Where do we begin ?

Question

Hello members of BP ,

I joined BP a few months ago but stepped away for a few . I’m now back with the goal to finally invest in real estate properties.
My husband and I became homeowners back in January . We bought a single family home . House hacking was just too difficult for us due to us having a growing family .

Now that we are homeowners , we want to know what our next step should be to buy our first investment property ? Is this possible due to us just buying our first home ? How much money should we have saved up ? Is it best to invest out of state ? We currently live in Chicago.
we just have sooo many questions and are a little lost on what we should do next . Any advice will be appreciated. Thanks !

Isabel Andrade · Answer

@Jonathan Klemm

During the day I am public school teacher . My goal is to build generational wealth. If all goes well ,I might consider it being my full-time job but that would be later on . Right now I want to start small and slowly build myself up. I’m just having a hard time deciding what to do with my first property . Do I want to do a flip OR obtain a property to rent out . I’m also analyzing how to save up money to invest in the first property .

John Warren · Answer

@Isabel Andrade I would begin attending as many local meetups as you guys can. This way you will meet more people who have the same goals, and you will meet folks who are one step forward from where you are now. That is often times all you need!

William Anderson · Answer

Isabel,

Don't lock yourself into buying a property down the street.  Look nationally.  You want to find a property that will generate cash, that can be anywhere.  Find a good property manager who can take the pressure off and help ensure your property is well taken care of.   Start out with the idea that you will not be the property manager.  Build-in cost about 10% for a long-term rental and about 15% for a short-term rental.

I have created two courses on my website.  Investing in residential rental real estate and other in short-term rentals.  You need knowledge.  Keyladder.com

Jonathan Klemm · Answer

@Isabel Andrade - Sounds like you have the perfect plan in place.

I honestly believe that learning how to save and manage my money was one of the most important things I ever did.

My vote would be to just hold on to the first property as a rental...what Chicago neighborhood is it in?

Isabel Andrade · Answer

@Ethan Cole Hi Ethan ,

Thank you for the advice . I plan to start more locally and see how it goes from there .

Jonathan Klemm · Answer

Hey there @Isabel Andrade - First off congrats on purchasing your first property period.  Investment property or not home ownership is still the first step to building wealth.

Lots of open-ended questions...the simple answer is yes you can get an investment property next.  First, I think it might help if you zoom out and ask yourself what is your why?  Are you looking to leave your job?

Why matters most because it might determine which strategy is best for you.  I found it easiest to switch my career into something that had to do with real estate as opposed to making it a complete side hustle... that's hard and takes a lot of time grinding.

Where are you at in Chicago and what is your day job?

Ethan Cole · Answer

Take a look at investing in areas around you that are submarkets of a larger city. A lot of people may want to be in a big city, or a more prestigious neighborhood, but they may not be able to afford it. We have had good luck buying in towns close to us that have nice neighborhoods, and good infrastructure, but are just outside the higher end areas. Same concept as buying the cheaper house in the expensive neighborhood for better appreciation.

As far as your next steps, you could look at DSCR loans or commercial loans. We have spoken with DSCR lenders that have fixed rates for 30 years, but as someone mentioned above, the rates tend to be higher. They would finance up to 25% LTV. We have also used a lot of commercial loans. Maybe not the best product out there, due to pretty much all of them being adjustable rates for periods of between 3 - 7 years. We have been able to finance 85% of the purchase price with commercial loans, but the term is 20 years rather than 30. So you may have to be strategic to end up with the cashflow that you want. We have paid more down in the past so that the cashflow made better sense, and pulled equity back out through a BRRRR. As far as whether or not you should invest out of state, I would say that depends mostly on your comfort level with the idea. I know there are a lot of people that do it very successfully, but your management skills have to be on point to wrangle management companies and contractors from out of state. I have not done it because there are enough good deals in my area to keep me busy and happy, with the added benefit of being inside of 30 minutes from my house. Hope this helps. Good luck!

Isabel Andrade · Answer

@Chad McMahan Hi Chad, do you focus only on Arizona homes ?

Where do we begin ?

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