Finally feel Ready to begin but how and where??

[Devan J.]

Upfront sorry for how long this is going to be but I have been racking my brain for a while now and cant seem to really figure it out. So hopefully posting on here will give me better insight and more knowledge about how I should move forward.

Here is a little bit of personal info to help show where I am coming from. 

Currently own a SFH in Arizona, East Mesa area to be specific. Have a wife and young child (so house hacking is not really something we feel comfortable doing). We currently pay about 1500$/month for our mortgage. With our income and expenses, we are able to save 1500$/month.

We have 12K of emergency fund.

We have saved 20K(not including the EF) to finally look into investing in RE. And that number will keep growing by 1500/month. 

We are trying to figure out how we should go about getting another property/rental property. The first 2 thoughts I would be looking to manage the rental myself.

1st thought- Do a 3.5% on another primary residence. If your familiar with AZ. The best cities to buy in are Scottsdale and Gilbert. We would like to live in either of those cities but the prices are still high and even if we found something in Gilbert ex. 3bd 2bth home for 380K(which is at the very low end of price range) at 7% the mortgage would be +2900$. Wouldn't even find a home in Scottsdale for that price. 

If we rented our current home out for 1900$ which seems to be market rate for our area and size of home. That would be just over 300$ profit. 

So we would basically double our monthly mortgage payment and pocket 300$ for our rental home. We would go from saving 1500$/month to just saving the 300$ from the rental. Not a lot of extra cash available monthly if we put ourselves into this scenario and wouldn't be able to save money for another Down payment. Almost put us in the house poor category with how much our monthly expenses would increase. We would mostly be hoping for appreciation in this scenario and we would have to pay the note down and hope rates fall to be able to refi and make a house like this cash flow in the future. As current rents for homes like this would be 2200-2400/month depending (rent prices are kind of all over the place, see ones for around 2000 to ones as high as 2600).

2nd thought-  Do another 3.5% down on PR in Scottsdale for a small condo. Prices seem to be in the +260k for a 2bd 1bth. Mortgage would be +2200 on something like this with the HOA on condos being +250 (which takes a bite out of cash flow potential in the future). Everything would be the same as first thought as we would rent our current home out and live in the condo for a year. This would still increase our mortgage a month and we would save less money than we currently are but still be able to save more then if we bought a more expensive SFH.

Again it seems like an appreciation scenario because we would have to pay the note down and rates would have to fall before we could rent something like this out and cash flow positive. Rents in the area for a condo like this seem to be around 1600-1800 currently. Thought about doing a STR on something like this but that would be a lot of upfront costs ex. furniture and decorating, plus more time dedicated to managing it and I am not sure if it would generate substantially more income than renting it out long term. I already work 60+ hours a week working 2 W2 jobs so if I wanted to do STR it would have to generate enough income for me to quit my second job which is about 13k a year before taxes.

3rd thought- Would be something out of state in a much less costly city/state like somewhere in the Midwest and just buy something as a rental property. Not sure what the least amount down I could do on something like this, seems to be around 20% so if that's the case then we would have to look somewhere that have prices in the low 100k range. I have read that areas in the Midwest cash flow the best but appreciation isn't there. This scenario would cash flow (ideally) but would have to put more money down. But we would still be able to save 1500/month by staying in our current home so we could come up with more DP money quicker than the other 2 routes.

Definitely would be more nervous doing this as I would have to really rely on others to make sure the deal is going to be successful since I am states away from the market. Since I am completely new to all this I don't feel confident at all going this route. At least in AZ I know where to look and more or less what to expect. 

Final thoughts- I am anxious to get started in this investing world and have been learning for a while now. Feel like the next step would be actually doing something instead of just reading and listening about it. Just trying to figure out what scenario would be the smartest move. Share your thoughts and let me know other scenarios that may work for us as well. If you were in my shoes what route would you take?

I know this was a long post and I thank every one of you that took the time to read it and reply with some insight! The BP community is awesome!

[Michael Vittorio]

Hey Devan,

I think I need to answer these in reverse order.  Firstly, anxiety is normal. You are investing you're family money not just yours, so the stakes are higher. But so is the reward. My goal has always been financial independence for myself, my wife, and my children. 

3rd Thought - This being your first property, I don't think I would recommend out of state. Maybe if you have family, friends, or other business partners in the area. It was great for me to be able to fix anything necessary on the first RE property I bought. Things broke less and when they did, they cost less to fix. Additionally, I would absolutely plan on walking the property before your. Being new to investing has a lot to do with risk management and I think being new to the game is risky enough! 

1/2nd Thought: It sounds you would be in a bad way if you are just 'hoping' for appreciation. Investing in hope is a very bad strategy. 

It sounds like you're in the perfect spot for self educating. Like @Nathan A. said, you are saving a lot of cash each month. That is great! There are plenty of books out there that give great information, binge listen to podcasts, find investors here who invest in the area and network with them. Buying a rental isn't the only way to make money in REI. Education is key to being successful, and In your position this is what I would be doing. Not to mention it won't be long until you have a sizeable war chest ready to deploy when you're more confident. Just don't get carried away by buying a car when you see larger numbers in your savings account, stay focused. :)