Thinking about first property

[Heather Brooke]

Hey everyone, 36F this is very new to me. I’ve been reading and looking at my local market trying to determine how to get started. My husband and I have 3 kids, our primary residence is recently completely paid for ($650k) and we have W2 income of around $250k annually (first year making this). We’d like to start bringing in some passive income and are interested in single family homes in our area to hold and rent. We have a down payment but I’m a pretty risk adverse person so I’d likely wait to save up more to put down before pulling the trigger. The problem I’m having is finding a good deal. Comparing purchase prices in our area to monthly rental income in the same neighborhood I’m having trouble figuring out how people are getting 1-2% of purchase price each month. Most of the rental neighborhoods I’m considering have houses selling around $375-400 and are renting between $2-$2.4k. What am I missing and how are people making 1-2%? Thanks for your help! 

[Nathan Gesner]

Quote from @Heather Brooke:

Welcome to the BiggerPockets forums!

Your primary residence has a lot of equity just sitting there. That money is only growing at the rate of appreciation, which is usually around 3% per year. Why not cash out some of that equity and invest in something that brings in a 20% return? You also get the benefit of tax deductions on the mortgage interest. I wouldn't leverage heavily, maybe 50% of your equity or $300,000. That would give you the cash to purchase 5-6 single-family homes or maybe a couple four-plexes. Keep a portion in reserve for emergencies.

Read some books to gain 80% understanding on the process. Write down specific goals you hope to achieve and ensure both  of you are on the same page, reading the same books, evaluating the numbers. Then jump.

1. Start with BiggerPockets Ultimate Beginners Guide (free). It will familiarize you with the basic terminology and benefits. Then you can read a more in-depth book like The Book On Rental Property Investing by Brandon Turner or The Unofficial Guide to Real Estate Investing by Spencer Strauss.

2. Get your finances in order. Get rid of debt, build a budget, and save. The idea that you can build wealth without putting any money into it is a recipe for disaster and the sales pitch of gurus trying to steal your money. A wise investor will not try to get rich quick with shortcuts. If you can't keep control of your personal finances, you are highly unlikely to succeed in real estate investing. Check out my personal favorite, Set For Life by Scott Trench , or The Total Money Makeover by Dave Ramsey.

3. As you read these books, watch the BiggerPockets podcasts. This will clarify and reinforce what you are reading. You can hear real-world examples of how others have built their investment portfolio and (hopefully) learn to avoid their mistakes.

4. Now you need to figure out how to find deals and pay for them. Again, the BiggerPockets store has some books for this or you can learn by watching podcasts, reading blogs, and interacting on the forum. There is a handy search bar in the upper right that makes it easy to find previous discussions, blogs, podcasts, and other resources. BiggerPockets also has a calculator you can use to analyze deals and I highly recommend you start this as soon as possible, even if you are not ready to buy. If you consistently analyze properties, it will be much easier to recognize a good deal when it shows up. Find Brandon's videos on YouTube for the "four square" method of analyzing homes and practice. It doesn't take long to learn how to spot a good deal.

5. Study the market. You can learn to do this on your own or get a rockstar REALTOR to lead the way. I highly recommend a well-qualified REALTOR that works with investors and knows how to best help you.

6. Jump in! Far too many get stuck in the "paralysis by analysis" stage, thinking they just don't know enough to get started. The truth is, you could read 100 books and still not know enough because certain things need to be learned through trial-and-error. You don't need to know everything to get started; you just need a foundation to build on and the rest will come through experience and then refining your education.

You can build a basic understanding of investing in 3-6 months. How long it takes to be financially ready is different for everyone. Once you're ready, create a goal (e.g. "I will buy at least one single-family home, duplex, triplex, or fourplex before the end of 2019") and then do it. Real estate investing is a pretty forgiving world and the average person can still make money even with some pretty big mistakes.