The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: whywhy on September 26, 2016, 02:57:09 PM
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Hello everyone. Just getting started on my RE quest. I am looking to invest in and looking for properties. Fairly open on what I would invest but trying to keep overall investment around 100-200K with mortgage. I preferably want to start in my own city/suburb and later may be expand to other cities. My basic question are -
1. How do people find RE in your are or other cities? Are there any websites that help you? how do you narrow down what you want? How do you analyze a property for your criteria's like area schools, shady neighborhoods, rent occupancy percentage?
I have just started using Zillow/rentometer etc. but is there a resource that points to newbies like me? Sorry if this is covered already, search did not find any.
Regards
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You need to do a lot of research and learning before you just go buy a property. This isn't a hobby, it's a business even if you're only buying one. You need to know the laws. Did you know it's illegal to ask a perspective tenant if they have kids? You need to assemble a good team(accountant, lawyer, contractor, etc) unless you think you know what you're doing which you likely don't. When investing in real estate, you make your money when you buy. You realize it when you sell. If you don't know what that means, go read up on it. Or ask specific question. We'll answer, but know you won't get enough info no matter how much you ask because you don't know what you don't know and hence don't know what to ask.
Once you get some more knowledge, then you can start looking for a property. Know that real estate is local. Strategies that work in one area won't be feasible in another. For example, in some of the "booming" cities, you can list a property for sale and it will for for 20% or more OVER list price. In those places, prices for housing is crazy and in 5 years a property might be worth $100k more than you paid for it. In those areas, the strategy might be for capital appreciation over cash flow. In my area, that would never work. We see 1% inflation. So in my area it's all about cash flow and how much income the property generates. Just as a hint to the above, I buy at 70% of market price or better(for me). So many properties that are listed are just not good buys for me. As an example, I just purchased(closed Aug 25) a 3BR/2BA ranch with a finished basementhttp://forum.mrmoneymustache.com/real-estate-and-landlording/my-first-auction/ (http://forum.mrmoneymustache.com/real-estate-and-landlording/my-first-auction/). It cost me 79k after all costs. Add another $10k for repairs bringing my cost to $89k. The property value is $130-135k. I'm going to be renting it out for $1400/month starting 11/1.
Know that Zillow is fairly good on average, but on a particular property can be off by 30%. Comparables are much better indication of value.
Here's a good place to start: https://www.biggerpockets.com/real-estate-investing/education (https://www.biggerpockets.com/real-estate-investing/education). There are lots of good links just in that article. Spend 50 hours reading, just to start. Ask yourself, would you mind being called at 3am in the morning because a toilet is clogged? Are you handy at all? Do you know how to:
- replace a light bulb?
- Stop a toilet from running constantly?
- Paint a wall(most people think they can paint and most people are wrong)?
- Change a faucet?
- Repair drywall?
- unclog a sink?
Each are easy enough to learn, but if you don't know how and it becomes an emergency, you're paying roto rooter $300 for something that would cost you $25 to do yourself.
Feel free to keep asking, i'm just trying to convey that it isn't something you just wake up and decide you want to do. Do it intentionally. Good luck.
Brian
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As far as finding neighborhoods, I would start with what you know. Since I don't know what city you are in or what your price ranges are, it's hard to know what $100-200k will buy in your area. In my area, you can get good 3/1.5 SFHs or better for that price range in many neighborhoods. In many areas of California, you couldn't rent a place for that. Well, that's an exaggeration, but I hope you get what I mean.(http://www.zillow.com/homes/for_rent/San-Francisco-CA/house,mobile,townhouse_type/2103118857_zpid/20330_rid/37.942843,-122.261353,37.693601,-122.630425_rect/11_zm/?3col=true (http://www.zillow.com/homes/for_rent/San-Francisco-CA/house,mobile,townhouse_type/2103118857_zpid/20330_rid/37.942843,-122.261353,37.693601,-122.630425_rect/11_zm/?3col=true))
In Cincinnati, this house for sale is $61k(http://www.zillow.com/homes/for_sale/Cincinnati-OH/house_type/34217237_zpid/4099_rid/0-120_price/39.250334,-84.218102,38.991971,-84.785271_rect/10_zm/0_mmm/ (http://www.zillow.com/homes/for_sale/Cincinnati-OH/house_type/34217237_zpid/4099_rid/0-120_price/39.250334,-84.218102,38.991971,-84.785271_rect/10_zm/0_mmm/))
Here's a "cheap" one in San Fransisco for ONLY $775k(http://www.zillow.com/homes/for_sale/San-Francisco-CA/house_type/15170703_zpid/20330_rid/3-_beds/1.5-_baths/globalrelevanceex_sort/38.640472,-121.621399,36.641977,-124.573975_rect/8_zm/0_mmm/?3col=true (http://www.zillow.com/homes/for_sale/San-Francisco-CA/house_type/15170703_zpid/20330_rid/3-_beds/1.5-_baths/globalrelevanceex_sort/38.640472,-121.621399,36.641977,-124.573975_rect/8_zm/0_mmm/?3col=true))
So, whatever city you are in, that's a good place to start. You must watch the news. What areas of town are the "bad" ones? You might not want to invest there starting out. While there is probably money made in that area because it's is more likely that there are a larger percentage of renters in that area, you will also more likely have a higher eviction rate. It's probably not the best place for a beginner(or even me). What are the "nice" areas around town. Drive the streets. For good schools there are many websites out there that will give you information, just ask Google. But here is one: http://www.greatschools.org/ (http://www.greatschools.org/)
Spend a few Sundays going to open houses in many areas around town just to get a feel of what different areas of town look like. You'll meet many real estate agents that way. Talk to them. Tell them what you're after. Let them know that you're going to look at 200 houses before you buy(most will be open houses). Ask them to take you around once you've narrowed it down a bit, but tell them that you're learning. But don't waste their time either. That wouldn't be fair. Give them an up front plan of what you're doing and they can decide if it's worth their while.
You might want to get pre-approved at your lender, just to see what you can get and use that as a basis for what neighborhoods to look in as well.
You say you have a budget of 100k-200k. In my area, I would try to purchase 2 $130k properties(Buy one, get it rented and then get another), for about $80k each. Put $10k into them and get them going. But keep in mind that financing rental properties is different than financing an owner-occupied property. Make sure you're bank knows that. Your rate will be higher(unless you're getting a HELOC on your own house). An option is buying a new property for yourself(with owner-occupied financing rates) and renting out your current house. Then after a couple of years, because you have to INTEND to live in your house to get that kind of loan, just buy a new one for you to live and rent out the previous and repeat every few years. Or you could do what many people do to get into rentals is to buy a duplex, triplex, or 4-plex and live in one of the units and rent out the other ones. Your rent will cover a portion of the mortgage and you're on site in case of issues. You also have your tenant as a neighbor, so that can be an issue for some. If you go that route, remember, they're Mr. Smith the tenant, not Bob. This is a business. He's not your friend, but your customer. Don't confuse that.
Good luck. I hope that was helpful.
Brian
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Thanks Brain for helpful tips. I have just started to look into Bigger pockets trainings and books etc. Also visiting existing properties for sale/rent to see how the numbers are, meet agents etc. I live in Houston Tx. So I may have to adapt to the strategy of getting max on my investment through rent and not appreciation.
Regards
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The Bigger pockets forum has a lot of good info for you. There is so much to know going into being a landlord/investor. A lot of it I've learned along the way after owning a rental for 13+ years. Things to research are ROI, Cash flow, 1% rule etc. Having a little knowledge of your common fix-its goes a long ways too, even if your hiring someone else to do the fixing!
Are you going to self manage the rental or hire a PM? That can add to your expenses but sometimes it is worth it. Especially if you invest out of your area. Finding a good PM can be a chore in itself.
Once you have researched and read a little on the ins and outs of buying/owning a rental property then do your search for that property. Knowing some of that will save you a lot of headaches and $$$!
As Brian said the local markets where ever you start looking will either be good and the numbers will make sense or they might not. Positive cash flow is the goal IMO or you better building some really good equity for your investment to be worth the trouble. The 1% or better rule is a good position to shoot for but in many markets those deals are getting hard to come by.
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Start to learn about foreclosures and liens. Join your local RE investment club. Understand what price to pay for a particular property, based on income and expenses.
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If you are investing for the first time, I would recommend you to hire a professional. He will be able to handle all the tasks and help you invest in the right properties. You will also gain good experience this way.