1st Investment Outside of Owner Occupied Restidence

[Ryan Anders]

Hello all,

I am new to the real estate investment game and am trying to get my bearings for what is best for my family in this high-interest market. We live in the Houston area. Initially, my wife and I thought about the fix-and-flip strategy, but when speaking to a realtor specializing in investors, he did not believe that was wise due to the area's high-interest rates and DOM. 

I do not want to take out a long-term high-interest rate loan that requires 20-30% down for a rental that will net me $100-300; that doesn't achieve my goals. I can take out an equity loan, but by the time I do that, a mortgage and a HELOC would surely put me in a negative cash flow for the rental. However, a turnkey rental may be the safest and most straightforward way to start, but my goal is to replace my monthly expenses with real estate pretty aggressively. To do that, I need to be able to come up with large sums of money.

For those of you who flip, what do you say about this market? Is a flip for a newbie in this market a good way to raise more funds for passive rental?  Is it unrealistic for my main focus to be cash flow on rentals instead of equity in a market like this?

Any feedback is welcomed.

Thanks,

Ryan 

[Bryce Jamison]

Quote from @Ryan Anders:

Quote from @Bryce Jamison:

Full disclosure, I'm not a flipper.

My initial advice would be to try and and exercise more patience. We all want large sums of cash ASAP, but we have to implement the best strategies in the given economy. Yes, a lot of deals today are only going to cash flow in the 3-6% range with today's interest rates, but you also have all the other benefits like tax deductions, appreciation, & loan pay down. If this isn't attractive to you there are CDs with 5% interest rates today, and there's always the stock market.

Several years ago when interest rates were around 3-4% and home prices were soaring flipping was very forgiving because even if you made mistakes there was a lot of margin for error. Now with interest rates potentially continuing to climb and prices potentially coming down you run into the opposite issue where even if you do everything perfect you may loose money because of factors outside of your control.

 What strategies are you currently finding success with in your market? Surely there are some finding success in this market flipping. However, I’m not completely sold on this strategy. I just think it fits my personality better.

I am not making a decision yet, but I don’t think it would be wise to sit on the fence for the next 2-3 years wishing I would have made a move sooner. You know?

If I weren't married I'd continue to buy 3-4 bedroom LTRs in my area in the 200-300K range. I'd ensure I got them at a price and pay down the interest rate to allow me to net at least $200 a month after PITI and other expenses like repairs and vacancy. I'm in it for the long haul, so if the numbers work today the future doesn't concern me as much, but I would hope home prices and rent continually and gradually increased and hopefully within the next 5-10 years interest rates came down to allow me to either refinance and pull a lot of cash out, or greatly reduce my mortgage.

But in an effort to get my wife involved and excited about real estate we've switch gears and are currently looking for an STR along the NC coast. In the areas we're looking we're seeing homes sit 100, 200, and even up to 300+ days. We want to get one at a price that would allow the numbers to make sense, and since I follow people like Rob Built and Avery Carl I feel confident we can manage it, and even do a better job than most because I know not everyone is as plugged into BP as I am. It's also important to note it took us 10+ years of hard work in our career fields for our salary to get to a point where we have no consumer debt and can save enough for a few LTRs or a beach STR every year.

I'm sure plenty of flippers are having success today, but I imagine the ones who are having the most are the ones with close connections to many contractors. Guys like you and me without reliable contractors would have to get multiple bids and hope we select a contractor who doesn't try to screw us. It can be done, but the odds aren't in our favor with interest rates still going up and prices potentially coming down.

If you're set on needing lots of cash ASAP you're going to have to put in a ton of effort. Outside of flipping you could become a RE agent, try wholesaling, or rental arbitrage.