What would you do with $200k salary, $150k stocks/cash, $500k equity? First rental!

Question

I'm 30 and spent my whole life being conservative/safe with my money. I just learned about this site and want to break into real estate investing. I'm living in California so I have a high salary, low debt, high credit 800+. Looking to invest out of state or here if possible. I don't know where or what to start with so asking you smart people! I also have a real estate license I don't use from my first job out of college, but currently have a steady W-2.

What would you do if you were in my shoes? Also can you provide me some contacts with property managers/agents that might help me get started at looking and offering on properties? I just need to start getting plugged in and looking at deals.

Additional thoughts: What type of financing should I do? Should I Heloc my house? I noticed my bank only offered a 15 year fixed for investment loan. Should I try again saying its a vacation house?

Jesse L. Weaver · Answer

You are in a great spot to start investing. Do you like what you do now? Keep doing it! Personally, I would keep my expenses low and buy real estate whenever I can. Target markets that might not cash flow as well but high appreciation areas. Remember, you don't need to leverage as much as possible, scale as fast as you can, and take a lot of risks trying to create as much cash flow as possible. Especially with where you are at. Just be consistent with accumulating positive cash flowing assets that will appreciate.There's nothing wrong with a 15 year fixed investment loan. You will build equity QUICK. If you are struggling to find properties that cash flow positive you could look into longer options. Talk to other lenders, there are plenty out there! I got my first mortgage through my bank (never talked to anyone else) and later on realized how bad the terms were compared to other local lenders. You mentioned $500k equity in your house- if that house is worth $520k it's a lot lower risk to HELOC some of it vs. if you have $500k equity in a $3m home. Find a leverage ratio you are comfortable with and stick to it. Our team works with a lot of out of state investors buying investment properties in Southcentral PA. Feel free to reach out if you ever want to chat a little further. Happy Investing!

Theresa Harris · Answer

Find an area that you know-a place you spent time going to school, have family, etc. Talk to your bank and find out how much they will lend you. You will normally need 20% down payment for a rental (do not tell them it is a vacation home unless that is truly what it will be-that only works if you do short term rentals).

Zane Cress · Answer

If you are patient and find a good cash flowing deal then you will have no problem starting and continuing this journey. And if you're on BP and in Cali trying to buy investment RE then reach out to the David Green team of course.

Eliott Elias · Answer

Real estate is safe and the least risky investment you can make if you understand the risks involved. What strategy you use and how you want to invest relies heavily on the type of lifestyle you want to pursue. Investing out of state will become a full time job.

Jaron Walling · Answer

@Jason Lee Bouncing off what others have mentioned I'd take it slow and really dive... into the rabbit hole. DON'T BUY anything until you understand the numbers and do a few months of market research. DON'T believe everything investors and PM's tell you. Don't jump into a 10-unit apartment deal. You should know/understand 75% of the market, comps, cap rates, prices, and maybe how to budget rehabs if you're aiming for distressed property. That's a lot of money. From my experience if I started with that $$$ I would have made more mistakes. Because I was limited on funds I was limited on what and where I could buy. I was limited on leverage. I was forced to find local contractors and to DIY some remodels. Stick to a budget and do the same. Go the hard way you'll find success.

Doug Smith · Answer

HI @Jason Lee I know it says lender in my profile, and that's true, but I also have been investing for years. One piece of advice that I can offer is that I made most of my mistakes in my first few deals, so I would start slowly. It's really tempting to dive in head first, but I would do one, smaller property that doesn't need a lot of work where the numbers are great to start and then slowly add to it. Normally, I would say start close to home, but the pricing in LA may make that tough. You've got plenty socked away to start with something small and keep some of your powder dry for future deals as you learn. You might have to leave your equity alone for now and pull no more than $75K out of your reserve and look for something in an area that wouldn't be more than $250K. You can put 25% down and do a loan such as a DSCR (Debt Service Coverage Ratio) loan where they focus primarily on your credit score and the properties potential cash flow. The lender will do a traditional residential appraisal, but they will add a FNMA form 1004 to it that will allow them to determine market rent for the property. They will then use the formula Rent / Principal Payment + Interest Payment + Monthly Taxes and Insurance + Monthly HOA. If the result of the DSCR Calculation is > 1.0, they it shouldn't be an issue to finance it. You asked a lot in your question, so I'll let others chime in with other suggestions. Good Luck!