SOS - Is this analysis paralysis, fear, or just not being ready?

Question

Hi everyone,

First, if you take the time to read this, GOD BLESS because this is definitely personal. ANY advice or feedback or support is going to be EXTREMELY appreciated!

My husband and I are newlyweds and live in Queens, NY. We rent an apartment and hope to buy a home to live in sometime in the next 2 years (holding off for career/location situation), probably in NJ. I, way more than my husband, am HUNGRY to start real estate investing. I'm reading forums on BP daily, I'm constantly doing research on markets throughout the country to learn more about why a market is successful or not, I'm doing analysis deals daily to practice and understand what's a good deal and what's not, I basically live on MLS, Realtor, and Zillow. I scroll through homes and properties as if I was shopping for clothes just to get used to understanding what I'm looking at and to continuously get better at it.

AND YET, I cannot pull the trigger on anything. I have yet to even decide WHERE we would like to invest, because NY clearly isn't affordable and NJ has similar rent control laws to NY which we don't want to get started with. We're only 26 years old and our family/friends call us crazy for wanting to buy rental investments in other states. All we hear is how much of a failure it's going to be and of course, you're supposed to tune that out. However, we're fairly young and don't even own property that we live in yet. It's definitely intimidating to buy property elsewhere when all you own is 2 cars. BUT, I'm very finance savvy. I work in finance for an ivy league university and it's honestly second nature. I just have very good financial judgement. The real estate industry and how it works isn't too familiar because no matter how much research I do, I've still never gone through the motions. The numbers can make sense, and I still have this thing holding me back. I don't think I should mention how much money we have saved up but I can guarantee, it's unheard of for people our age. We have no debt, no school loans, both employed of course with a pretty good combined income. I just know how to budget money well and make it work for us, and we still definitely enjoy it and splurge at the same time. What you make is important, but how you spend can define a lot too.

I just hate seeing our savings and how it's just sitting there.. I want it to work for us and I want to invest it. But my fear also comes from the fact that I don't want to throw TOO MUCH of it into an investment either. We're willing to give up AT MOST 20k for a down payment. Personally, I just want a small, tiny start, just to get on the playing field. I'd love to find a fixer upper for 50k (I know that's low but I've seen many people here saying they found one and did it), put 10k for the down payment and closing costs, and then rehab it for another 20k-25k. BRRRR is my go-to method that I'd love to try but again, a deal is a deal for our first one and that's our goal right now, just to start. This is going to sound crazy but I don't even care if our first deal makes us break even every month. I just want to get this first deal out of the way so that my fears and doubts are gone. I've read how some first deals even had people lose A LOT of money, but they didn't stop and tried with another property. How admirable? You either succeed or you learn, but damn I can't take my own advice.

I don't know if it's too early for us or if my fear is just taking over. I basically do all of the research and learning and my husband is just extremely supportive of whatever I think is a good move. But I clearly am extremely intimidated, and EVEN if I wasn't, I haven't found a location I'm content with yet.

Is investing out of state hard? How do we even get started? What was holding you back before your first deal, if there was anything holding you back? What were your biggest challenges? Is it to early for us? Did you having trouble finding tenants? How did your first deal go? What's you idea of a worst case scenario? How do you know a location is going to be cash flow positive? I'd love to hear your responses!

ANY information, feedback, and personal stories are GREATLY appreciated. Everyone stay safe and thank you for taking the time to read this!

Taylor L. · Answer

"We're only 26 years old and our family/friends call us crazy for wanting to buy rental investments in other states."

Protip - love your family exactly the same as you do now, but stop discussing real estate with them :) At first when I discussed with my family, they were between ambivalent to negative. Now when I family about my real estate dealings (which is rare) they tell me to buy a nicer car or a bigger house, not more investment properties.

Is this stuff hard? Heck yes. It's not hard like rocket science, brain surgery, or other things that require an enormous intellect in addition to the hard work. It's hard because it takes a lot of time, hard work, and ignoring people who tell you you're crazy and to give up.

The way to get started is to realize you're already started. What you need to do is focus on taking steps forward.

You're on BP, probably listening to podcasts, and doing other educational things like that, which is great. That's where it starts for a lot of us. The next step is to start applying. Learn how to pick a market, then pick one. Maybe two. Once that's done, move on to the next step and keep moving forward. Learn how to find properties (probably off market, not on the MLS), and execute on that. Then keep going. Next step.

Take steps forward, daily.

Todd Rasmussen · Answer

@Seher Taskent

Not knowing where you want to buy a property is probably analysis paralysis.

Seeking permission here to do so is probably a combination of your fear/not being ready.

First thing first:

People with money are running to hard assets due to inflation fears. You guys need to weigh the opportunity cost of buying a primary residence now versus buying a primary residence later. I imagine in your area, the inflation risk (against both the cost of rents and the cost of your future primary residence) is greater than it is if you buy investment property in some other market area. If you agree, getting into a primary residence might be your greatest priority. Also, if your first investment is a disaster it might preclude you from qualifying for a loan.

Nothing about investing in real estate is too hard for the average person to have a handle on. The difficulty is that you need to know enough about everything to recognize the opportunities that not everyone will. Out of state investing is no different. The added layer of difficulty is not significantly greater assuming that you are willing to jump on a flight if the need arises. The added cost of transportation is prohibitive unless you plan on scaling significantly. I think if you continue to scale eventually you will hit a point where you have to move to your market area, but retiring to a lower cost of living area with passive income seems like it should be the dream anyways...

Here's the order I think you should be focusing on if you go invest now:

Market area (pick one already)

Lender (make sure you will qualify for the refi if pursuing brrrr)

Property manager/Agent (same person if possible)

Property (light remodel)

Contractors (During escrow)

But... you are asking directions and don't know where you are going yet. You guys should have a strategic life and finances discussion so you can both pull in the same direction.

Abel Curiel · Answer

Hello @Seher Taskent and thanks for sharing!

I think what you're experiencing is totally normal for someone who knows what they're looking for. You're putting in a ton of work to check and double check insuring you're putting each potential deal through the same vetting process. I like where you are at.

Born, raised, residing and first investing in Queens, I totally get why this market can be intimidating. That said, I think your first step should be to narrow down your focus. Will you invest locally? Will it be out of state? I like what @Taylor L. said about NOT discussing your REI plans with family. Now.. I have 1 family member that I speak to about about REI BUT he happens to be one of people in my family who own rental property in my market (Queens) and is interested in Out of state investing - as am I.

If OOS investing still seems too risky (which many new investors feel) House-hacking is a great way to get started since you'll get acquisition experience, project management experience and property management experience that you can leverage when growing your portfolio out of state.

I hope this helps and I'm sure as you devise an action plan, this will all come into place for you and your husband.

Best of luck to you moving forward!

Abel

Nicholas L. · Answer

@Seher Taskent have you considered house hacking?  This is a great way to get started - it combines the best features of a primary residence (like owner occupant financing) and also investing.  There are people who successfully house hack even in expensive markets like New York.

And to be clear, I do NOT think you have 'analysis paralysis.'  You're asking all the right  questions.  Wanting to invest from a place of financial strength and at least some knowledge is admirable.

Here are my answers to the questions you asked.

Is investing out of state hard?  Yes.

How do we even get started?  Pick a market and start looking at houses.  Working with an agent as a buyer is free, and working with a lender to get prequalified is free too.  Are there markets within driving distance that you're interested in?  I've heard good things about the Lehigh Valley in PA.  Go look at properties.

What was holding you back before your first deal, if there was anything holding you back?  When I moved out of my first primary, a condo, I kept it and rented it out.  I didn't know what I was doing at the time as I hadn't yet discovered BP, but I managed to find great tenants and screen them myself.

What were your biggest challenges?  Estimating expenses correctly and finding good property management.

Is it to early for us? No.  But you should definitely think about how investing will impact buying a primary residence.  If you take on debt to buy a rental that's a good deal, that's great.  But that will impact your DTI ratio.

Did you having trouble finding tenants?  No - there is high demand for quality rental housing in many markets, both expensive and affordable.

How did your first deal go?  It breaks even, but I'm keeping it for appreciation and I don't need the proceeds that I would get from selling it to keep investing.

What's you idea of a worst case scenario? A worst case scenario would be something that doesn't cash flow, AND that you can't sell.

How do you know a location is going to be cash flow positive? Run the numbers. Estimate conservatively.

Adam M. · Answer

I invested out of state (northern FL market) for my first deal and in my opinion it was a success. Similar to you, I just wanted to get started so I went with a light rehab that I bought right off the MLS. I made some mistakes along the way, including underestimating some of my costs, but I’m still cash flow positive and the property has appreciated quite a bit in the last year. Between down payment, closing costs and rehab I was in it for about $30k.

I would recommend looking for areas with low property taxes and reasonable insurance premiums (these have a considerable impact on cash flow), as well as states that are landlord friendly. In any situation, if the numbers work in the end - it really doesn’t matter where, given the neighborhood you are investing in is reasonably safe.

Once you’ve nailed down a location, you should make contact with a few PMs in the area - this is crucial for out of state investing. My property manager has been fantastic and it is absolutely worth the 10% fee to have so many things taken care of for you, including tenant placement. They will also provide immense value in their knowledge of the area, hopefully keeping you from buying in bad spots.

And then of course, decide on the realtor you want to use. You should be able to find one right here on BP, but again, interview a few. Then get to work and find a property, and start putting the offers out there if the numbers work. Don’t think too much.

Biggest risk? As long as you do your due diligence there shouldn’t be any major risks - especially if your first deal is a structurally sound home that just needs minor repairs.

Hope this helps to ease the stress, it is challenging but in a good way. Get that first deal done and your confidence will increase exponentially.

-Adam

Chantalle Mecham · Answer

Girl! I feel you. I live in DC and have to search markets else where. I’m going back and forth between do I purchase my home here first which is SO EXPENSIVE!!! Or do I rent a little longer and get an investment going out of state. Totally get it!

However, I vote you’re over thinking it. ☺️ I’m the same! (Computer Science major notorious for over thinking) To be honest, say you made your first deal and it flopped. You lost what something between 30-35k worth of money right? But you will have learned so much! And what’s 30-35k @ 26 years old. Yall can probably save that in only several months with no debt. Besides, if you do make it big and the $30k is all you lost and you end up making millions in investments. It will one day feel like pennies.

Be brave!! I’m cheering you on. Cause I’m in the same spot. Got a little more savings to do but then I’ll be looking for my first out of state deal!

Good Luck!

SOS - Is this analysis paralysis, fear, or just not being ready?

SOS - Is this analysis paralysis, fear, or just not being ready?

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