for now. They have a little higher gains (a lot more volatility) but a syndicator who is willing to put you in a deal with more than 10-20% of your net worth is asking for trouble.

Investing in CA is stupid because it doesn't cash flow and investing for appreciation is just speculation are two wildly incorrect statements. Sure if you want cash flow only, CA isn't your cup of tea. But people make mega-wealth through CA real estate so it clearly isn't stupid, and to call the appreciation in CA real estate speculation is, well, simply wrong. Historical fact disagrees.

0 Reply

Kevin Chan

Member since 2019 · 89 posts · 64 votes

6y

@Lane Kawaoka- I feel like you summarized a lot of what I'm feeling.. I'm also in a similar situation as OP where my job provides me a good income, and it doesn't make much sense trying to PM everything myself once I get investing. My goal is to make this additional income more passive and then have some diversity to access when I come to retirement.

0 Reply

Alex KhanPro Member

Specialist · Southeast Michigan · Member since 2015 · 300 posts · 244 votes

6y

Originally posted by @Jase Machado:

I have about 250-350k in my California homes equity that I’m going to tap into. My goal is to get as many rental properties and as much cash flow as possible. I was recently listening to the Old Dawgs podcast (End of Dec 2019) about an IT engineer like myself that took $50k in home equity and the husband/wife team turned it into $54M worth of rental properties in Texas after 4 years (I know this rare, but illustrates the art of the possible). I got the message about Cash flow is King! So trying to follow that path of getting rentals and cash flow and tapping equity and getting more and more rentals is my goal. Good thing my regular job pays pretty handsomely so I’ve got additional income sources to help float a few creative ideas. Here are the options I’m looking at in the order they have become apparent to me:

1.) Get a MF duplex or fourplex nearby me in Northern California (Sacramento) for anywhere between $500-700k, each unit can bring in $1250-1400. Units are built around 1965-1975. I’m super handy and willing to play landlord so I can save that extra money and would want to put in sweat equity with floors etc to add $50k+ of value over a few years. Con is that this is California and prices are already kinda high.

2.) Get a MF fourplex in farther Northern California (Redding) for about $400-600k, each unit brings in about $800. Units built around 1970-1980 can be upgraded. I have local family and friends there to help play landlord.

3.) Get a MF fourplex or more units in Texas. I see lots of great deals around San Antonio and other parts where I can get a fourplex for around $400-600k and are like brand new, meaning no upgrades needed. Rents are decent on these newer an larger units, maybe like $1250/unit. Because I’d be making a bit more on rental income vs mortgage ratio I could afford to use a local property manager.

4.) Same situation as above in Cleveland and other areas.

My main questions:

-For a first time investor, do you use all the equity and money you have to get the biggest unit you can afford? Or start with one unit and go from there? Go big or go home is my normal thinking, but playing it safe to start is cautious, but also there is lost opportunity by holding back equity I have.

-Is investing in California just stupid because price are so inflated and the tax situation?

-Is the money I save by being local and being the landloard not a reasonable offset to a higher earning property in Texas etc?

-Is going for MF something most people would do if they could afford it over a SF unit when the goal is most cash flow and many rentals?

-If you have a regular job that pays a salary in the 6 figures is it a no brainer to not waste time on property management and property upgrades? I like and am really good and home improvement but not sure if the whole TimeMoney equation works out.

Thanks for any comments in advance!

-Jase

Don't Waste your time or money on a fixer upper SFR or 3-4 unit that cash flows little to nothing and sucks all the life out of you.

first study the markets that fit your goals and criteria, then find and negotiate deals in the market you find best suited for you.

Put Half of that down on an occupied Add Value Multifamily deal where you are still able to cash flow+ (5 units minimum and has to be in the right Gentrifying/ appreciating Market)

Use the other half or less to Add the Value, Raise the rent which also forces appreciation, Sell to trade up or refinance and repeat.

What I would do is Add the value and sell it to another investor on land contract or contract for deed, Get all my cash back on the front end (Downpayment) and setup the payments so I’m still able to cash flow+ and repeat.

With Commercial and multifamily (5 unit+) there are many creative strategies to be explored for cash flow and appreciation.

This is also the reason I’m selling everything I can to do exactly this in my Market.

248-979-8119

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First Time Real Estate Investor - Looking for cash flow in the US

First Time Real Estate Investor - Looking for cash flow in the US

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