Beginner looking for coaching/guidance/mentorship

[John Thomas]

Hi BP Community. I'm 25yo and motivated to grow my rental portfolio so I can replace my W2 income. I make $120k - $150k per year and am based on the west coast. I am looking to invest out-of-state as a long-term, buy and hold investor in the lower cost, higher cash-flowing markets of the midwest and southeastern US.

I'm looking for some beginner advice on how I can get started growing my team and buying my first few properties. Ideally, I'd love to work with someone who started in the last several years and have scaled their portfolio to 10-20+ units.

Given experience, feel free to share where you would you start if you were in my shoes and if you're willing to have a further conversation to help me get going!

[Marcus Auerbach]

Okay, I don't know if everyone posting here has been living under a rock, you are setting a young guy up for failure by supporting absolutely unrealistic expectations.

In order to clear $120k of net income in the Midwest you need a RE portfolio to the tune of 8 million. At current rates probably 30% down to get to a 1.2 DSCR.

As an OOS investor, you have a huge disadvantage compared to local investors and you are cost burdened by paying a PM. You are also likely to pay more for contractors and get a lower-quality install because you are not there to supervise. 

Midwest housing stock is old. You can ignore capex for a while, but the financial liability just keeps quietly getting bigger. At some point you need a new roof, plumbing, windows, HVAC, etc - setting aside 5% of rent may cover a new water heater, but very few components of a house last more than 50 years.

It's 2024: books written in 2015 or 2018 are based on the market conditions in year 5 years before they were written. Milwaukee home prices have doubled since 2015 and interest rates are now 7.5% - 8.5%. The unicorn years are in the past.

REI is back to what it used to be historically: a long-term equity play to preserve and grow wealth. The years of free BRRRR cash flow with basically infinite returns are gone. We all wish we could get back ten years and buy some more.

For the record, I continue to grow our portfolio, because I think in 10 years from now I will be happy for every property that I have bought in 2024. (Just like I am happy today for every property I bought in 2014). 

But let's be real: the cash flow you can currently squeeze out of properties is barely enough to keep the lights on and do some maintenance while you watch equity grow.

The worst advice we can give a newbie is to keep hammering "just find a deal where the numbers work" and thereby pushing them into low-income neighborhoods with run-down housing stock and management challenges that most seasoned investor run from.

I absolutely encourage young investors to buy real estate, but look at it as a long term INVESTMENT, which means you are putting money in, not taking money out. As for cash flow, buy or start a business. The whole point of a business is cash flow. Whether you are starting an online service or buy a food truck, endless possibilities.. But that is a much better shot at cash flow than REI.

Okay, now I'll get off my salt box.