I am in my early 30s and the time has come for me to get off the sidelines and prepare for the future I want!! I have always had an affinity for real estate and it seems like right now is a great time to buy. I have no dreams of getting rich quick and I realize there is risk and hard work associated with rei.
Last time I checked my credit, my score was in the mid 700’s
I make about 40k per year and I have been at my job for 5 months
I live in an expensive area, but I can budget to save $1000/mo.
I should be able to save approx. 6K(to invest) by October. (I already have about 4 months of savings for emergencies and I pay myself first)
I am near Vail, CO($$$$) and cannot afford any type of investment property that I have come across yet near Vail. I can afford sfh’s in lower income areas of denver, but that is still 2 hours away from me.
I have been looking at areas outside of Colorado, but I am wary to buy outside of my region.
My plan…(assuming that I can qualify for a loan or find financing at some point)
Search, search, search for properties that have cash flow near $100 per door per month
Apply valuation and cash flow analyses of the property and write offers based on what makes sense for me as an investor
Rent the property to tenants and use the extra cash flow(plus whatever else I can contribute) to buy the next property
While I will respond to changes in the market and my current assets by moving property, my basic plan is to keep the rental units indefinitely
I have many other questions, but I think this is good for now!!
Thank you all so much for your time and expertise!!!
If you are planning to use conventional bank financing, 100% financing is nearly nonexistant these days. If $6K is all you have for a downpayment then the most you can pay for a property will be $30K. How much rent will a $30K property in your area generate? If property in that price range will achieve your cash flow target, then visit your local real estate agent and ask to see what is on the market in that price range. Using rule of thumb estimating, a $30K property purchased with 80% financing at 6% for 30 year fixed rate, needs to command at least $560 per month in rent to generate a $100 monthly cash flow.
Propertymanager’s buying rule would demand that the $30K property generate $600 monthly rental income (2%) to meet his cash flow requirement.
If you really can work your budget to save $1K per month, then build up a reserve fund. Landlording requires operating capital. You have to make mortgage payments and pay the bills when the property is vacant, and, you need money for the emergency repairs and for major systems replacements that won’t be covered by your cash flow. Suggest you don’t buy anything until you have at least a $10K reserve fund – but continue to build your reserve fund to $25K.
Finding motivated sellers that will give you the deed if you just take over their property might present an opportunity but be careful. Chances are that the mortgage balance will be greater than the value of the property, and that the property won’t cash flow as a rental.
Bank foreclosures may present good buying opportunities. Banks are giving significant discounts on properties that have been in their foreclosed property inventory for awhile. Your friendly real estate agent should be able to steer you toward something that you can afford and that will meet your cash flow requirements, although you may have to expand your search beyond Vail.
Two hours distance should not be too much of a problem. If you find a good property in Denver, a professional property management company can take care of the day to day rental details for you. Be sure to factor in their fee when you do your cash flow analysis.
If you’re serious about rental properties preparing you for a good future, then I would consider moving to an area that is more suitable for the rental business. At $40K, your current job is really hurting you since you live in an expensive area. In addition, a two hour drive to your rentals isn’t much different than them being 1,000 miles away. From a practical standpoint, you can’t manage them yourself at that distance if you’re going to build a significant portfolio. Property managers can suck all the profit out of your business because they have no reason to be efficient and they don’t care about your business (especially when you’re starting and have only a few rentals).
This is a prime example of what I say about having a plan. Part of the plan needs to be where you are going to live. If you are in a place that does not fit your plan don’t change the plan, change your location. Remember it not about the money it is about the lifestyle. What kind of lifestyle do you want? Do you want to have the lifestyle of a rich person, then remember it costs the same everywhere to be poor. If all you have to your name is $500 you are poor in San Francisco, New York, Colorado and Texas. But where is it cheap to be rich? If you want to life the lifestyle of the rich live where your income potential makes you rich. Is a $300k house a mansion in San Francisco, no, New York, no, Texas yes http://search.har.com/engine/dispSearch.cfm?mlnum=437744&backButton=Y&Address=15411%20Cresent%20Oaks%20Ct . In Texas you can set up a lifestyle that $3,000/month gives you the lifestyle of mansions and swimming pools.
If you wake up and find yourself in the middle of the street, do you just sit there and wait to be run over because it is home? Or do you move. I say move to a place that works. I am in Texas so I am biased, but there are other places that afford a nice lifestyle that can be supported by real estate also. In Houston also rents are high and the price of houses is still low. You can find houses that cash flow almost at will. You can buy a house a month easily. In 12 to 16 months you can have enough real estate to afford the house above and go real estate full time.
Well, it sounds like I should wait a while, although I am eager to start.
Unfortunately, moving at the moment is not an option for me since I love where I live and I’m making more here than I was in Denver.
What about looking at other areas of the country? Ive been applying a very basic (monthly rent X 30) formula as a primary screener and Denver properties don’t seem to come close to the numbers I need to make + cash flow. I have looked into other areas that are close. I don’t mind the extra risk as I’m considering this investment as risky anyway, so how important is distance anyway?
Dave T, because of my limited startup funds, I was looking at a 40K max purchase price and that would be minus repairs with property management fees included in my analysis. Additionally, I was planning on using my 1K savings as extra capital if there are vacancies/repairs/whatever. Do you still think I should wait? I feel like this is THE time to buy!!
If I must wait, what do you recommend I do in the meantime? I am committed to educating myself in this field, but I need something to do in the meantime!! There are no rei clubs in my area(I checked) and I’m having trouble finding a mentor because of the reswort nature of the town. Any suggestions will be welcome and thanks very much!!
I agree with what you said, but I just moved up to the mountains and, really, I’m making more here(40K) than I was in the front range of Colorado(24K) and the cost of living difference is not staggering. So I know that I am in a better position now than I was!!
I have actually been looking seriously at Texas to invest in…Great prices, diverse economy, better investment numbers in general than Colorado, etc.
You said you have no investment funds now, but SHOULD have $6K to invest by October. If you buy a $40K property and then have to do repairs, where will you get the money for downpayment and repairs? Even if the property needs no repairs, you have no operating capital to pay all the costs of holding a property until you either sell it or rent it.
First thing could do is implement your savings plan to amass investment capital. While you are saving, you could develop your investment plan. Questions your plan should address include: What will be your investment criteria, how will you qualify a property, how much cash will you need to buy, hold, and maintain a property once it is purchased? What will be your exit strategy? How will you define success? How will you locate suitable properties to purchase? How will you qualify potential renters or buyers? What will be your marketing strategy? What are the demographics of the area(s) you plan to invest in? Do you have competition?
There may be other creative options for you. Heck no, you aren’t going to find a $40,000 rental in Vail, Colorado!
If you are single, what about house-sitting, since you are in the land of millionaires. Millionaires have multiple houses, and can physically only occupy one at a time. You can water the plants, feed the Koi, dust the piano, be the security. I have heard of agencies that do the credit checks and background checks necessary in order for you to get a job like that. You need to visit with some high-end Realtors about that option. You need to look high-end yourself–well-groomed, immaculate vehicle. Maybe try an ad in the paper: “Professional local single man available for house-sitting. Have references”.
The purpose would be to not pay for housing AT ALL, and thus save all your paycheck for future investment.
Find a way to make your area work for you, not against you. Realtors may also be happy to have you be a house-sitter in vacant homes for sale. Save your money, and let people know that you want to buy at the bottom of that high-priced market. If you buy a ski condo, you can also rent it out for big bucks over the Christmas holidays. While you sleep in your camper truck!
Good luck, and let us know how this creative endeavor pans out.
I guess I just showed how little I know. It may not seem like it, but I did think of the future when planning…I just didn’t think like an investor would. I was planning on using the 1K/mo. for expenses(Yes, I now see how naive that idea is).
I will wait and save.
If you are single, what about house-sitting, since you are in the land of millionaires.
That's a great idea, thanks furnishedowner!! I can't help but think what you would charge up here using your system :shocked!!
I am now focusing my energy in three directions:
Learning about wholesaling/bird dogging to gain valuable experience
Finding a mentor or coach
Marketing myself as a professional house-sitter
p.s. If anyone is interested in property in the Rocky Mountains, please get in touch with me. I am willing to find deals for very little or no money if you can help educate me in the subject!
In the interest of getting started now and not having to wait until you have a large bankroll, have you considered alternate means of investing? For a new guy, options and lease options make good sense.