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    Real Estate Investing: 1/2 Year Into This Real Estate Game - What I've Learned So Far

    September 11, 2020

    Real Estate Investing: 1/2 Year Into This Real Estate Game - What I've Learned So Far

    1/2 Year Into This Real Estate Game - What I've Learned So Far

    Posted: 10 Sep 2020 07:25 PM PDT

    Couple year lurker, sparse commenter, and first time poster, but I thought I'd try and give back to the community that helped me out when I was first getting started in the form of my real estate journey and what little I've learned so far. I am by no means an expert at real estate investing and I am relatively new to the game, so take everything to come with a grain of salt.

    First, just to touch on my background (which will intentionally be left very vague for privacy reasons), grew up middle / middle-lower class, suburbs, two amazing working full-time parents with high school level education. High school was never my cup of tea and college options were limited, so I decided to join the military. Fast forward to an honorable discharge and using the Post 9/11 GI Bill to graduate from a no-name college. I networked my ass off to get in investment banking at a bulge bracket bank that paid >$100k in a VHCOL area. Left to get a higher paying job around ~$250k shortly after. At the time when I decided to get into real estate investing, I was making ~$300k pre-tax and had ~$350k in a personal trading account, another $150k in my 401k with zero debt. I have never been focused on absolutely maximizing my income or savings rate. I enjoy living nicely, travelling nicely, and eating nicely. YOLO.

    Investing in my immediate area typically requires a metric shit ton of capital (or very creative thinking/networking) or competing against those who have it, so I headed a couple hours outside in order to get my feet wet. In the beginning I was not sure what type of real estate investing strategy I wanted, but chose the below criteria at first:

    1. Invest in properties that were cash flow positive from day one
    2. Investment would have to achieve at least 20% ROIC after all expenses and PITI. I don't include home price appreciation, as I believe that's not guaranteed and more speculation than anything and principal paydown is just icing on the cake for me
    3. Turn-key properties are preferred, but don't mind a bit of deferred maintenance if it'll achieve a good purchase price (and subsequently a better return)

    With my criteria in-place, I built up a rolodex of individuals I would need if I were to be successful at managing properties hours away from me (realtor, attorney, inspectors, handyman, lenders, etc.). And then I hit the ground running.

    Since I was still working full time and had a pretty busy schedule I knew I wanted my first property to be turn-key, so I chose a SFH that was recently flipped, but selling for a good price since the property had been on the market for a while and the seller was also over-levered due to multiple projects and needed liquidity. The property was in a Class B neighborhood with strong rental demand. Home price appreciation had been mixed in this area. I knew that the home would rent quickly to students of the multiple colleges nearby or some of the commercial properties that were also close (and those were exactly the people who ended up applying). I actually got a pretty good turnout of applicants and settled on a first year resident at the local hospital. Regarding background checks, as long as they weren't ex-convicts and made 3x rent, I wasn't that picky (I 100% no longer think this way due to Property 2). Below are the numbers (rounded dollars to avoid specifics):

    Property 1: Listed $150k / Paid $140k (appraised for the same value) / 20% down, 3.125% 30-year fixed, no points / Monthly Rent: $1,600 / Monthly Cash Flow (after PITI): $700 / Est. Year 1 ROIC: 22% (doesn't include principal paydown)

    After realizing my risk tolerance could be a bit higher, I went for a Class C triplex in a Class C neighborhood. The property was around 100 years old and looks like it has been neglected for the past 25. However, the bones were solid and I told myself I will renovate the units one-by-one when the tenants turnover (all are still in-place and paying rent; however, never on time). Below are the numbers:

    Property 2: Listed $165k / Paid $150k (appraised for $165k) / 20% down, 2.75% 30-year fixed, no points) / Monthly Rent $2,525 / Monthly Cash Flow (after PITI): ~$1,000 / Est. Year 1 ROIC 35-40% (doesn't include principal paydown; range given depending on maintenance)

    After figuring out how this whole real estate game worked, I decided to take a little more risk and buy a pricey triplex near me and live in one unit while renting out the other two. This was a turn-key triplex and I decided to utilize my VA loan for maximum leverage, no PMI and low rate.

    Property 3: Listed $900k / Paid $775k (appraised for $725k mid-COVID) / $50k cash out of pocket to cover the difference, $725k loan 100% LTV, 2.75% 30-year fixed, 1 point lender credit to me) / 2-unit Monthly Rent $5,200 / 2-unit Monthly Cash Flow (after PITI): ~$600

    Property 4 was where I decided to change my investment strategy and try my luck with finding vacant value-add properties. The house had the same layout and size (3 bd, 1 ba, 1,700 sq ft) as Property 1. The bathroom needed a full gut renovation, as well as the kitchen, carpet in bedrooms, LVP in common spaces, new paint, and the outside trim needed to be scraped and re-painted. Below are the numbers:

    Property 4: Listed $145k / Paid $110k (appraised for $115k) / Initially 20% down ($4,500 after refinance), 4.50% 30-year fixed, no points) / Renovation Budget: $7.5k - $10k / Market Comps $155k / Monthly Rent $1,600 / Monthly Cash Flow (after PITI): ~$500 / Est. Year 1 ROIC 125%+ (doesn't include principal paydown)

    My experience has been interesting so far. I've learned a lot, but still have much more to learn. I believe going forward I will look more towards value-add properties, given the returns. Below are a few points I have learned along the way.

    Disclaimer: Real estate investing will vary by individual investor and there is no "one size fits all" approach, so do not take these as gospel or 100% tailored to your specific situation.

    1. Wait for good tenants! Real estate investing can be scary when you know bills are coming due and you have an empty unit. It can seem like it's taking forever and you'll want to sign the first person that has a pulse and a paycheck. Resist this temptation! Good tenants are worth their weight in gold. Someone who leaves you alone and takes care of the property when you're self-managing is the closest you will get to truly having "passive income".
    2. Don't quit your day job. Because I used traditional financing, it was important to maintain my W-2 income. Real estate was new and interesting to me, so it quickly started gathering a lot of my attention, but it's important not to forget where the majority of your bacon comes from. Especially since that money is what made real estate investing possible (for me) in the first place.
    3. Be creative and aggressive with financing. It seems like the largest barrier to entry for a lot of people on this sub is getting capital to start. If that is the case, I would strongly suggest searching any comment made by u/GringoGrande (I hope I did this right) or search "Seller Financing" or "Owner financing" in the forums. You will find a treasure-trove of knowledge and information. If you decide to use traditional lender financing, call local lenders in the area and pit them against each other. When one lender beats the other, go back to that lender and ask them to beat the other rate given.
    4. Just Do It…. Yourself (at least in the beginning). I personally think there is tremendous value in knowing a little bit of everything, even if you're not a master in anything. Having a base knowledge of searching for houses, securing financing, negotiating deals, closing, placing tenants, structuring leases, etc. is all best learned by doing, making mistakes, and then correcting those mistakes next time around. And that can only happen if you get involved, learn and (for some things) self-manage. Learn how much repairs cost by doing them yourself (YouTube has a video for practically everything), or shadow a professional if it something like electrical or plumbing and you don't want to risk messing it up. This will help prevent you from being taken for a ride by contractors / professionals later on down the road.
    5. Out of state properties. Take what I say with a grain of salt, because I have never invested out of state and I have heard plenty of success stories of people who have. However, if you're new to real estate, I would strongly suggest investing in your own backyard. At most, I'm currently 2 hours away from my properties and even that feels too far sometimes. The only way I became comfortable with the distance is because I have a list of people I can depend on if there is an emergency and I need someone ASAP. I couldn't (and don't want to) imagine being in the situation where I'm a plane ride away and an issue arises with the tenant/property and the management company is non-responsive or combative.
    6. Paddle your own canoe. After the military I was half a decade older than my average co-worker and when you're in a competitive field like finance, it could really take a toll on your self esteem seeing kids making half a million at the same age you were graduating college. You have to accept that there are going to be people who are more successful than you. At school, at work, at real estate and at life. Everyone's story is different and it doesn't mean they're any better off in the grand scheme of things. Do not get caught up in some rat race and take on more risk or leverage than you are comfortable with or that you can financially handle. Go at your own pace. Paddle your own canoe. Competition is good, but you'll be better off if you save it for sports.
    submitted by /u/ekimlacks
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    How do I leverage my 3 investment houses ($700k valued, with about $200k in equity, about $1000/month in profit) - in order to buy land and build a minigolf course ($500k total investment, about $20k/month revenue/$5-$10k profit). Thanks.

    Posted: 10 Sep 2020 07:25 PM PDT

    As title states, I have identified land and a town in need of a minigolf course. All said and done, I need $500k to buy the land, create the course, and have enough cash runway to make It happen. I have 3 houses in downtown of Colorado Springs ($700k in value, a little over $200k in equity). They are renting for a combined profit of $1k/month. They're gaining about 10% a year because downtown springs is exploding, and as such, I dont want to sell them if I dont have to.

    The minigolf location is a really nice place. I'll spare you the details, but all said and done I need $500k and it'll bring in anywhere from $10 to $30k a month, with about $5k in monthly expenses (golf balls dont cost money, just an attendant and utilities, so anticipated bills will stay pretty steady).

    I'd like to know how to leverage the 3 houses since they are rented out and have value, to secure the money I need to get the land / upgrades to it. I'm "handyman" savvy and resporceful, but am not familiar with leveraging money for commercial requirements. Any advice would be greatly appreciated.

    submitted by /u/yellowhorseNOT
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    Cashing out money from my rental (345k @ 3.5%) to buy more real estate.

    Posted: 10 Sep 2020 06:35 AM PDT

    I'm overwhelmed by the possibilities, do I get something to put on AirBnb, do I go multifamily? Both? Where should I buy? I'm going crazy with the options here.

    submitted by /u/imissyourmusk
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    Sell or rent my townhouse?

    Posted: 10 Sep 2020 10:27 PM PDT

    This is the townhouse I currently live in. Originally bought it 2 years ago with intent just to "live in it for a few years and then sell for profit." I've done other rentals before, but this one at the time didn't have great rent numbers. Now rents have increased, however.

    ...

    Initial investment: 3% down at $155K, so barely anything

    ...

    Total Monthly Payment (including HOA): $1,115

    ...

    Projected Rent: $1375

    ...

    City is Raleigh. So it's the most booming city every basically.

    ...

    Townhouse would sell for $190K or $195K, so I would net about $30,000 - $35,000 from sale.

    ...

    Recently checked comps and I was surprised by the high sales (noticeable increase since 3 months ago even), so it seemed like a good time to sell.

    submitted by /u/dickpillsjones
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    Working on my first rental property in the next 6-12 months. Have I thought through all the important issues?

    Posted: 10 Sep 2020 02:37 PM PDT

    I bought about 3 years ago. Did the "home hacking" thing having roommates pay the mortgage for me. I'm currently refinancing the property, then I'll be ready to buy the second one and move there/rent this one.

    The refinance will increase my cashflow by lowering monthly payment by around $170.

    I have found a property management group that I like. They take the first month's rent of a new tenant (max once per year if they leave early), and then 7% of rent. If a tenant signs on for a second year, I am only charged a $199 renewal fee. The home is in a good rising area with great schools. I hope this will lead to more stable renting situations.

    Based on the estimate they gave me of rental value (I confirmed this to be in line with the local market), assuming max occupancy, after all of their fees I would net $4,000 per year.

    I know max occupancy won't happen, and I know there will be some maintenance costs that come along. The company said average yearly maintenance cost for a unit like mine is $500, not counting roofs, hvac, and water heaters. All of those are in good shape.

    Even assuming 2 months vacancy and $500/year expenses, I will still have a positive cash flow. My goal though is less about cash flow, and more about building equity. I would like to retire 35 years from now with 5-10 houses fully paid off that I can either sell, or that I can continue renting for continued passive income. In my mind, as long as I can break even on this one for a few years until the value increases, I will be happy. If there is money coming in, I will leave it all untouched as the money I would need for the 3rd house eventually.

    I know I will have to get more sophisticated and organized before house 3-5 (like an LLC), but are there other blind spots I am missing or things I need to consider before going down this path?

    submitted by /u/eingram
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    How to receive rent from tenants if I live out of state, they don’t have a laptop or smartphone, and I don’t want to get rent sent via mail?

    Posted: 10 Sep 2020 08:27 AM PDT

    My ultimate desire is to have rent delivered to me electronically, but I'm willing to try to work within some of the parameters of my tenant's scenario. My largest constraint is that I won't receive rent through the mail. I'm wondering if there's a way for the tenants to go to a physical location to send money to an account of mine. I heard there's a Walmart to Walmart payment functionality, but I'm not totally sure exactly how it's used. I'm wondering if they could deposit at Walmart and send that to an account that I'll set up at Walmart.

    submitted by /u/soccawalka5
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    Can a person turn rental property into a company then possibly a holdings company down the road? (Ontario, Canada)

    Posted: 10 Sep 2020 03:40 PM PDT

    not totally sure how this would work, currently I have two units rented out (duplex), living in my third unit (house), considering renting it out and trying to squeeze in another property, might be tough but I have been thinking about it, my question is, could I then start a rental property business? not like a property management business but one where I rent my own property out, then in the future start a holdings company? I ask because I've heard of the tax benefits involved in holdings companies and so on, also I am starting to think I need a truck for all of this and leasing could be an option which could be written off, I'm in Ontario Canada

    Thanks!

    submitted by /u/uo1987
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    How much money realistically do I need to start investing in real estate?

    Posted: 10 Sep 2020 09:58 AM PDT

    If one day I wanted to get involved in real estate to increase my capital, how much would I realistically need to start with on my first property?

    submitted by /u/yezzir123456
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    [A Future Landlord - US - TX] Looking for Exterior Update Advice

    Posted: 10 Sep 2020 05:37 PM PDT

    4% interest rate from a local bank...

    Posted: 10 Sep 2020 05:20 PM PDT

    Well here is my story, need some help and advice:

    -I have 595-610 credit score (yeah I know yikes, and yes I'm working hard on it trust me)

    -Mom is co-signing and has perfect credit (probably a 900 honestly, she is super financially literate and has always been very self disciplined with finances).

    -Touring 179k triplex soon, family and I are looking to buy it.

    -Had fire damage on the third unit and needs rebuilt (drywall, carpet electric, ceiling... it's down to the framing with some water and electric left).

    -GF and I have to move in for 12 months and live in it if we only put 10% down. We have a good gap of a few months to get it all fixed.

    -Mortgage originator at the bank is saying with my credit score and it being a rental and only 10 or 15% down I'm at a 4.000% interest rate.

    1. I'm in Iowa

    2. This seems high with all of the talk and the current state of the economy. Just the other day I had a friend with decent credit and parent co-signing get a 2.75 mortgage interest rate... I'm guessing I need to go shopping around at different banks?!

    submitted by /u/bcjh
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    Help: is this mortgage fraud? Family moving around because of Covid.

    Posted: 10 Sep 2020 08:12 AM PDT

    New to this and need some help...We own a home in Los Angeles. Lived there 2 years. Moved to Florida because of work and 2020/Covid. Rented out LA home. Saw a place in Florida we love and in the process of buying it. We're working remotely from here. BUT, my job is in peril and I may lose it and have to get a new one that could require me to move later this year or next to a new state. The question is, we are buying this home with the intent of living in it (hope we can!) but it could be 4 months from now I get a new job and we have to leave Florida. Is this mortgage fraud? We dont want to get in trouble! But we are getting a mortgage for this to be our primary residence. What happens if we move out after 6 months or so because I get a new job and w

    submitted by /u/GuyuteTheHolidayPig
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    Will Airbnb be profitable this winter (NYC) ??

    Posted: 10 Sep 2020 04:52 PM PDT

    Currently looking to rent before I go for an FHA. I was looking to move in to a 3BR/4BR in brooklyn this fall/winter and was considering AirBnB'ing out a room room or two to lower my cost basis and save more.

    Will guests still be staying enough given the weathers gonna be colder and coronavirus possibly making travelers more wary. Would love thoughts from other people hosting this coming fall/winter in dense urban markets.

    submitted by /u/chrisbrios
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    Can I put 3.5 percent down on a multifamily home as an investor (first time home buyer) ?

    Posted: 10 Sep 2020 03:45 PM PDT

    I'm 27, and would like to get into real estate investing. I've been doing research but am seeing conflicting info..can I put a 3.5 down payment (as a first time home buyer) on a multi family house if I plan on renting out all the units from the start?

    I like this idea cause it gives me flexibility for where I buy, and I can have others pay most/all of my mortgage, while I gain the equity. I'm new to investing - so any feedback on this would be greatly appreciated!

    EDIT: Got my answer. Thanks guys!

    submitted by /u/juicydaves
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    Mortgage/Cash Out Refinance Options on E2 Visa

    Posted: 10 Sep 2020 01:15 PM PDT

    Hi all,

    I Live in the UK but planning on moving to the states next year (Philadelphia) on the E2 visa.

    A big concern about getting into real estate is mortgage/refinance options. My primary aim is to get into BRRRR predominately along with buy and hold to build up a portfolio to retire in 10-15 years.

    My question is, will I likely have to wait for two years to establish credit and have a history of tax returns before I can look into mortgage options? Are there specialist lenders able to cater to those in my situation? I understand rates are likely to be less attractive, but at the moment I'd like to know if financing is an option at all.

    Thanks in advance

    submitted by /u/holzr
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    Home Values Before And After Realtor.com Releases Flood Data

    Posted: 10 Sep 2020 07:52 AM PDT

    Hi all, I'm an aspiring investor and have been reading up on Realtor.com providing flood scores for homes sourced from First Street Foundation. All I've been reading was how other companies like Zillow and Redfin aren't ready to do this yet, and that disclosing this data would run the risk of severely devaluing homes. I have a few questions.

    1. Isn't the flood score already factored into the price of the home, considering the data is ready available through other websites, like First Street? I understand it gets a lot more notice through Realtor.com, though, so does that drive the price further?
    2. Is the disclosure of flood data really as [politically] corrupt as I've read on here? Who exactly is being protected from the nondisclosure of flood scores, aside from the obvious investors? Are there a bunch of indirect consequences of this?
    3. If flood scores are in fact corrupt, why does it matter that Realtor.com decided to go with a non-profit to gather their data from? Did that even play a factor?
    4. [Brainstorm] Would it be a horrible idea to purchase a home with a high flood score while knowing that it's not necessarily accurate, but priced into the home, and then flip it when scores become more accurate, signifying that the home is a lot less likely to be subject to flood?

    source: https://www.housingwire.com/articles/realtor-com-now-discloses-flood-risks-heres-why-its-competitors-wont/

    submitted by /u/412gage
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    Effect of inflation on debt?

    Posted: 10 Sep 2020 07:29 AM PDT

    over time inflation diminshes the effective interest rate of my fixed 30year debt?

    If accurate, what's the break even point? When has inflation effectively balanced out the, for example 3.5% rate I have on a property?

    Is it when rents have grown to compensate for that 3.5%? When the decrease in purchasing power due to inflation = the amount being paid in interest?

    submitted by /u/gordonotfat
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    Are there any tools to research possible rental properties?

    Posted: 10 Sep 2020 10:49 AM PDT

    Hi All,

    I have some cash that I would like to use towards buying rental property in FL.
    Being new to this and besides using Zillow to compare what is being rented in the area and another tab with Zillow with the buy options in the same area.
    What is the best way to research for rental properties in another state?

    Cheers

    submitted by /u/trainz15
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    Investment portfolio allocation when planning to buy

    Posted: 10 Sep 2020 07:39 AM PDT

    We are planning to buy a 2mm house in the next year or two. We currently have 1mm saved. That is made up of 30% stock, 30% bonds, 30% cash, 10% crypto. Is that allocation too risky? We are saving 500k per year from our jobs.

    submitted by /u/Inner-Maintenance
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    Rent by the Room pitfalls

    Posted: 10 Sep 2020 06:06 AM PDT

    I made the post awhile ago about the 7 bedroom 4 bath ex nursing home that I was going to buy and cash flow $25K a month.

    Turns out it is not legal to do so in my county because of zoning laws. Some of you mentioned that zoning may be an issue for several reasons. Turns out the actual issues isnt sqr/ft or occupancy or anything common but instead because it would become a boarding house.

    Apparently you cannot rent more than 2 rooms out for any house that is SFH without it becoming a boarding house legally in my county. This was very confusing to me because I have heard of people renting by the room in far more restricted places like Seattle and Santa Barbra.

    Well there goes my edge in the market as well as the services I was trying to provide for military members who needed the flexibility. I will join the normal rat race all the other investors do here now and look for my next edge or niche, this time legal lol.

    ​

    https://www.reddit.com/r/realestateinvesting/comments/i5u9j1/min_maxing_rentbytheroom/?utm_source=share&utm_medium=web2x&context=3

    submitted by /u/PleaseDoNotClickThis
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    [Tool] Creates PDF of property info with address. Is there a cheaper alternative?

    Posted: 10 Sep 2020 05:45 AM PDT

    I found a subscription service that generates a PDF of the property info by inputting the address in it. It costs $200 per month with unlimited searches. But I don't think I'll be looking for such info for more than 20 ish properties each month that I underwrite.

    The other features I like is

    • Rentometer rent info
    • ARV with other similar properties based on type (SFH, MFH, Other)
      • info includes pictures, br/ba counts,
    • Regular public info agents get
    • details about the property (straight from realtor.com) lol

    ​

    I'm looking for a cheaper alternative that has similar features or is this field I getting what I pay for. This is $2400 per year. Am I being cheap in the marketing department? Side note: how much do you spend in marketing?

    submitted by /u/Moontrepreneur
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