All Forum Posts by: Seth McGathey

Hey Nick, do you have experience with home repair? If not, do you have trusted contractors? It is possible to start with flipping, people pull it off, but it is one of the higher risk strategies to get into real estate. So you will want to either know how to do a lot of the work or have trusted contractors. Because all you need is one thing to go wrong and now your whole flip went from big payout to big expense and you are out of the game again until you can raise enough capital. 

If I were just starting out, I would house hack. If your current house is rentable, I would rent out the extra bedrooms. If it wouldn't work like that, I would take the equity in a HELOC or cash out refi and buy a 2-4 unit property, live in one unit and rent out the others. In a perfect situation the property needs a bit of fixing up and/or could have another bedroom or unit added. You do that on the side while renting the rest. That allows you to get some of the benefits and experience of a flip without going into a full flip situation.

Hope this helps, and good luck! 

It is tough. I think it very much depends on the job. If it is a job I like/enjoy, sure I will take that. Also, 5-10 years ago, I would absolutely take that. But, I am currently looking to transition to full time real estate, so now I think I would take the $500k because I think it would push me over the edge and allow me to transition out of my 9-5 within the next year or two. 

I would likely keep $100k of it as a safety net to live off of for the first year without my day job. I would take the other $400,000 and invest it into some more long term properties. In my area, I could likely get at least a few 4-plexes. Or maybe I would step up my level and try breaking into the commercial market. 

@Kevin Lee I was thinking the same thing. House hack yourself to success. You won't feel so much like you are managing it, but you will learn a lot about being a landlord. 

You also could go the route of buying a multi family and living in one unit. Either way, you will get the most bang for your buck by house hacking.

I went the house hack route when I started and the only thing I regret is not taking more advantage of it when I was still single and childless. I could probably have twice as many properties now if I had known then what I know now about investing, and it all would have been possible with house hacking. 

One question, what area are you in? Because the one thing that may be a caveat is the prices in your area. For example, if you are in LA you might not have much access to affordable housing for your money. In a situation like that, you might reconsider that house hacking plan and might consider some long distance investing since you don’t want to self manage anyway. But if you are like me and live in an affordable city like Milwaukee, the house hack plan is easily going to be the easiest, safest, and most cost effective way to get started.

Finding one by a train station should be pretty easy. Do a proximity search on the properties for sale by that train station. 

And while I think a train or other public transport is a good thing to have, it probably isn't the #1 thing for most people. For example, if I am walking distance from a train station, but there are no restaurants or other amenities near that train station, it might not be all that appealing. I recommend trying  to take a more wholelistic approach to identifying what makes an area desirable. 

I think we need a lot more information.

How much are your estimated repairs?

How long will those repairs take?

 Can you do it in sections to start getting renters in now? 

How are you financing the purchase and the repairs? (If you are doing hard money or another short term loan, take that into account when you decide how long repairs will take because you will be paying a lot each month until you can refinance out.)

What can you get for rent?

What will the value be once fixed up?

How much will the mortgage be before and after the work/refinance?

Answer these questions, and then I think we can give you a better answer. 

As some people point out, appreciation in one year is hard to track. Unless you made remodels/improvements. Otherwise, your property value in one year is going to be somewhat trapped by your sale price. Because when someone tries to compare it, they will see the sale price and say "oh, it sold for X just a year ago, that's what it's worth". Once you get a few years out, that is when people stop focusing as much on the old sale price and allows the property to get more fluctuation based on its market value again. 

Sounds to me like you have a promising property that you have not held long enough to know if it is a great or an average short term investment. But in 10 years it will be a great long term investment. What you are trying to find out right now is if it is better than other properties. Which is hard to judge on such a short span of time.   

I think break even is fine assuming you mean breaking even after capex, management fees etc. Because some people make the mistake of not leaving anything for some of those "extra" expenses. So they are actually negative cashflow pretending to be breakeven. 

But the real question, why not invest somewhere else? You even mention the Midwest, which is where I am at. In my market of Milwaukee you would get 2-3 properties for $800k. I bought a duplex last year for $300,000 and I am cash flowing $500 already and that is even with one long term tenant being below market rent because I didn't want to jump her rent double in one jump. 

@Drew Phebus sorry if I wasn't clear. I was saying that I have a 3% interest mortgage. So that is why I went with a HELOC (which has about a 7% interest rate). Because if I cash out refinance my mortgages on those 3% mortgages I will be paying at least 7% interest on them. So it doesn't make sense to turn my whole mortgage into a 7% mortgage instead of just turning the exact amount I use in ny HELOC into a 7% loan. I will pay a lot less in interest this way.

However, if my mortgage was at or around current interest rates, then I would consider just cash out refinancing. 

I think that totally depends on your interest rate. For example I just went the HELOC route because my properties with good equity are 3% interest loans. But if I had a 7+% loan I would personally probably go the refinance route. More freedom and less concern about needing to pay it off in 5-10 years.

How is cash easier? Man, I can not imagine trying to collect cash. Having it auto deposited into my account is such a time saver. 

But I absolutely suggest splitting it. Personally I have three credit cards. My personal one, my real estate one, and my real estate agent one. Anything I spend on those three cards is specifically designated for that area of my life. Then I have a Chase account which is where I manage those cards (all three are Chase cards) but I keep almost no money in that account. My money almost all gets deposited directly into my Capitol One 360 account. Which allows me to divide up my accounts into separate categories. I have a separate one for each property, so I can see what money I have for that specific property. I also have one for my Real Estate Agent income, and one for my W2 job. Everything stays separate unless I manually need to move something around. But that is rare and only for really good reasons.