New investor, saved $100,000 and looking for the right long term hold market

[Lucas Anderson]

Hello, I'm Lucas Anderson. I've been a huge stalker of the BP community for some time now, soaking up all the valuable information you all have kindly given over the years. Now I'm financially ready and have the time to really focus on and truly begin my real estate investor journey. I've saved up $100k and am looking to find multi and single family properties for long term holds. I currently split my time between the USA and Germany and will be doing this all "out of state"

I believe I have a good sense of what to do once I acquire the property, but the golden question that we all are asking - what market to choose?

Currently looking at: Omaha, Columbus, Milwaukee, Cleveland,

My strategy isn't groundbreaking, and of course, this BP community knows it all too well, but it goes a little something like this:

1. Find a property in a specific market with "hidden value"

2. Purchase this slightly distressed to distressed property in a C to B area (cash if I can afford it)

3. Rehab adding value back into the property 

4. Finance or refinance cash out

5. Long-term hold, long-term rent

6. Do it again brrrr

Of course, you can find hidden value in any market, anywhere in the world, even right off the MLS but what I'm looking for more specifically is where a newbie out-of-state investor and "safely" begin with the small amount of cash on hand I have.

Ya'll rock, I hope I one day will be one of the old dogs providing value to the young pups. 

[Randall Alan]

@Lucas Anderson

So, your strategy is sound... but your timing is poor (in my opinion).

You aren't going to want to BRRRR a home when your cash-out refi interest rate is 7.x%. Over 50% of your profit is going to be sitting in your "interest owed to the bank" column on your spreadsheet. And if your solution for that is to re-fi the property when rates come back down... guess what - there goes another $3,000 - $5,000 to refi each property... that is 10-15 months worth of profit up in smoke!

Then, since you are going to be working exclusively out of state, you are pretty much necessarily going to be having a property management company look after these for you I would assume.  This is (sort of) mistake # 2.  Maybe not a mistake... but if you are financing your property - which you should be to make your $100,000 go the furthest - the 10% fee a property management charges each month is going to eat up about 1/3 of your profit.  It's a huge give-away.  If you have a W2 job right now... you probably already give away 1/3 of your income to taxes.  Imagine if you had to give away another 1/3rd!  That is what property management is going to do to you.  And they often charge you a full month's rent to place a new tenant.  That is like 3 months worth of net income on a typical financed property.  If you have to go that way, so be it... but know that it comes at a high price.

As for financing versus not financing, I would encourage you to run the numbers on buying 1-$100,000 house, versus 4-$100,000 houses with 75% financing.  I think you will quickly find out that having 4 properties makes you more money.  So financing - once the rates come back down some - is the way to go.  Be sure to look at being able to depreciate 3.3% of each property each year on your taxes, as well as writing off all the mortgage interest as well.  Plus, you will be gaining appreciation on 4 properties versus 1.  

Hope some of it is food for thought!

All the best!

Randy