Advice on wanting a 2nd property

[David Shirts]

Hey! My name is David and I just recently joined the forums and would love to get some advice or suggests on what you would do in my situation. I am new to real estate investing and am open to everything! A little background, I have no experience in real estate other than knowing I wanted financial freedom and I knew this is what I wanted to do. That being said I have tried to figure everything out on my own and its been very challenging. 

Last year, I bought a condo in an area that I knew was being heavily developed and has a big plan for growth. I think I rushed into my property kind of quick because I was scared about owning a property and not messing up. I just moved out of my place to live at home with my parents to save on some more more. My property I knew wasn't going to cash flow but I thought the location and long term apperication was good. Anyways, I lose about $800 a month after my tenants rent is paid. I have cash I want to invest in for a duplex in Ohio around Columbus but am unsure if I should do that while I am under or wait until I can be profitable on my current place? Also, I have no clue on how to invest out of state as well.

I am excited to learn from everyone and just hope to be successful here! Thanks!

[Nathan Gesner]

Quote from @David Shirts:

The first thing you need to do is unload this property that is losing you money. Sell it while the market is still strong.

At the same time, start educating yourself. Learn how to analyze property, then practice, practice, practice. It doesn't take long to get good enough that you can look at a property and analyze it in your head or on a napkin. Seriously, I spend a few minutes doing a quick analysis. If I decide it's worth investing in, I will crunch the numbers in more detail and do more research.

I recommend reading "Long-Distance Real Estate Investing" by David Greene to learn how to invest in other markets. I think the most important person on your team will be the property manager. They can help confirm which markets to invest in and which ones to avoid. They can tell you which properties are in demand, what a unit will rent for, etc. And they will be the ones managing it for the long-term, so you want to find a quality PM, not just the one with the cheapest rates or fanciest website.

Start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. You can also search Google and read reviews. Try interviewing at least three managers.

1. Ask how many units they manage and how much experience they have. Feel free to inquire about their staff qualifications if it's a larger organization.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 6% management fee but the extra fees can add up to be more than the other company that charges 10% with no additional fees. Fees should be clearly stated in writing, easy to understand, and justifiable. Common fees will include a set-up fee, a leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate, particularly if you have a lot of rentals.

4. Review their lease agreement and addenda. Consider all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. A tenant complaining online might indicate that the property manager handled them appropriately, so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything possible to expose properties to the broadest possible market? Are their listings detailed with good-quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!

[Travis Timmons]

Buying more property does not fix your current problem. I'd also be wary of an Ohio duplex that looks great on paper. 

My first property was also a condo that didn't pencil out all that well. I was naive and had no idea what I was doing. I ended up converting it to a mid term rental and it has done okay. I don't know if that is a good idea for this one or not. You may be better off selling. 

My advice, without knowing a lot of details, would be to figure out what you are going to do with this first property before moving on to another. The only guarantee when you buy a property is that you are about to spend a pile of money. There's a very real chance that you spend the necessary make ready expenses and have negative "real" cashflow for a year or two on the next one as well. When you find yourself in a hole, stop digging. 

Feel free to send me a DM if you want to discuss further. I have nothing to sell and would be happy to help if you think that I can be a resource.

[Joe Scaparra]

@David Shirts, experience is the best teacher, IF YOU CAN SURVIVE!  Losing $800 monthly is going to KILL you if you don't adjust.  Remember this First, CASH IS KING.  Especially for new investors.  Cash is like the blood flow through your body.  If is non-existent you will die!!!

Condos and SFH are NOT solutions for a first time investor. Both have difficulty cash flowing positive in this real estate environment. Avoid anything with condo association fees or homeowner association fees as they DECREASE CASH FLOW with no real contribution to the bottom line.

Lastly, since you are new, when you do get a property DO NOT HIRE A PROPERTY MANAGER.  Do it yourself, learn as much as you can, seek out a grey hair mentor who will advise you for a cup of coffee.  PMs take away from your cash flow that you so desperately need. As as new investor, a PM will take advantage of you and you will probably not see any profits utilizing one!

My property of choice is a duplex!  I don't know much about your living situation but if you are renting now, a duplex is a no brainer.  House hack a duplex.  Rent out one side and if you are serious about FIRE then consider renting out a room on your side too.  Follow coach Carlson on youtube. You can learn a lot from him.  Good luck and Cheers!

[Remington Lyman]

Quote from @David Shirts:

Hey! My name is David and I just recently joined the forums and would love to get some advice or suggests on what you would do in my situation. I am new to real estate investing and am open to everything! A little background, I have no experience in real estate other than knowing I wanted financial freedom and I knew this is what I wanted to do. That being said I have tried to figure everything out on my own and its been very challenging. 

Last year, I bought a condo in an area that I knew was being heavily developed and has a big plan for growth. I think I rushed into my property kind of quick because I was scared about owning a property and not messing up. I just moved out of my place to live at home with my parents to save on some more more. My property I knew wasn't going to cash flow but I thought the location and long term apperication was good. Anyways, I lose about $800 a month after my tenants rent is paid. I have cash I want to invest in for a duplex in Ohio around Columbus but am unsure if I should do that while I am under or wait until I can be profitable on my current place? Also, I have no clue on how to invest out of state as well.

I am excited to learn from everyone and just hope to be successful here! Thanks!

 Are you gaining more than $800 a month in appreciation? If not you should probably sell it. I would recommend doing a house hack. Buy a duplex and rent out the extra bedrooms on your side and the unit you are not living in.

If you do sell your condo, you are going to get more money for it if you vacate the tenant, and turn it

[Theresa Harris]

Not all places make good rentals.  Having to subsidize the rental with $800 a month is a lot of money-how much is the rent and condo fees?  Did you change your insurance to landlord instead of owner occupied? If it was a 2 bed unit, I would have suggested renting the second room and getting a roommate.

I'd figure out what happened with the first place before looking to invest in a second rental.

[Robert Ellis]

Quote from @David Shirts:

Hey! My name is David and I just recently joined the forums and would love to get some advice or suggests on what you would do in my situation. I am new to real estate investing and am open to everything! A little background, I have no experience in real estate other than knowing I wanted financial freedom and I knew this is what I wanted to do. That being said I have tried to figure everything out on my own and its been very challenging. 

Last year, I bought a condo in an area that I knew was being heavily developed and has a big plan for growth. I think I rushed into my property kind of quick because I was scared about owning a property and not messing up. I just moved out of my place to live at home with my parents to save on some more more. My property I knew wasn't going to cash flow but I thought the location and long term apperication was good. Anyways, I lose about $800 a month after my tenants rent is paid. I have cash I want to invest in for a duplex in Ohio around Columbus but am unsure if I should do that while I am under or wait until I can be profitable on my current place? Also, I have no clue on how to invest out of state as well.

I am excited to learn from everyone and just hope to be successful here! Thanks!

 if you are newer to columbus I'd look at a systemized approach. does the team you work with have it dialed in and are they'd doing the same thing over and over? it's hard to do that as an agent, easy to do as a spec or volume builder or developer if you have floorplans you like, etc. we build triplexes happy to chat and help you understand the market better here and see if new construction is for you 

[Corby Goade]

Dont' get me wrong- if you follow my posts at all, you'll see I am a HUGE advocate for banking on appreciation, but $800 per month is a lot to swallow. Especially if you are now living with your parents. If I were your parents, I wouldn't love the idea of you usuing my home to subsidize the bleeding of your bank account, but maybe your parents are cooler than I am!

What's the value of the condo and the avg annual appreciation in your market?

How much equity do you have?

Without knowing more about your situation, I'd stay in the condo for 2 years and THEN move out. That would give you an additional 3 years to think about your strategy and see how the unit appreciates without having the burden of capital gains. 

Finally- speaking broadly, condos don't usually make great investments. You have very little control over the use of the property, the HOA and costs, especially when it comes to capital expeditures and improvements.

[Alfath Ahmed]

Quote from @David Shirts:

Hey! My name is David and I just recently joined the forums and would love to get some advice or suggests on what you would do in my situation. I am new to real estate investing and am open to everything! A little background, I have no experience in real estate other than knowing I wanted financial freedom and I knew this is what I wanted to do. That being said I have tried to figure everything out on my own and its been very challenging. 

Last year, I bought a condo in an area that I knew was being heavily developed and has a big plan for growth. I think I rushed into my property kind of quick because I was scared about owning a property and not messing up. I just moved out of my place to live at home with my parents to save on some more more. My property I knew wasn't going to cash flow but I thought the location and long term apperication was good. Anyways, I lose about $800 a month after my tenants rent is paid. I have cash I want to invest in for a duplex in Ohio around Columbus but am unsure if I should do that while I am under or wait until I can be profitable on my current place? Also, I have no clue on how to invest out of state as well.

I am excited to learn from everyone and just hope to be successful here! Thanks!

 David - good stuff on getting started. The first deal is never a home-run. I am glad you found a good area to buy a condo. I would keep the condo if it is in an amazing location that you could see yourself living or the next happening place. 

For your project in Columbus, if you are going to buy turnkey, I recommend looking into B- to C+ location. These are good area that are going to cashflow positive and give you the appreciation and right tenant pool.

Turnkey properties are popular in Old North, Merion Village, Southern Orchards, Old Towne East, Driving Park, North Linden, North Hilltop, Franklinton, Reynoldsburg, and Hungarian Village.

[Drew Sygit]

@David Shirts only reason to hold onto this condo is if your appreciation outpaces the cashflow loss. 

If you keep it as your primary residence for 2 out of 5 years, you can sell and get a capital gains exception of up to $250k.

[Samuel Diouf]

Hey David,

If the condo is in a nice location, I would move into it so you can still get some appreciation in the long term. Losing $800/Mo seems far too expensive for the property to make sense as a rental.

You could live in the condo and then start researching more to start building a plan to successfully invest OOS. Columbus is one of the fastest growing cities in the U.S. so it's a great appreciation market, and you can still get your properties to cash-flow here!

[Jimmy Lieu]

Quote from @David Shirts:

Hey! My name is David and I just recently joined the forums and would love to get some advice or suggests on what you would do in my situation. I am new to real estate investing and am open to everything! A little background, I have no experience in real estate other than knowing I wanted financial freedom and I knew this is what I wanted to do. That being said I have tried to figure everything out on my own and its been very challenging. 

Last year, I bought a condo in an area that I knew was being heavily developed and has a big plan for growth. I think I rushed into my property kind of quick because I was scared about owning a property and not messing up. I just moved out of my place to live at home with my parents to save on some more more. My property I knew wasn't going to cash flow but I thought the location and long term apperication was good. Anyways, I lose about $800 a month after my tenants rent is paid. I have cash I want to invest in for a duplex in Ohio around Columbus but am unsure if I should do that while I am under or wait until I can be profitable on my current place? Also, I have no clue on how to invest out of state as well.

I am excited to learn from everyone and just hope to be successful here! Thanks!

Hi David, my best advice is that the best time to invest was yesterday and the second best time to invest is today - here in Columbus Ohio, there's tons of great opportunities for BRRRRs, flips, and buy and holds. You can still find positive cash flow, the 1% rule, and anything that you buy in Columbus Ohio will absolutely blow up and appreciate like crazy within the next few years. Look at the population growth, job growth, and how many companies are moving and developing here such as Intel, Amazon, Google, FB, Honda, etc. Even if you buy a house that is cash flowing a few hundred dollars in today's high interest rate market, I would strongly recommend to purchase and reviewing deal flow because if you wait for rates to drop in a year or two (which they should be in the 4-5s), then you're going to have an absolute cash flow. There's never a wrong time to buy real estate as long as the numbers make sense brother!! Happy to connect and answer any questions you have

[David Shirts]

Quote from @Corby Goade:

Dont' get me wrong- if you follow my posts at all, you'll see I am a HUGE advocate for banking on appreciation, but $800 per month is a lot to swallow. Especially if you are now living with your parents. If I were your parents, I wouldn't love the idea of you usuing my home to subsidize the bleeding of your bank account, but maybe your parents are cooler than I am!

What's the value of the condo and the avg annual appreciation in your market?

How much equity do you have?

Without knowing more about your situation, I'd stay in the condo for 2 years and THEN move out. That would give you an additional 3 years to think about your strategy and see how the unit appreciates without having the burden of capital gains. 

Finally- speaking broadly, condos don't usually make great investments. You have very little control over the use of the property, the HOA and costs, especially when it comes to capital expeditures and improvements.

 The area from last year according to redfin has gone up 35.7% but I have only about $5,000 in apperication from when I got it. My parents are okay with letting me stay for a year knowing I am really trying to figure out real estate and get things going so I would say very lucky!

I think I know I rushed into this place now. I can handle paying the $800 a month and I know now it wasn't smartest choice. I've done a sales job for a few years and so I saved another $40k for investments and was trying to figure out what is the best move.

[Jake Petersen]

Quote from @David Shirts:

Hey! My name is David and I just recently joined the forums and would love to get some advice or suggests on what you would do in my situation. I am new to real estate investing and am open to everything! A little background, I have no experience in real estate other than knowing I wanted financial freedom and I knew this is what I wanted to do. That being said I have tried to figure everything out on my own and its been very challenging. 

Last year, I bought a condo in an area that I knew was being heavily developed and has a big plan for growth. I think I rushed into my property kind of quick because I was scared about owning a property and not messing up. I just moved out of my place to live at home with my parents to save on some more more. My property I knew wasn't going to cash flow but I thought the location and long term apperication was good. Anyways, I lose about $800 a month after my tenants rent is paid. I have cash I want to invest in for a duplex in Ohio around Columbus but am unsure if I should do that while I am under or wait until I can be profitable on my current place? Also, I have no clue on how to invest out of state as well.

I am excited to learn from everyone and just hope to be successful here! Thanks!

 Hey David, 

I am an agent here in Utah. Utah is a pretty unique place compared to the rest of the country so its not always easy to say "yes you should sell" or "no you should hold". 

There might be other options as well. Can you value add to the property? Do you have a low interest rate - seller finance might be an option? Could you profit if you sold?

If you need help, reach out and I can help go over options with you!

[Masyn Grant Barney]

Like everyone has already mentioned, I think you need to sell that property. 

I would highly recommend getting into a good house hacking situation. I see house hacking as a way to learn the ropes of investing and land lording all at once. The almost free trial. You will learn what things a good property management company should do and what its worth so that when you do invest out of state in the future, you know what to look for. 

The two house hacking methods I find myself recommending to clients are 

1. The townhome/condo model where you rent by the room for the rooms you aren't using. This tends to be the best return you can get in UT if you are in a life stage to be able to do it. 

2. buy a decent single family home that already has a basement entrance and add a kitchen to make it an ADU. Value Add House Hacking while still getting a relatively nice property. Less competition compared to turn key house hacks. I am also a believer in not buying a property without any value add play.

I am a big believer in investing for appreciation (especially if it was forced appreciation), but $800 a month negative is just too much to swallow IMO unless that property was appreciating well over that every month and you had endless cash to burn. I haven't heard of such a property. 

[Dan H.]

Quote from @David Shirts:

Quote from @Corby Goade:

Dont' get me wrong- if you follow my posts at all, you'll see I am a HUGE advocate for banking on appreciation, but $800 per month is a lot to swallow. Especially if you are now living with your parents. If I were your parents, I wouldn't love the idea of you usuing my home to subsidize the bleeding of your bank account, but maybe your parents are cooler than I am!

What's the value of the condo and the avg annual appreciation in your market?

How much equity do you have?

Without knowing more about your situation, I'd stay in the condo for 2 years and THEN move out. That would give you an additional 3 years to think about your strategy and see how the unit appreciates without having the burden of capital gains. 

Finally- speaking broadly, condos don't usually make great investments. You have very little control over the use of the property, the HOA and costs, especially when it comes to capital expeditures and improvements.

 The area from last year according to redfin has gone up 35.7% but I have only about $5,000 in apperication from when I got it. My parents are okay with letting me stay for a year knowing I am really trying to figure out real estate and get things going so I would say very lucky!

I think I know I rushed into this place now. I can handle paying the $800 a month and I know now it wasn't smartest choice. I've done a sales job for a few years and so I saved another $40k for investments and was trying to figure out what is the best move.

 I am often the contrarian. Here are some of my thoughts. 
- 35.7% is an incredible increase in a year.  There are few markets that had higher appreciation but one year is too short for a true indicator.  Use neighborhoodscout and see what score it has since 2000   If it is an 8 or higher, I will be fairly confident of good long term appreciation  

- the cash flow over a long hold is more determined by rent growth than initial cash flow.   I would take 0 cash flow on an 8 of 10 appreciation for this century over a few hundred dollars cash flow per unit and appreciation for this century that is lower than the inflation rate.  Rent growth has a tight correlation with property appreciation.  The rents usually lag behind the market value in time, but move similarly.  
- I am trusting your cash flow but most newbies underestimate expenses. Hopefully your cash flow is not rent minus piti minus HOA fee. Hopefully it includes vacancy, maintenance/cap ex, PM (even if self managed), misc, etc.

-$5k appreciation in 12 months is $416/month of appreciation.  Far from covering your negative cash flow but covers half of it and is a good indicator of future rent growth.

2.5 years ago i purchased my first negative cash flow property (but for years i claimed I would buy a negative cash flow RE if my underwriting showed a return that met my criteria) and it was a lot more than $800/month negative with my underwriting (which was quite close to 50% rule).  I was purchasing at discount (discount from appraised value), it had a significant value add, and was in a market that neighborhoodscout shows 10/10 for this century. 

Today it has some small cash flow ($300/unit per month at 50% rule) but more importantly its value is $650k above my cost (including my rehab costs).  I have return that has virtually doubled my investment in just 2.5 years.  My cash flow will continue to increase and in a few years I will have cash flow that cheap markets can only dream about

Unlike most responses, I believe there is not enough info for me to state an opinion on keeping or selling your existing property, but $800 negative does not necessarily imply to me that it should be sold especially in a market that has appreciated 35% in the last year. 

Good luck