All Forum Posts by: Leo R.

@Garrett Ayers another consideration is: how easy is this property to manage, what's the property's current cashflow, and how does that cashflow align with your lifestyle and your goals?

For instance, if I had an A grade property that was super easy to manage, and its cashflow was enough to cover all my living expenses and provide me with a comfortable lifestyle, and my main goal was to have a ton of free time and not have to work very much, I might consider just keeping the property and not do anything that would screw up its cashflow (obviously, a cashout or HELOC debt will reduce your cashflow).

On the other hand, if my goal was to work really hard to build up a larger portfolio of additional properties, and/or if this property's cashflow wasn't nearly enough to cover my living expenses, and/or if the property was a hassle to manage, then I might consider one of the options others have mentioned (e.g.; cash-out, sell, etc.).

You said you inherited this property, which makes me assume that you've never managed a rental property before? (If that's true, then I'd suggest managing this property for 6-12 months to see how you like it before putting in all the effort to acquire more properties--there's nothing worse than buying a portfolio of properties only to discover that you hate owning and managing properties (or hate managing the PMs who are managing the properties)   :) 

If you do already have PM experience, and if your goal is to work hard to acquire more properties, then you might consider whether house hacking this triplex would improve your DTI and/or your cashflow, and enable you to qualify for better financing that you could then use to acquire more properties (I don't have enough info about your circumstances to know whether this would work for you, but it's worth considering).

Based on your question, it sounds like you're not yet sure of which leverage options fit you best (this depends on your current financial circumstances and your goals--which, of course, we don't know).  So, I suggest talking with some experienced lending pros who can review your financial circumstances and your goals, and help you understand which options are available to you.

As for what types of properties to focus on, that all depends on your circumstances and your goals; different REI strategies all have their own pros and cons, so if you're not sure which strategy fits you best, I suggest studying up (e.g.; listen to podcasts, read books, review the forums, watch YouTube videos, talk to REI pros, etc., etc.).

Good luck out there!

@Luis Fernandez it's not really possible to give you much personalized feedback with no information about your current circumstances and your goals. Asking "how do I get started in REI?" is a bit like asking "how do I get started in exercise?" (well, that depends on things like: your current fitness level, your age, whether you have access to a gym, your preferred exercise routines, your preferred diet, whether your goal is to build strength, increase stamina, lose weight, etc., etc., etc. --there are countless potential answers, and it all depends on what your current circumstances and future goals are).

For instance, we'd give completely different feedback to a person who has $50 mil in cash who wants to build a portfolio of triple net in Seattle versus a person with $10k cash who wants to house hack a single fam in Kansas.

If you don't know what your goals are, study up on the various REI strategies to figure out which makes the most sense for you (personally, I think house hacking is the best way for most beginners to get started).

Once you have a better idea of what your goals are, and you're able to provide more specific info about your circumstances and goals, then people on the forums will be able to give you much more personalized feedback.

Good luck out there!

@Joshua Carter a SIGNIFICANT portion of my due diligence and inspection process requires the utilities to be on.

For instance, I run all plumbing extensively to check for leaks, I ensure that appliances are functioning correctly, I check all lights and electrical outlets for functionality & ground, we check the fuse boxes for functionality & condition, we assess the performance of furnace & AC systems, and water heaters, we check the functionality & safety of the gas lines, scope the sewer main and assess water flow, test for radon & meth contamination, and basically give the entire property a thorough "test drive"  --which isn't possible if the utilities are off.  

Buying a building without being able to thoroughly test the functionality of all its systems is a bit like buying a used car without a test drive, IMO. 

Moreover, if the seller is resisting having the utilities on, I'd view that as a HUGE red flag (similar to how I'd view it if someone tried to sell me a used car, but wouldn't let me test drive it or even start the engine).

Since correct and thorough due diligence is the foundation of successful REI, I'd be extremely hesitant to buy a property without testing the aforementioned items (unless the property was so heavily discounted that I could replace/fix all of those items if they turned out to be faulty...but even then, I'd be wary).

I'd suggest strategizing with your agent on the best way to get the utilities turned on so you can do a correct inspection...

Good luck out there!

@Thomas O'Donnell some excellent suggestions in this thread.  My two cents: before you buy a 2nd property, zero in on why your current property isn't performing, and fix that issue. The only thing worse than one vacant property is two vacant properties.

As others have mentioned, the vacancy could be caused by many things--rent price is too high, wrong neighborhood, the grade of the property is lower than competitors, winter (esp. the holidays) is dead season for new renters, insufficient or poor advertising, the type of property doesn't match the needs of the local tenant pool, etc., etc., etc....I don't know which issues are causing your vacancy specifically, but I do know you'll want to figure that out before going for property #2.

Plus, figuring out why your current property isn't renting will help you better understand what type of property to buy next (and what types to avoid).

Good luck out there!

I would suggest studying up on all the OOS resources you can find (books, podcasts, forum posts), and asking OOS investors for their biggest lessons learned (a lot of these are already discussed frequently on the forums).  One of the most important things with OOS is creating and incentivizing a team of boots on the ground--this is notoriously difficult to accomplish, but it's absolutely necessary for success.

When comparing OOS properties to in-state house hacks, always remember to factor in the reduced (or eliminated) housing expense the house hack brings. For instance, if the house hack grosses $2k/month in rent AND saves you $1k/month in housing expenses, your gross is $3k.

Good luck!

@Robert Gibbs welcome, and good luck on your investing journey.

My two cents:  a house hack (which can be a single fam or small multifam property) is the best way to start off--and is a far better strategy for a beginner than an OOS property.

A good house hack will simultaneously lower your living expenses while increasing your income (the fundamental recipe for building wealth), it will teach you many of the essential skills you'll need to succeed in REI (like due diligence, tenant screening, property management, etc.), and--importantly--it's MUCH simpler and easier than other strategies like OOS investing (which tends to have a lot more risk and a much steeper learning curve).  

Unfortunately, we regularly see beginner investors on the forums with nightmare scenario properties (non-paying tenants, crime, property destruction, and MIA PMs), and their story is almost always the same: it was their first property, and they bought OOS because the cashflow was great (on paper), and "it looked great in the photos", but the property was a lipsticked pig rehab in a C or D neighborhood, and they learned the hard way that PMs have no incentive to put in the significant effort required to manage in a C or D area for the minimal revenue such a property produces....that's a lesson I'm glad I haven't had to learn through experience!

Fortunately, there are simpler, easier REI strategies (like house hacking) that have lower risk profiles.

Good luck out there!

@Malik Hollier if you're already a homeowner, you've already started! Take what you've learned from buying and operating your first home, and use it to start building a portfolio.

My suggestion is to house hack, house hack, and house hack some more.

In my opinion, house hacking (a single fam or small multifam) is the single best way for people to get started in real estate investing.

Why? Because, house hacking can produce great financial returns, it teaches you essential RE investing skills, but (compared to more advanced strategies like BRRR'ing or wholesaling), it is comparatively lower risk, simple and beginner-friendly (and therefore has the highest likelihood of success).

More specifically:

1. A HH can produce great financial returns. A HH can substantially lower your living expenses, while creating cashflow, appreciation, mortgage pay down, and tax benefits. Lowering your expenses while increasing income is the fundamental recipe for building wealth, and a HH accomplishes this in a single step! A HH can also involve opportunities to force appreciation and/or rent (e.g.; by adding an extra bedroom in a previously under-utilized space). When executed correctly and repeatedly, house hacking can be very lucrative, and there are multi-millionaires who built their fortunes on repetitive house hacking! Although it's a strategy that's good for beginners, there are plenty of very experienced RE investors who continue to HH, because it's such a powerful strategy.

2. A house hack will teach you the essential skills you'll need to succeed in RE investing. With a HH, you can learn how to analyze properties & markets, how to find an investor-friendly agent, how to spot value-add opportunities at properties, how to engage in a strong due diligence process, how to screen tenants, how to manage the property, how to build a network of contractors, plumbers, electricians and other pros, how to manage the book keeping of the property, etc., etc., etc. If you want to succeed in RE investing, getting this experience will be critical! In my experience, a HH can provide incredibly valuable lessons that no mentor, real estate course, book or podcast could ever teach (though, I'd still highly recommend reading up on relevant RE resources, listening to podcasts, etc.).

Plus, if you decide to do one of the other strategies in the future (such as BRRR'ing or out of state investing), you'll be much more prepared to do it if you have a few HH's under your belt--a ton of the lessons you'll learn from a HH can be used to succeed in other areas of real estate ...in fact, I'd say that a HH should be a necessary prerequisite to the more advanced strategies (like flipping) for most folks!

3. Compared to other strategies (like flipping, wholesaling, etc.), HH is relatively simple and lower-risk, and therefore has a higher chance of success. I always use this analogy: would you tell a beginner skier who has zero experience to ski a double black diamond (the most advanced terrain) for their first run? (obviously, no; a beginner could easily get themselves killed on double black diamond terrain!). Beginners should start off on beginner terrain, where they actually have a chance to learn and succeed. A house hack is like that beginner run (but BRRR'ing, wholesaling, and out-of-state investing are more like double black diamonds).

The fact of the matter is: real estate is often a high-stakes endeavor, and the more advanced strategies (like BRRR'ing, wholesaling, flipping, out of state investing, etc.) can easily bankrupt a beginner when they're executed poorly.

Now, having said all that, house hacking is not necessarily easy (if it were, everyone would do it!)...it's just easier than the more advanced strategies...House hacking still takes significant due diligence, skill in analyzing the market and the property, time and effort to learn about tenant screening and property management, the ability to anticipate appreciation/depreciation trends, etc., etc., etc....and even with lots of skill and preparation, things will still go wrong (vacancy, plumbing leaks, bad tenants, etc.). Plus, house hacking requires some sacrifices--you have to share your house (or a small multifam property) with tenants, and when you're first starting, you might have to occupy the worst bedroom/unit in the place to maximize your returns (that's the nature of the game. As James Brown sang: you gotta pay the cost to be the boss.)...but, as time goes on and you build your wealth, you'll be able to step up to nicer units--and eventually get your own place (just remember to keep "lifestyle creep" under control by making sure your increasing expenses don't outpace your increasing income). 

Good luck out there!

@Baylen Sparks I'd say only buy OOS properties in A or B neighborhoods. Properties in C and D neighborhoods are extremely difficult to manage, and most PMs will not devote the significant effort required to manage a property in a C or D area, because it's not worth the tiny return they get on the property (assuming it's just a single fam or small multifam property...the dynamic is different for large multifam).

 As @Bob Okenwa and @Bob S. mentioned, your boots on the ground are critical--it can't be done without them, so find a good team and pay them well. 

Good luck out there!

@Noelle Stecher to me, Option #1 is the way to go--especially for a beginner.

Here are the reasons: 

First, location and grade of neighborhood are critical (in more ways than one). Personally, I always go with A and B properties in A and B areas (even though it means getting less cashflow, and/or not getting as nice of a property). I follow the most fundamental three rules of REI: location, location, location.

A property in an A or B area will usually be much easier to find tenants for, the tenants will often be more qualified, and the management of the property will be MUCH easier (which will make it more likely a PM will be able to manage the place, if you decide to hand it off to a PM). Plus, you will have much lower vacancy, much more protection against market downturns, and often better appreciation in market upturns (all of this often ends up overshadowing the lower cashflow of A and B neighborhoods). Also, you mentioned multifam in a less desirable area--not only would the lower grade area inhibit appreciation, but it being a multifam would also likely slow appreciation (single fam properties tend to appreciate better) Moreover, properties in C and D areas are notorious headaches, and are very difficult to manage (even for experienced pros)--since you're starting out, it's probably a good idea to start with the easier of the strategies (which is a property in an A or B area).

I am a huge proponent of house hacks (whether you do a live-in rehab or not). A HH has some significant advantages over other strategies. For instance, it can quickly and simultaneously lower your expenses while increasing your income (the fundamental recipe for building wealth), you get the better terms of an owner-occupant mortgage, it can provide multiple exit strategies (rehab, sell, move out in a year or two and rent it, just keep living in it, etc.), and--importantly--it will teach you many of the most important skills that are needed for continued success in REI (e.g.; property analysis & due diligence skills, tenant screening skills, property management skills, etc., etc.). Also, it's a much easier learning curve to manage a property you live in or near, than to try to manage a property in another area/state (which makes management exponentially trickier).

...because of all these advantages, I'd suggest going for a property you know you'd be comfortable house hacking (even if you decide not to HH, it's a very nice safety net to have the option!)

In summary, I'd say start off with the strategy that is simplest, easiest, has the most upside, the least exposure to downside, and therefore the highest chance of success--which, to me, is probably option #1 (especially if you combine it with a house hack, or at least have the option to house hack it).

Good luck out there!

@Pat Rach if I were your age, I'd be doing everything possible to prepare for my first house hack (e.g.; saving money for a down payment, analyzing potential house hack properties, talking to mortgage brokers to understand what you need to do to qualify for a mortgage, studying up on house hacking strategies, etc., etc.), and then, as soon as I was old enough to qualify for a mortgage (and had the money), I'd house hack a property every 12 months until I hit my limit of owner-occupant mortgages (usually 10).

In my opinion, house hacking a single fam or small multifam property is the single best way for people to get started in real estate investing--especially for a young adult.

Why? Because, house hacking can produce great financial returns, it teaches you essential RE investing skills, but (compared to more advanced strategies like BRRR'ing or wholesaling), it is comparatively lower risk, simple and beginner-friendly (and therefore has the highest likelihood of success).

More specifically:

1. A HH can produce great financial returns. A HH can substantially lower your living expenses, while creating cashflow, appreciation, mortgage pay down, and tax benefits. Lowering your expenses while increasing income is the fundamental recipe for building wealth, and a HH accomplishes this in a single step. A HH can also involve opportunities to force appreciation and/or rent (e.g.; by adding an extra bedroom in a previously under-utilized space). When executed correctly and repeatedly, house hacking can be very lucrative, and there are multi-millionaires who built their fortunes on repetitive house hacking! Although it's a strategy that's good for beginners, there are plenty of very experienced RE investors who continue to HH, because it's such a powerful strategy.

2. A house hack will teach you the essential skills you'll need to succeed in RE investing. With a HH, you can learn how to analyze properties & markets, how to find an investor-friendly agent, how to spot value-add opportunities at properties, how to engage in a strong due diligence process, how to screen tenants, how to manage the property, how to build a network of contractors, plumbers, electricians and other pros, how to manage the book keeping of the property, etc., etc., etc. If you want to succeed in RE investing, getting this experience will be critical! In my experience, a HH can provide incredibly valuable lessons that no mentor, real estate course, book or podcast could ever teach (though, I'd still highly recommend reading up on relevant RE resources, listening to podcasts, etc.).

Plus, if you decide to do one of the other strategies in the future (such as BRRR'ing or out of state investing), you'll be much more prepared to do it if you have a few HH's under your belt--a ton of the lessons you'll learn from a HH can be used to succeed in other areas of real estate ...in fact, I'd say that a HH should be a necessary prerequisite to the more advanced strategies (like flipping) for most folks!

3. Compared to other strategies (like flipping, wholesaling, etc.), HH is relatively simple and lower-risk, and therefore has a higher chance of success. I always use this analogy: would you tell a beginner skier who has zero experience to ski a double black diamond (the most advanced terrain) for their first run? (obviously, no; a beginner could easily get themselves killed on double black diamond terrain!). Beginners should start off on beginner terrain, where they actually have a chance to learn and succeed. A house hack is like that beginner run (but BRRR'ing, wholesaling, and out-of-state investing are more like double black diamonds).

The fact of the matter is: real estate is often a high-stakes endeavor, and the more advanced strategies (like BRRR'ing, wholesaling, flipping, out of state investing, etc.) can easily bankrupt a beginner when they're executed poorly.

Now, having said all that, house hacking is not necessarily easy (if it were, everyone would do it!)...it's just easier than the more advanced strategies...House hacking still takes significant due diligence, skill in analyzing the market and the property, time and effort to learn about tenant screening and property management, the ability to anticipate appreciation/depreciation trends, etc., etc., etc....and even with lots of skill and preparation, things will still go wrong (vacancy, plumbing leaks, bad tenants, etc.)--but that's the nature of the game. As James Brown sang: you gotta pay the cost to be the boss.

Good luck out there!