Author Topic: What is a good position to be in when starting Real Estate investing?  (Read 1648 times)

Dumdriver

  • 5 O'Clock Shadow
  • *
  • Posts: 2
  • Location: Austin TX
Hello Everyone,

First thread on this forum. Like my thread title says, I am thinking about property investing as my next venture. It's been on my mind for about a year now. Primary reasons being diversification, and I think it would be cool to own some property and hopefully have some passive income that comes from renting. Also I drive the entire lower 48 states, been to most places and I have a good idea about areas, at least to some degree.

I understand that I am new here and still have a great deal to learn. But my question for today is just wondering if ya'll think I am a good position to leverage money for a Fourplex, possibly duplex, but four I think would be better.

I live in the greater Austin, TX northern area. Everything from San Antonio to Dallas along that I-35 stretch just seems to be growing like wildfire.

Without taking up to much of your valued free time, a few details:
Long haul truck driver: 70-100k income.
Own vehicle. No desire to have another car note.
1% credit utilization across 5 cards.
FICO score is lower 700s
8k left on student loan
$600 month rent. Stay with parents when I am in town 5 days a month (I can't justify apartment costs for just 5 days out of 30). They also open my mail and handle some small business matters for me while I am on the road, all included in my payment to them.
Living on the road expenses are costly, sometimes I have to pay $12-15 for a shower. But I also utilize rewards points, rewards from credit, and per diems to bring that cost down somewhat.

Portfolio:
Texas State Pension valued at 60k
7% 401k contribution with 3% company match. Mix of low risk Mutual Funds and Bonds.
ROTH IRA 13% aggressive growth mutual fund.
Charles Schwab Brokerage account, receives at least 10% gross earnings every week. And all leftover money goes there right now. Mix of tech stocks, utilities, a REIT. All dividends reinvested. Average right now 26% growth I think. Or close to that.

Anyways, I have a younger brother that is a pretty smart guy, and he's reliable. His credit score is like 800. He takes financial matters seriously. He has the time and the ability to learn a lot about stuff in a fairly short time. I don't. But I have capital which he doesn't. He is currently leveraged in mortgage for his wife and child. His employment is stable.

I understand there's a great deal of risk and my brother and I will be leveraged in an LLC... I have read a few books on property investing, also, especially directed towards 2-4 plex homes and mobile homes.

Have been reading in these forums and learning from everyone as much as I can. If there are any pointers you are willing to share or things to keep in mind, I would appreciate anything you are willing to share. Trying to get some footing here.

Thanks for reading, stay safe and keep warm.

NonprofitER

  • Stubble
  • **
  • Posts: 178
  • Location: Texas
  • Reaching FIRE w/ High Purpose (Low Pay) Nonprofit
Re: What is a good position to be in when starting Real Estate investing?
« Reply #1 on: December 20, 2019, 07:15:11 AM »
Hi Drumdriver!

I'm also in Austin, and also invest in RE. I generally agree with your assessment that the I-35 corridor between Austin - San Antonio is an excellent place to invest (for the right price). It's a bit "hot" right now, but as I understand it, there are still some affordable pockets - although multi-family properties are hard to come by right now.  Long term (>10 years), this stretch is predicted to grow. The City of Austin demographer, Ryan Robinson, has shared a lot of fascinating census data and models that suggests Austin/San Antonio are essentially growing into one another as a metroplex.  FWIW, I am also interested in investing in the greater San Antonio region, but currently invest elsewhere, in a less hot TX market.

In terms of your question - "are you ready to leverage and get into RE investing" - that's a hard question that only really you could answer. Your income appears good and your expenses are low.  Have you owned property in the past? I only ask because sometimes the experience can help you better understand the true costs of taxes, insurance, etc. But it sounds like you're doing a lot of research. 

My two cents:
1) Research, research, research.  Read Bigger Pockets, all their resources, etc. Look at every book, podcast, youtube video etc you can but also with a healthy degree of skepticism if it seems too good to be true.  Don't pay a guru.

2) An LLC with your brother could be good or could be disastrous - but there are too many factors for us internet strangers to help you decide on that. I would consider: what he brings to the table (property management? conventional financing?), what are the potential worst case scenarios and how would handle them?, what are the exit strategies? What happens if brother gets divorced, you get fired, someone picks up a meth habit, etc. While all of these things may be super unlikely, prepare for them in advance with a strong, well-written operating agreement.  No one needs agreements for when things are going well. You need them for when shit hits the fan and emotions are running high.
 
3) Be critical when running your analysis on any prospective property - even bordering on skeptical. Over-estimate rehabs, repairs, vacancy calculations, etc. It's tempting to massage the numbers to make a deal work when you're first getting started, but the smartest thing you can do is stay patient and wait for the right deal, financially.  Assume everything that can go wrong in your first 12 months will go wrong (and be thrilled if it doesn't).  From what I see, the biggest risk in RE investing is buying too high, or jumping in too fast, or without enough reserve funds.

4) Know your goals - are you looking for cashflow? A househack situation for when you're done with the road?  A minimum amount each month?
Do you and your brother agree on the plan? IE, if one of you wants to have immediate cashflow, but the other person wants to fold back in the cashflow to reinvest in other properties for the first 5 years, how will you decide?

We started with ~$40,000 in the bank (not inclusive our personal emergency fund) for RE investing, and leveraged an additional HELOC on our primary (which we knew we could pay back from our W-2 income within 24 months) to buy our first 3 units.  Even though I think we had a relatively smooth ride, there were still surprises, extra expenses, a longer vacancy period, etc. and I was glad to have plenty of reserves to sleep well at night.