22yr old investor and my plan. Would love your feedback
Rental Property Investor · New York, NY · Member since 2018 · 14 posts · 15 votes
My goal is to achieve 3000 a month in real estate for my future and i would love to see if my following strategy sounds realistic or if it can be improved. I’m open to hear everything.
THE FOLLOWING IS MY SCENARIO:
I’m 22 and I live in NYC BROOKLYN. I want my first property to be a triplex or fourplex.
Everything in NYC is expensive so my plan is to purchase my first property in New Jersey using a FHA loan.
Once I have that loan and get the property I want to use the BRRR strategy and continue to get a couple other triplexes or fourplexes. Also how much money should I save for the Rehab portion?
I really do not want single family homes or 100 properties.
Just want about 3,000 a month of passive income in a future from my properties.
What do you guys think?
OK. What's your plan then?
Aurus,
For the most part you area accurate. I was you at 19 when I purchased my first investment property through creative financing. By 22 I had 6 rental properties. I just turned 31 I own a couple of hundred rental doors in A & B locations, from Hoboken,NJ to Brooklyn, and through all of Norther NJ. In our norther real estate market, $3k monthly can be accomplish on your first year. Stay humble, discipline. I do all things real estate in NYC and NNJ. My real estate company is Estates Prime Realty. Im in the process of opening another two, one in Jersey City, and another in Ironbound, section of Newark. Email me with any major concerns you may have. I did like to pay it forward.
@Aaron K.
Maybe or maybe not...
I wouldn’t say you “need” a 203k loan; I think he meant to say a 203k can be helpful. But if you can save a lot of cash, paying cash for the rehab might be more desirable.
You should be able to get away with 3.5-5% down if you can live in one of the units for at least 6-12 months (or whatever they require now). So if you find a good enough deal then you should be able to BRRRR your way through a few 2-4 unit homes, living in each for whatever the required time is for the minimum down payment and getting them cheap enough that you can get all your cash back out when you refi.
Regarding cash flow, I also live in an expensive market (Hawaii, although nothing like NYC of course) where most condos start around 300-400k but I was able to find an anomaly building that is not pretty, it’s mostly section 8, and units sell for 100-130k and rent for 1600-1700. I’ve bought 3 of them this year between 70-95k and each cash flows about $500. So theoretically if I can get 3 more of these this year for around 100k or less I will hit that 3k/month you mentioned in 2 years total time and if I needed to I could have been cash out refiing each one as I went, (but instead I’m accumulating my equity to buy something bigger next, only bc I’ve been lucky to be able to save enough cash to keep buying and preserve my equity).
So I say this to show that it is possible to find cash fliw, in my market at least. You’ll probably just have to look harder than everyone else and put a few more hours in. Also please be very thorough in your due diligence; section 8 rentals and lower class neighborhoods are NOT for everyone! But it’s working for me and I love the cash flow and the fact that I’m helping less fortunate families get a roof over their kids heads.
Good luck.
Do not buy if it does not cash flow, my first suggestion is listen to real estate books, your goal is to stack cash flow per unit, (gross income minus exspenses, vacancy etc. should still cash flow, I would start saving money start learning and analyze every deal. I started buying my first one at 23, now have 25 units at 28 using none of my own money after the first purchase.
Have you considered finding a local owner or owners in Brooklyn that are doing the same thing and partnering with them? Sounds like you have youth on your side and you actually live in Brooklyn. I'm guessing you are passionate and care about your neighborhood and that is the driving force behind your desire to invest in real estate. Because of this, I would look stay in closer proximity to your initial investments. I really like NJ, however, I wouldn't let the higher pricing be the main reason you go elsewhere. You should be thinking about your tenants first, the neighborhood, and what you can re-develop for the benefit of the community. Because of heightened development activity, it's really stratified the supply, which means you actually have a wider variance to work with, and potentially better opportunities to capture rent upside.
@Aurus J. Sanchez. I listened to a webcast in which Brian Turner said one of the most important skills for REI is the ability to analyze deals quickly and effectively. Have you run the numbers? Are there 3 and 4 family properties in your target markets which can generate the cash flow you want? Do you qualify for financing? If no you need to go back to the drawing board.
I think your best bet would be to get educated first. You can always learn from The School of Hard Knocks, of course. That is *THE* most expensive education there is.
As another poster pointed out, one of the key skills you'll need is to learn how to analyze properties.
The next will be learning to attract private money. Essentially, you invest by letting others invest in your deals rather than losing their retirement money in the coming stock market crash (already underway). Bankers and investors don't really get along these days, especially when the investor is young and inexperienced.
... and so far, we've only talked about acquisition. Then, there's rehab / repair, renting out the vacant units, managing the property, ...
Don't want to scare you off, though. In fact, there are two 20-something brothers - from South Korea, yet! - in my investing group. They started out four years ago with less than nothing and now have 76 units paying them rent and supporting their net worth.
So, it CAN be done.
@Aurus J. Sanchez Perhaps try to do an owner finance or get on the phone with banks and find some good rates.
It sounds like you're too focused on the big picture.. (who wouldn't want the $3K dream, that was our first target too!), that you aren't really paying attention to the immediate steps that can/need to be taken to get started. If you really want to make it happen-- you can, and you should! Look at what you can immediately control and do to start making it happen.
First-- talk to bank/lender, determine what you're working with budget wise. You can have the perfect plan, but if you can't execute it, it's worthless.
Second-- Now that you have your budget- what is your ultimate goal? If it's CF, yes multi-family is the best way to go.. but instead of NJ, check out like KS, or AL-- look at things like that tax rates/classes/etc and see if long distance investing can work for you! Don't be afraid to think outside the box
If that's not your cup of tea, try buying SFH, renting rooms out individually-- that can be very lucrative! Your easiest option IMO is to move every few years, so you only have to put down 5% max vs. 20%, and then just continually buy, live in.. move--rent.. repeat! This might be the best option IMO to get your feet wet.
It's all about working with the card you've got, and making it work for you!
Solid plan. That was mine and I was halfway there at 26. What stopped me was a divorce (don't do that) but I restarted again in my 30s and got there. You'd be amazed how much an extra 3k a month helps, especially if you do it extra smart and you're living in the multi-unit and it's covering your own rent. Go get it. You're also smart to not focus on getting into hundreds of rental till you figure out if you actually like it or not. Believe it or not you may end up not liking landlording and will want to do something else. That's totally normal. Easier to get out of a couple dozen properties rather than a couple hundred.
@Aurus J. Sanchez, I am with @Dennis M. on this. You seem to have more of an idea of what you want, as opposed to a plan.
It's sort of like that meme you see:
1. Find Property
2. Buy Property
3. ???????
4. Profit.
You need to have a plan. This is a LOT of money you will be working with, and most of it will not be your money. Do you have solid, concrete information on prices/taxes/rental market in NJ? It sounds like maybe NJ is just as pricey.
Are you planning on house hacking?
How much do you have saved up for a down payment? You realize, aside from the down payment, you want a good $10,000+ in the bank too, right? What happens if you end up needing to replace the roof all of a sudden because of a leak and you used all your capital on the down payment? Also, I don't know of a lender that will lend to you unless you have money in the bank after the down payment.
Have you spoken to any lenders to get an idea of what you are looking at there? Do you know if you will even qualify for a loan based on income, credit score, DTI, etc?
Have you spoken to agents yet? Are they sending you properties?
Have you read any books about all of this? There are so many...
I am so new to this, just in for about 2 years now, but I can tell you to be very careful. Not saying don't do this. I would love to see you jump in and succeed but would be so sad to hear you lost your shirt.
Slow down. Pump the brakes.
I have been in this for about 2 years. I spent an entire year and a half before that just educating myself. Reading any books I could find. Reading and participating here on the forum. Listening to the BP podcasts (I honestly did this less than anything else, they are great but many times very unrealistic with their guests that aren't relatable to us "little people"). Read on the blog. Take the time to educate yourself. Believe me, you don't want to jump in too quick and lose tens of thousands of dollars, at best. It is VERY exciting, but take it slow.
As far as the $3000 per month... that is something people end up with after a few years of investing usually. It seems like a lot of people on here consider about $200/door to be decent cash flow with rentals. So that means, with one quadplex, you are looking at $800/month. So, with those hypothetical numbers you are looking at probably four quadplexes to maybe hit that $3,000/month. Now, better deals do come along, of course, but don't think you will just end up at $3,000/month quickly or easily. Again, pump the brakes... take it slow.
@Nick Schumacher
Thanks for a great answer. I am NOT planning on house hacking. So what’s another suggestion you have. If you were in my shoes and you could not house hack, what would you do?
@Aurus J. Sanchez
I am a 25 year old investor, I am currently in the process of doing what you are asking about. I would advise on looking into an FHA 203k loan, that will include your rehab cost in the loan. Make sure you learn how to deal with contractors, that is where I hit the biggest snag. Calculate what you will need for your down payment and closing cost. It would be wise to have a couple of thousand saved on top of that just to be safe. I didn't account for paying the city of Chicago $600 to register building as vacant, also may need to pay the HUD consultant up front so you want to have funds for that, and you may need to pay for the cost of the appraisal up front as well. This may be credited to you at closing but it's just something I had to do. There will definitely be snags if this is your first rental, prepare for them. Keep in mind that you will need to have the "intent" of moving to the property you want to buy. You may not have to if things take way longer than expected. Good luck, hope everything goes well.
the plus side to house hacking is the fact you can get into a 2-4 unit building with a low down payment. There are not very much options when it come to getting traditional financing for a non ocupentcy loan. I would recommend building relationships with more experienced investors or possibly finding a deal that involves some sort of owner financing
@Aurus J. Sanchez yes if you are not an owner occupant you will not be able to use the FHA loan. You may have to start looking at conventional loans which require a much higher down payment most of the time. As for how long it will take it is going to depend on what you buy, but if you are already buying out of state you don't need to limit yourself to NJ.
@Greg Gaudet if he bought something that needed rehab even if he could pay for the rehab himself it most likely wouldn't meet FHA standards until that rehab was completed (FYI to newbies don't pay for rehab on a house that isn't yours yet) In this case it is a moot point because he was thinking of doing a non owner occupied FHA loan which is not possible to the best of my knowledge.
if possible use a conventional loan with low down payment options as you will eventually be able to eliminate the monthly mtg insurance with the conventional loan and you cant do this with FHA loan …...if you plan to sell this first property in short run - then FHA idea is OK
amount to save for rehab will vary depending on the property
the normal down payment required for an owner occupied 3 or 4 plex will be larger than for a owner occupied 1 or 2 plex …...if buying and financing property as a rental property ..the down payment requirements are higher
@Aurus J. Sanchez
Your Plan is working saving money and buy 4-plex. That looks good just do it!
At 22, I would focus on paying off personal debt and getting you w-2 income and savings up. If you can save up to 100-200k, (or have family with that kind of coin), you can really BRRR in your area. I used FHA to buy a duplex, sold it a yr later to make an extra 40k, bought a SFR and owner financed next (10% down cash flowing 400 a month via subject-to), and got to 100k fairly quickly. 1-2 yrs. That initial sacrifice and savings will get your business off to a great start.... Goodluck.
Still haven't seen an actual plan yet.
Hate to be negative but Reading this gives me a headache.... Kind of annoying how people hop on this site and make posts before taking even a moment to read an article or book or listen to podcast. "long distance house hack FHA BRRRR"
Read a few books pal then come back and we are happy to have meaningful conversation....
Cheers
Hi Aurus,
$3,000 a month is very doable and when you become experienced enough, you can make $3,000 a month cashflow with just one property. I sold this property that was giving me $10,000 a month because I couldn't refuse making over $1 MILLION on it :-)
How I Made Over $1M on One Property
I didn't forward that to brag. I forwarded that to show you that there are so many things to consider when developing your real estate investing plan. What you laid out here is NOT a plan at all. It's a wish list. You need to put the details like exactly HOW you can achieve that $3,000 a month cashflow.
Below are the components of a real estate investing plan:
I. What's your Over-All Goals (cashflow, number of properties, time involvement in the business, etc)
II. Where Do You Invest - which markets are you going after and why; have you done the research?
III. Property Acquisition Strategy
IV. Your Main Exit Strategy
V. Property Financing Strategy
VI. Your Team
VII. How Do You Mitigate Risks
VIII. Your Action Plan - what activities are you willing to do daily to implement the strategies you set above? what activities are you willing to do in the first 7 days, first 30 days, first 90 days?
You may not have all the details for the above, and obviously, you don't know what you don't know.
But adding a little bit more detail and explaining your thinking will go a long way in truly coming up with a real plan.
Makes sense?
Your first property could make or break you. First you need to get thin. Deny yourself any form of luxury. Save money, save money like it's your mission. You will need to either buy a multi family or a larger single family with many bedrooms and a couple bathrooms. Either way, you need to house hack and learn the fundamentals of landlording. Stay thin, stay hungry and grow from there. Use an FHA on a large home where you can rent our the rooms and save more money. Banks might be hesitant to lend 500K on a first time land lord intending to house hack a multifamily. You will need a strong and continuous income to support your first loan. You have to treat this property as stricly business, no leasing to friends or family no matter what.
First steps, save 10-40k depending on what type of property will be your first. Get and maintain a strong steady income. Going big could pay off big but it could hurt also. I would say start small with a SFR house hack strategy. Where do you currently stand? What do you have and what do you still need?