Starting out, gravitating towards traditional methods (SFH LTR)

Starting out, gravitating towards traditional methods (SFH LTR)

Real Estate Agent · Metro Detroit, MI · Member since 2023 · 20 posts · 15 votes

Hi everyone, just joined the community here. Looking to get started in real estate investing asap. Began the process last month and have been analyzing deals and even put in an offer today. Still, I'm not entirely confident in my vision/direction.

Context on myself - I live in Metro Detroit, graduated college 2 years ago and have been working as an engineer. Work is close to my hometown, so I was able to move back home with my parents and have saved a huge chunk of my salary the last 2 years. In addition to making pretty decent money, I've recently added a side career in the digital media space, so it's time to put the income & savings to use. Also, in addition to these two jobs, I'll be starting my MBA (company-funded) next month. I say all of this to paint the following picture:

- I have very little free time, so I plan to hire a property manager.

- I have $90k cash in hand. As a result, I'd prefer to not do anything creative like home hacking or leverage private lending. 

- With that 90k, I plan to buy 1-2 SFH long-term rental properties, and a home for myself and move out.

My question is very open ended, what would your strategy be if you were in this situation? 

Currently, this is my vision: I am looking at single-family houses in the $90k-120k range. I hope to buy two of them at that price point with 20% down and try to cash flow as much as possible, without being too risky with vacancy rates (aka, avoiding inner-city Detroit). I'm looking at houses that don't require too much work, as I don't have the time or skillset to refurb them. Plus, I believe it has to be in pretty decent shape to get a traditional mortgage approved on them anyway. On the flip side, I am hoping the home isn't totally maxed out and I can go in and replace the carpet with vinyl flooring and change out the kitchen cabinets and counter tops. This way, I can do little stuff to add value instead of buying a recent flip someone else is maximizing profit on, but also not doing a full refurb either. A nice middle ground, I think. With my own house (that I'd live in), I'd like that to be about 250-270k. I've come around on only putting 5% down even if I have the cash to do 20%, as real estate experts seem to say "just buy another rental instead of lowering your own mortgage a little. You can only do that 5% option on your primary residence, so take advantage of it." Hopefully you all agree? If not, I'd happily go back to my previous, traditionally-rigid mentality of paying the "usual" 20% since I have it lol

Anyway, that's my current line of thinking. However, so far, I haven't been finding great cashflow margins on the rental property numbers I'm running, and that's what has led me to make this post. Do I have the wrong idea about diversifying and getting two cheap rentals, and maybe should instead be looking at one medium rental? Am I being stupid when I'm saying "I saved money, so I'm going to ignore alternative, creative options like private lenders & the BRRRR method" and missing out on the more profitable avenue that way? Can I go with the BRRR method without needing to dip my toe in the priiate lending sector? Should I not be avoiding lower-rated communities and am overexaggerating the vacancy/tenant quality element? ...Or is my vision not flawed at all, and it's just hard to find high cashflow opportunities in the current market?

I know the YouTube videos all talk about "how to buy your first rental if you're broke" and have creative, bold advice on how to leverage other people's money. There isn't so much about the nitty gritty of which traditional "boring" option to go with if you have decent money. 

I definitely wouldn't say that I have analysis paralysis, but I do want to fine-tune my exact vision and then commit to offering on everything that meets my subsequent buying criteria.  Really, really appreciate any insight, and I apologize for the lengthy post. Just wanted to cover all the variables and factors instead of saying "I'm new, tell me where to start. Go!"

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Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
3y

Justin,

You are basically in the perfect position and you don't even realize it yet.

You have some cash to work with on top of what I'm assuming is a decent W2.

You have no real debt yet (as far as I can tell) and low expenses.

You live in Metro Detroit.

Unfortunately, you don't seem to recognize the opportunity that is Detroit proper and you are about to make the mistake of investing in the suburbs. 

Maybe that aligns with your goals, but it seems like a waste to me. 

You say you don't have much time but you have the time for a digital marketing side hustle. Why not add real estate and maybe transition the side hustle to RE instead of the digital marketing? 

If it were me, I'd be buying properties in Detroit for cash, doing some minor rehab, and then renting them out and refinancing. Recycle that money over and over and build yourself a solid portfolio over the next few years.

That's what I did while living in Troy. And I went from 0 - 12 doors in 2.5 years. I did it while holding down my W2 job, renovating my primary home (ourselves), and raising two very young children. 

You have the time.

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  • Michael E.Pro Member
    New to Real Estate · Saginaw, MI · Member since 2021 · 89 posts · 115 votes
    3y
    Quote from @Justin Thind:

    Hi everyone, just joined the community here. Looking to get started in real estate investing asap. Began the process last month and have been analyzing deals and even put in an offer today. Still, I'm not entirely confident in my vision/direction....

     Hi Justin,

    You discussed a lot of different options you have and I think all of them could work. However, as to which one is best, I think that will depend on the deals you can find. My agent @Nick Harris did a great job helping me find what I was looking for, which was small multifamily. @Joe Hammel and the Fire Reality Team know the Metro area very well and work with a lot of new investors. They would be a great place to start.

    Also, if you haven't checked out all the "PRO Exclusive" stuff yet, they do have some good info and resources.

    Last, you could also submit a video question to @David Greene about your dilemma and see what he has to say. 

    Hope this helps and good luck!

  • Real Estate Coach · NC · Member since 2023 · 32 posts · 23 votes
    3y

    From the detail you have provided it looks like you feel most compfortable with LTRs. Typically they are an easier way to get into investing. Also, a small single family home is marketable to first time home buyers and so is easier to offload in the event you want to switch strategies later on. 

  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y
    Quote from @Justin Thind:

    Stop thinking and start doing.

    You are in a market with hundreds, maybe thousands of opportunities. Set a goal to put something under contract in 30 days. Find a REALTOR and a Property Manager. They will help you focus in on a good neighborhood. Buy a house, give it the Property Manager, then set up to do it again.

    I look forward to your update in July.

    The DIY Landlord Book4.7248 Reviews
  • Real Estate Agent · Metro Detroit, MI · Member since 2023 · 20 posts · 15 votes
    3y
    Quote from @Nathan Gesner:
    Quote from @Justin Thind:

    Stop thinking and start doing.

    You are in a market with hundreds, maybe thousands of opportunities. Set a goal to put something under contract in 30 days. Find a REALTOR and a Property Manager. They will help you focus in on a good neighborhood. Buy a house, give it the Property Manager, then set up to do it again.

    I look forward to your update in July.


    I'm definitely good with setting a goal like that, but haven't found anything with CoC return higher than 5-6%, where as the rule of thumb I'm seeing is to not settle for anything under 8%. While I don't want to keep sitting on the sideline, I also don't want to bust buy something for the sake of buying and it not cash flow. Are the days of 8%+ CoC return not viable right not because of high interest rates?

  • Real Estate Agent · Wilmington, NC · Member since 2021 · 166 posts · 116 votes
    3y

    As far as what you mentioned with your plans to purchase a primary residence, I think the 5% option makes the most sense. If you are going to be using cash on hand to quickly invest in one or two additional properties, I'd want that extra money there. Your primary will (hopefully) appreciate regardless of what your downpayment is.

  • Developer · St. Augustine, FL · Member since 2018 · 311 posts · 384 votes
    3y

    Thank you for your post. I think your market cashflow pretty well. I would start talking to property managers, realtors and lenders and start shopping. 

    It got me interested in looking into your market and I'm surprised to find hundreds of >1% rule properties that are in decent shape in Detroit, MI. 

    Got me interested in what is it like to invest and own LTR there. Did a quick google search and found that Detroit is relatively Landlord friendly. Anyone who's specialized in operating in Detroit? 

  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y
    Quote from @Justin Thind:

    The cost of buying increased dramatically and rent rates haven't caught up. It may be years before we see the same returns we were able to get in 2018.

    My first investment was a mediocre townhome for $67,000. BiggerPockets didn't exist. I hadn't ready any books on real estate investing. I didn't have a calculator, the 1% rule, a mentor, or anything. I bought a house that rented for $35 more than the mortgage, taxes, and insurance. I put that $35 into an account and saved up. Fortunately, we didn't have any major expenses the first couple of years. I raised rents as we went and was eventually able to upgrade the unit. By the time I sold it eight years later, the property was cash flowing $400+ per month and I sold it for a profit of over $80,000.

    Real estate is very forgiving. We push so hard for cash flow, but there are other ways to make money through real estate and people have been doing it throuhout history without the benefit of the tools we have available today. In fact, I sometimes think the tools make it harder for people to buy because they spend too much time analyzing, looking for the perfect deal, or trying to match the results of some guy on YouTube that probably exaggerates his results.

    The DIY Landlord Book4.7248 Reviews
  • Real Estate Agent · Metro Detroit, MI · Member since 2023 · 20 posts · 15 votes
    3y
    Quote from @Nathan Gesner:
    Quote from @Justin Thind:

    The cost of buying increased dramatically and rent rates haven't caught up. It may be years before we see the same returns we were able to get in 2018.

    My first investment was a mediocre townhome for $67,000. BiggerPockets didn't exist. I hadn't ready any books on real estate investing. I didn't have a calculator, the 1% rule, a mentor, or anything. I bought a house that rented for $35 more than the mortgage, taxes, and insurance. I put that $35 into an account and saved up. Fortunately, we didn't have any major expenses the first couple of years. I raised rents as we went and was eventually able to upgrade the unit. By the time I sold it eight years later, the property was cash flowing $400+ per month and I sold it for a profit of over $80,000.

    Real estate is very forgiving. We push so hard for cash flow, but there are other ways to make money through real estate and people have been doing it throuhout history without the benefit of the tools we have available today. In fact, I sometimes think the tools make it harder for people to buy because they spend too much time analyzing, looking for the perfect deal, or trying to match the results of some guy on YouTube that probably exaggerates his results.


     That was a cool real-life example for sure. Appreciate you sharing!

  • Real Estate Agent · Metro Detroit, MI · Member since 2023 · 20 posts · 15 votes
    3y
    Quote from @Ke Nan Wang:

    Thank you for your post. I think your market cashflow pretty well. I would start talking to property managers, realtors and lenders and start shopping. 

    It got me interested in looking into your market and I'm surprised to find hundreds of >1% rule properties that are in decent shape in Detroit, MI. 

    Got me interested in what is it like to invest and own LTR there. Did a quick google search and found that Detroit is relatively Landlord friendly. Anyone who's specialized in operating in Detroit? 


    I'm more so looking just outside of Detroit. In Warren, Ferndale, Roseville, Oak Park, Eastpointe, etc.

    All 3 local investors and property managers that I've talked to say they caution away from Detroit itself due to vacancy rates, the amount of expenses to repair the property just after tenants move out, and the lack of appreciation with those houses over time (compared to areas outside of city limits).

  • Real Estate Agent · Metro Detroit, MI · Member since 2023 · 20 posts · 15 votes
    3y
    Quote from @Blake Novotney:

    As far as what you mentioned with your plans to purchase a primary residence, I think the 5% option makes the most sense. If you are going to be using cash on hand to quickly invest in one or two additional properties, I'd want that extra money there. Your primary will (hopefully) appreciate regardless of what your downpayment is.


     Thanks for weighing in. Was hoping someone did touch on that point of mine and either reinforced it or debunked it. Glad to hear you agree!

  • Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
    3y

    Justin,

    You are basically in the perfect position and you don't even realize it yet.

    You have some cash to work with on top of what I'm assuming is a decent W2.

    You have no real debt yet (as far as I can tell) and low expenses.

    You live in Metro Detroit.

    Unfortunately, you don't seem to recognize the opportunity that is Detroit proper and you are about to make the mistake of investing in the suburbs. 

    Maybe that aligns with your goals, but it seems like a waste to me. 

    You say you don't have much time but you have the time for a digital marketing side hustle. Why not add real estate and maybe transition the side hustle to RE instead of the digital marketing? 

    If it were me, I'd be buying properties in Detroit for cash, doing some minor rehab, and then renting them out and refinancing. Recycle that money over and over and build yourself a solid portfolio over the next few years.

    That's what I did while living in Troy. And I went from 0 - 12 doors in 2.5 years. I did it while holding down my W2 job, renovating my primary home (ourselves), and raising two very young children. 

    You have the time.

  • Real Estate Broker · Rocklin, CA · Member since 2020 · 221 posts · 82 votes
    3y

    @Justin Thind @Travis Biziorek  I got alert from this Roseville, I thought Roseville California....lol So excited for my buyer today because builder was able to reduce $40k and meet our offer in Roseville CA, brand new home 5 bed/4 bath 3000 sq ft...wow. There are always deals but you have to ask.

  • Southeast Michigan · Member since 2023 · 23 posts · 13 votes
    3y

    Keep crunching numbers on properties to find the number you'll be comfortable with and make offers. Keep making offers until something sticks. We're in the same market, but I'm looking in the 250~300k range for a buy and hold. My plan is to buy a primary, then rent it out after a year and move on. I'm having the same issue with not seeing anything that cash flows positively after PITI, and all variable expenses. To arrive at a comfortable number I'm finding that I need to start at 10% below asking, and that typically shows negative cashflow of -$60/mo. So just a bit lower and we arrive at that +$35/mo mentioned above. I want to stay +$100/mo for year 2 worst case scenario with my offers. I think it will help you to narrow down your strategy. Feel free to reach out if you want to discuss.

  • Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
    3y
    Quote from @Justin Thind:
    Quote from @Ke Nan Wang:

    Thank you for your post. I think your market cashflow pretty well. I would start talking to property managers, realtors and lenders and start shopping. 

    It got me interested in looking into your market and I'm surprised to find hundreds of >1% rule properties that are in decent shape in Detroit, MI. 

    Got me interested in what is it like to invest and own LTR there. Did a quick google search and found that Detroit is relatively Landlord friendly. Anyone who's specialized in operating in Detroit? 


    I'm more so looking just outside of Detroit. In Warren, Ferndale, Roseville, Oak Park, Eastpointe, etc.

    All 3 local investors and property managers that I've talked to say they caution away from Detroit itself due to vacancy rates, the amount of expenses to repair the property just after tenants move out, and the lack of appreciation with those houses over time (compared to areas outside of city limits).


     Justin, I genuinely don't care where you invest. 

    But let's understand what's going on here. 

    The property managers you are talking DO NOT DO BUSINESS IN DETROIT.

    It's that simple. They don't understand anything beyond the suburbs and they choose not to operate in the city. So, do you think they'd tell you to invest in Detroit proper over the suburbs and steer your business away?

    Yeah... no.

    My point is to take everything with a grain of salt. Do your own research. Again, I'll repeat... you are on the ground there. If you don't actually take the time to understand your own market, well the reality is you shouldn't be investing in real estate at all.

    Everyone told me the same garbage when I was getting started in 2019. So many naysayers about the city of Detroit. It was so loud that it finally made me want to look at it even further. I figured the risk was low (given price points) and upside unlimited.

    I'm thankful every day that I went against the grain and invested in the city. It's literally been the best financial decision I've ever made.

  • Real Estate Agent · Metro Detroit, MI · Member since 2023 · 20 posts · 15 votes
    3y

     Justin, I genuinely don't care where you invest. 

    But let's understand what's going on here. 

    The property managers you are talking DO NOT DO BUSINESS IN DETROIT.

    It's that simple. They don't understand anything beyond the suburbs and they choose not to operate in the city. So, do you think they'd tell you to invest in Detroit proper over the suburbs and steer your business away?

    Yeah... no.

    My point is to take everything with a grain of salt. Do your own research. Again, I'll repeat... you are on the ground there. If you don't actually take the time to understand your own market, well the reality is you shouldn't be investing in real estate at all.

    Everyone told me the same garbage when I was getting started in 2019. So many naysayers about the city of Detroit. It was so loud that it finally made me want to look at it even further. I figured the risk was low (given price points) and upside unlimited.

    I'm thankful every day that I went against the grain and invested in the city. It's literally been the best financial decision I've ever made.

     I should clarify - the two property managers I talked to *do* indeed do business in Detroit (and the surrounding areas as well), and still were pushing me towards the suburbs due to appreciation, since I will be holding onto these houses well into my own retirement age. With a 30-year outlook, they said that appreciation should be a bigger focus of mine than immediate cashflow, but that they're good with it if I choose Detroit at the end of the day.

    Then the one local investor/real estate broker that I am leaning on for advice has invested in Detroit himself but had a bad experience, as the amount of repair costs he would have to spend after each tenant moved out greatly ate into his cashflow profit from the year prior.

    With that said, I obviously understand that is a very, very small sample size and for every person that has a negative experience, there is one that has a positive one like yourself. Also, it's not lost on me that property managers would be getting a bigger cut per month on 10% of a suburban rental, given a higher rent, so that may be their agenda.

    Either way, I appreciate you nudging me to continue diving into Detroit and asking questions, instead of ruling it out so quickly.

  • Real Estate Agent · Metro Detroit, MI · Member since 2023 · 20 posts · 15 votes
    3y

    Update, if anyone cares lol: Put in an offer today on a house I found yesterday & immediately went to go see. Already got a promising counter that I’m thinking of jumping on. Enjoying the process for sure.

  • Member since 2022 · 5 posts · 4 votes
    3y
    Quote from @Justin Thind:

    Update, if anyone cares lol: Put in an offer today on a house I found yesterday & immediately went to go see. Already got a promising counter that I’m thinking of jumping on. Enjoying the process for sure.

    I’m happy to read that very last line- you are enjoying the process!  Taking action is where all of the fun is, but enjoy all of the steps before you actually spend the money. 
    There is always a lot of people saying to just go and buy and don’t freeze because you have all of the options. It sounds like you are on the good side of that line where you get as much information as you can and listen to what makes sense and do your own thing on your own time. We sometimes don’t like to mention that there are indeed bad deals out there that would be a financial disaster to purchase. You never want to make that mistake, but you especially don’t want to make that mistake on your first property. 
    I also found it difficult to get cash flow so I adjusted my goals and am happy to have a single long term rental that breaks even. The renters are paying the mortgage down and I’m getting the appreciation so net worth steadily goes up. I gave up on any real cash flow in my area, at least for the first few years. 
    The people that have good immediate cash flow are the short term renters, I may make a foray into that- but it is a lot more work. That is for another day. 
    I like your plan of an easy, safe first property. Be happy to break even years one and two, then you have some safety to make more adventurous moves. 
    In addition to getting a good first house, get good first tenants too. Vet them well, I turned down the first 4 people and that was harder than I thought it would be. 

    My two cents :)

    let us know how things work out once you have the property purchased, renters in and the house on auto pilot!
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