DH and I are toying with the idea of getting into real estate investing. We have 65K cash available immediately; don't have a HELOC but wouldn't anticipate problems getting one (we have $100k equity in our condo).
We're definitely still in the research/exploration phase; our goal, if we dove into this, would be to buy-and-hold positive cash flow properties to provide income in FIRE (~10-ish years away). Not looking to build a REI empire, but perhaps a small handful of properties that comprise 15-25% of our net worth. Something like that.
I've read the biggerpockets newbie guide and wanted to check with this crowd to see if my emerging thinking is going in the right direction (pending further book/blog/article research, of course)...
We live in HCOL area (Boston) where I think it will be hard to meet even the 1% rule. My midwest hometown, on the other hand, looks more promising. A cursory MLS search shows a few multi-family properties there that could meet the 1.5% rule (though probably not 2%). So I'm leaning toward exploring that market - I know the city and have reason to visit periodically.
Is it a bad idea for a newbie to make an initial RE investment 1500 miles away? If not, is there an advantage to selecting a location where I have some ties, or should that be irrelevant and we should seek even better markets? To test whether I understand the "rule of thumb" numbers, is the following correct regarding this listing:
http://www.realtor.com/realestateandhomes-detail/5202-Leighton-Ave_Lincoln_NE_68504_M70683-57543?row=8?
Rents on 4 units: $1400/mo
Asking price: 89,500 (1.56% ratio)
Let's say we could purchase for $80,000 (1.75% ratio). Let's further assume 20% down cash ($16,000) and $5K cash in closing/repair costs, with remaining 80% financed through HELOC @ 3.006%.
This would mean monthly expenses on $1400/mo rents of:
PI: $270
"50% Rule": $700 (not sure what this all covers - does this include vacancies? property mgmt? taxes? ins? repairs? capex?)
Remaining free cash flow: $430/mo.
Return on cash invested = (430*12)/(16,000+5000) = 24.6%Is that return calculation correct? It seems really high to me.
I know there's lots more we need to know; not sure if this is the kind of property we want to focus on (low-ish rents in a university population with frequent turnover - but perhaps low risk of vacancies?). Frankly this whole thing scares me/us a bit because we've never been landlords before.
I've read about the need to build a local team, which would be another whole learning curve. On the plus side, my dad's an attorney in my hometown and could draw up LLC papers for us pretty easily, plus he may know real estate lawyers in town and otherwise be helpful on the networking side of things.
What else should we be thinking about at this early stage that we may be overlooking?Thanks for any/all thoughts!