Author Topic: first investment property-starting small  (Read 10225 times)

Taylor

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first investment property-starting small
« on: August 30, 2012, 09:32:24 AM »
Hello wonderful MMM forum,

I am looking for your opinions and advice. I have been 'staching away like mad and hope to buy an investment property. I would like to start very small (I can only really afford a small price point anyway) with a cheap condo. There are occasional decent condos in my metro area for 28-35K for a one bedroom and this is what I'm shooting for.

I am a complete novice about being a landlord or real estate investment. Any advice, tips, things to look for, books, classes that you can recommend? I've been reading 'beginning in real estate management' and looking around biggerpockets.com, but most of the language is a mystery to me.

Anyone else starting in real estate? How was your first purchase?

James

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Re: first investment property-starting small
« Reply #1 on: August 30, 2012, 09:42:44 AM »
What I've learned about landlording from being around here is that it's a numbers game first and foremost.  Like all things, you have to know the rules in order to break them.  And the more you deviate from the rules the more you need to understand and know what you are doing.

I suggest doing a search (there is a search box at the top) for "landlord rules" and reading some of the threads there.

Another Reader

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Re: first investment property-starting small
« Reply #2 on: August 30, 2012, 10:40:03 AM »
Are you planning to pay cash or finance?  You are going to have difficulty with a low loan amount, as most banks won't do these loans.

Here are some starting questions:

What is market rent in this complex and nearby complexes for this type of unit? (hint: the answer is NOT on Zillow).  Walk the neighborhood and call on every "for rent" sign.
What is the vacancy rate in this and nearby complexes and the typical time on market for a vacant unit?
How much are property taxes and insurance for this type of unit?
What is the monthly HOA charge?  What is included in the HOA fee?
Does the condo complex allow rentals?  Is there a limit on the number or percentage of rentals allowed?
What kind of neighborhood is this?  Who is the typical tenant in this and nearby complexes?  Are they likely to pay on time and keep the place up?
Are other units being bought by investors?  If not, why not?

Arebelspy has a short list of books you can check out in one of his posts.  Another idea is to join a local investor's association and get acquainted with other investors in the area.  The 50 percent rule you see quoted on Bigger Pockets is a good rule of thumb to start.

What specific terms and language are mysterious?  We can help there.

totoro

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Re: first investment property-starting small
« Reply #3 on: August 30, 2012, 10:42:06 AM »
I'm not in your area but condos are not great investments in my area because:

1.  land values appreciate while improvements depreciate and condos have very small land attribution
2.  strata fees are usually more than the cost to maintain
3.  the market for condos is more limited
4.  strata rules are often very restrictive (ie. no rentals or pets) and when they are not you get noise complaints and other ongoing issues

You'll need to determine whether buying is cheaper than renting and if you are going to rent it out whether it is truly cash flow positive.

Kriegsspiel

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Re: first investment property-starting small
« Reply #4 on: August 30, 2012, 01:12:22 PM »
What about the advice from the Automatic Homeowner Millionairess from MMM's recommended books?  Specifically, I'm talking about his example couple, who bought their first house, then just kept it, and were renting it out throughout their lives. 

I'm planning to do something similar.  I'll be working in a smaller metro area north of Dallas, which has a pretty large older population.  My plan atm is to buy a 2 or 3 bedroom house for less than 2x annual salary (this is average or slightly below average for the area price) on a 15 year mortgage with at least 20% down.  I'll live in it while I work there, and if/when I move away, get a rental management company, and rent it out.  Has anyone done anything like THAT before, and what were the results? 

galaxie

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Re: first investment property-starting small
« Reply #5 on: August 30, 2012, 01:19:26 PM »
My in-laws are doing this now with a house in the Chicago suburbs.  They seem to be having some success at it.  I'll see if they have any more specific comments.

Taylor

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Re: first investment property-starting small
« Reply #6 on: August 30, 2012, 02:24:56 PM »
Thanks all for your suggestions and starting questions. These are the questions I want to know to ask in order to see what is a good investment and what is not. Keep em coming (if you have more)!

arebelspy

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Re: first investment property-starting small
« Reply #7 on: August 30, 2012, 02:55:19 PM »
2.  strata fees are usually more than the cost to maintain

This.  (Only we call them HOA fees here.)  The HOA fees kill most condo deals in my area.  YMMV.

Are you planning to pay cash or finance?  You are going to have difficulty with a low loan amount, as most banks won't do these loans.

Yes, unless it's an owner occupied.  On investment property they don't usually like to do loans < 50k (and want 25% down, meaning a property value of 66.6k).

Arebelspy has a short list of books you can check out in one of his posts.

I think I've only listed one beginner's book (Building Wealth One House at a Time), though I have a standing offer for anyone who reads that to then give them a whole long list of other books to go from there.  So far, only one person has PM'd me to take me up on it.  Though maybe I did post a few more in another thread and forgot.

50% rule is definitely something to be familiar with. And all of Another Reader's questions were good - read through his post over and over until you can fluently ask and answer them for any deal you are considering.

Specifically, I'm talking about his example couple, who bought their first house, then just kept it, and were renting it out throughout their lives. 

That works fine for someone wanting a little real estate exposure (one or two properties), but not someone systematically building wealth with real estate, unless you want to move 3-4 times per year!

And do indeed post questions as you get them.  Good luck!  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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Kriegsspiel

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Re: first investment property-starting small
« Reply #8 on: August 30, 2012, 03:29:41 PM »
Well, in my case I would most likely move somewhere else as part of a promotion.  Unless the house appreciates in value substantially, I think it would make more sense to rent it out until it does appreciate, then maybe sell it.  In the mean time, I may buy another house, especially if I like the area and prefer to stay there, or I would rent. 

But yea, I don't have plans right now to accumulate a ton of properties.

kkbmustang

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Re: first investment property-starting small
« Reply #9 on: September 02, 2012, 09:41:34 PM »
Kriegsspiel-

Not sure where your job will be located in Dallas, but there are a lot of condos/townhomes/duplexes for sale in the SMU area which is close to downtown.  SMU students and young professionals just out of college are a great potential tenant population.  My husband and I lived in a condo while I went to law school and later sold it for a nice chunk of change. In retrospect, we wish we would have kept it as a rental property, but hindsight is 20/20. 

I can also recommend a phenomenal real estate agent if you need one. We have used them exclusively since 1999/2000.

Kriegsspiel

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Re: first investment property-starting small
« Reply #10 on: September 03, 2012, 05:57:37 AM »
Kriegsspiel-

Not sure where your job will be located in Dallas, but there are a lot of condos/townhomes/duplexes for sale in the SMU area which is close to downtown.  SMU students and young professionals just out of college are a great potential tenant population.  My husband and I lived in a condo while I went to law school and later sold it for a nice chunk of change. In retrospect, we wish we would have kept it as a rental property, but hindsight is 20/20. 

I can also recommend a phenomenal real estate agent if you need one. We have used them exclusively since 1999/2000.

Well, I'm not really going to be in the Dallas metro, I'll be up in xxxxxx, and from what I've seen, that 40ish miles is a pretty good separator :)
« Last Edit: March 07, 2014, 11:58:11 PM by Kriegsspiel »

kkbmustang

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Re: first investment property-starting small
« Reply #11 on: September 03, 2012, 01:39:45 PM »
Yeah, that's pretty far. 

Taylor

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Re: first investment property-starting small
« Reply #12 on: September 04, 2012, 06:59:28 PM »
Just wanted to update everyone, I called my mortgage broker and confirmed that the MMMers are fantastically wise and I cannot get a mortgage for a property that cheap (he could only go down to 50K). He suggested looking into a Hard Money Loan for something like this. Anyone has any experience with this?

Another Reader

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Re: first investment property-starting small
« Reply #13 on: September 04, 2012, 07:26:34 PM »
Hard money loans are high interest, high fee loans generally used by flippers who need short term loans.  They generally are not suitable for buy and hold investments.

If you have a lot of equity in your condo, you might be able to borrow out enough to cover the other 80 percent of the purchase price.  Another alternative would be to partner with a family member or someone else with real estate investment experience.

In the meantime, in your shoes I would learn all I could about real estate investing by reading and attending investor association meetings.  There are always opportunities to invest and you want to be ready to take advantage of them when the time is right.

arebelspy

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Re: first investment property-starting small
« Reply #14 on: September 04, 2012, 07:36:33 PM »
Just wanted to update everyone, I called my mortgage broker and confirmed that the MMMers are fantastically wise and I cannot get a mortgage for a property that cheap (he could only go down to 50K). He suggested looking into a Hard Money Loan for something like this. Anyone has any experience with this?

HMLs are expennnsiveeee.  Like 12-18% plus points.  They typically mature with a balloon payment within a few years.

Usually only viable on short term real estate deals (like flips), not on a long term thing.

Private money (I.e. borrow from friends / family) is usually much less expensive, if you can.

Otherwise you may need to save up cash for smaller deals.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Taylor

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Re: first investment property-starting small
« Reply #15 on: September 06, 2012, 05:29:48 PM »
Thanks for the great advice everyone, I know I can count on the MMM community :)

arebelspy

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Re: first investment property-starting small
« Reply #16 on: September 06, 2012, 08:07:14 PM »
There are other ways to invest in real estate that may suit you and your funds available.

Invest them with a real estate investor (loan them the money, as in become the hard money lender) with your funds secured by property.

Pool up money with someone else.

Partner where someone else puts up money, you put up work/time.

Raise capital privately (friends/family).

(Those seem to fit your situation best, so I won't go into other types of things you could do, like wholesaling.)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

meadow lark

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Re: first investment property-starting small
« Reply #17 on: January 12, 2013, 10:12:48 AM »
I'm glad you asked this question.  I have been salivating over a 2/2 condo in a good enough area asking $43,000.  I am not allowed to buy it (according to the voice of reason, my wife.). Something about not having the down payment, or an adequate emergency fund or other such nonsense.

GoCubsGo

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Re: first investment property-starting small
« Reply #18 on: January 16, 2013, 11:35:54 AM »
As a Realtor, I caution you to do your research on the homeowner's association to make sure they aren't experiencing cashflow issues (as many are..so ask for financials) and that they are't/haven't voted on rental restrictions as many condos are doing so.  I looked at one last week as an investment and in the main lobby they had a big board up with a thermometer saying something to the effect of "only 12% more votes to get to our goal of owner occupant only".  Basically trying to scare off investors.  HOA fees can be a killer on condos too.   Call a Realtor in your area to get the rental rates to see if it makes sense.

arebelspy

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Re: first investment property-starting small
« Reply #19 on: January 16, 2013, 11:39:47 AM »
I looked at one last week as an investment and in the main lobby they had a big board up with a thermometer saying something to the effect of "only 12% more votes to get to our goal of owner occupant only".  Basically trying to scare off investors. 

How stupid and shortsighted on their part.  By excluding investors they're only devaluing their own properties.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

GoCubsGo

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Re: first investment property-starting small
« Reply #20 on: January 16, 2013, 11:51:51 AM »
Totally agree arebelspy and the associations that have done that have been destroyed value-wise which causes people to just walk away from their homes (instead of allow them to rent them and hope the market recovers so they can get to breakeven).  To top it off, once they go to foreclosure the only people who would be willing to buy them (investors) are excluded which leads to additional unpaid association dues. I've seen nice previously nice housing developments head into a death spiral because of these votes.