Let's talk strategy

[Jennifer Fernéz]

This post is for seasoned investors.

You are starting out and do not have a mortgage, yet.   You work a stable job and make $5K a month.   You've been able to save up and have $50K in liquid cash.   Your goal is to create an income producing portfolio so that you can retire from your blue collar job in 10 years.   

Tell me your best strategy to reach your goal.

[Bruce Woodruff]

So can I assume you are wishing to replace your $5k mo income with income from property(s) ?

Of course it depends where in the USA you choose to start, but let's guess using averages....

With $50k to start with (as a 20% down payment on a rental property) you can purchase a house up to about $250k, right? Assume $1500 - $2000 mo for rental income and assume PITI at $1800 with 6% interest, you are already at break-even. And that doesn't include other expenses.

So the traditional SFH route may work eventually including appreciation and other factors, but probably not in 10 years because you need to refi and purchase other houses to make this angle work.

Buying a 2/1 somewhere and living on one side is another option, as is renting both sides, but you'd have to identify an area where you can afford a duplex. Or you could house-hack. I still don't see 10 years here.

Flipping is an option as well, but do you have any skills that would help? Paying a Contr to do everything sucks up a lot of $$...

Personally I would buy the worst house in a run-down area of a nice city that is getting ready to gentrify. Fix it up, rent for a year or two until it pops, than sell and take profits to buy a couple of the same type deals. Repeat again.

This might get you there in 10 years. Maybe.

Or you could think outside the box and do something like this: https://www.zillow.com/homedetails/569-N-Front-St-Reading-PA...

[Tim Ryan]

This can be done.  One way to better your odds is to find a partner and do this together.  It will be easier to get $10k monthly cash flow together than $5k on your own. 

$5k is not overwhelming, but if you never really get started then it's a moot point.

Power in numbers.  Go for it !

[Jim K.]

This is way too hypothetical with massively important variables missing.

1. The most important one, as @Tim Ryan points out, is the question of whether the investor is single or married. I am living proof that there's absolutely nothing more important than answering this first question first. My wife is fully involved in our business. She brought us our first deal. She handles many of our tenants these days.

We wouldn't have gotten off the ground if my wife was not right in this with me.

2. What's the stable blue collar job? Blue collar jobs is that they are usually linked into larger networks within communities. Here's a great example: C.S. has been my dumpster-rental guy for the last five years. He came to me by way of my mason, who also uses him.

C.S. is really damned good at what he does, and a big part of this is that he's a great communicator. Of course people talk to him, so he knows EVERYONE in the single-family renovation game in Pittsburgh. And he knows who's working regularly, who's only off-and-on, who's going through troubles, who needs extra work. C.S. is one of my first calls when I need somebody good at something specific. Ironically, C.S. isn't in the real estate game himself because his wife isn't up for the life.

3. How tight is your money game? Especially starting out, you're never going to get anywhere if you don't manage to get full and complete control if you don't have an absolute grasp on all your personal finances, if you don't know about lifestyle creep and the hedonic treadmill, if you or the person handling your money can't pinch a penny until the shield dents.

4. This business is never linear. Once you get to ten years in, your life is going to look very, very different than what it does today. I recently hit a buffet far away from our normal one down the street, and there were two guys in T-shirts and jeans in there talking at the top of their voices about how they were "$125K into this deal" and were working on "getting $50K out of this flip." That was me six years ago. Now I have other concerns.

Sure, I've been self-employed in the business now for two years and my wife just quit her main job, but we're not slowing down now. If you end up being the same way, your ten years may end up looking more like fifteen -- it might just be a better deal. Are you willing to accept that?

That's the real world of investing, instead of pie-in-the-sky strategizing at the buffet.

[Jennifer Fernéz]

Quote from @Tim Ryan:

This can be done.  One way to better your odds is to find a partner and do this together.  It will be easier to get $10k monthly cash flow together than $5k on your own. 

$5k is not overwhelming, but if you never really get started then it's a moot point.

Power in numbers.  Go for it !

 What is the difference in numbers?   It seems more like a headache to partner with someone but I’m interested in hearing your take.

[Jennifer Fernéz]

Quote from @Jim K.:

This is way too hypothetical with massively important variables missing.

1. The most important one, as @Tim Ryan points out, is the question of whether the investor is single or married. I am living proof that there's absolutely nothing more important than answering this first question first. My wife is fully involved in our business. She brought us our first deal. She handles many of our tenants these days.

We wouldn't have gotten off the ground if my wife was not right in this with me.

2. What's the stable blue collar job? Blue collar jobs is that they are usually linked into larger networks within communities. Here's a great example: C.S. has been my dumpster-rental guy for the last five years. He came to me by way of my mason, who also uses him.

C.S. is really damned good at what he does, and a big part of this is that he's a great communicator. Of course people talk to him, so he knows EVERYONE in the single-family renovation game in Pittsburgh. And he knows who's working regularly, who's only off-and-on, who's going through troubles, who needs extra work. C.S. is one of my first calls when I need somebody good at something specific. Ironically, C.S. isn't in the real estate game himself because his wife isn't up for the life.

3. How tight is your money game? Especially starting out, you're never going to get anywhere if you don't manage to get full and complete control if you don't have an absolute grasp on all your personal finances, if you don't know about lifestyle creep and the hedonic treadmill, if you or the person handling your money can't pinch a penny until the shield dents.

4. This business is never linear. Once you get to ten years in, your life is going to look very, very different than what it does today. I recently hit a buffet far away from our normal one down the street, and there were two guys in T-shirts and jeans in there talking at the top of their voices about how they were "$125K into this deal" and were working on "getting $50K out of this flip." That was me six years ago. Now I have other concerns.

Sure, I've been self-employed in the business now for two years and my wife just quit her main job, but we're not slowing down now. If you end up being the same way, your ten years may end up looking more like fifteen -- it might just be a better deal. Are you willing to accept that?

That's the real world of investing, instead of pie-in-the-sky strategizing at the buffet.

 1.  Single.   Finally.   Why does it matter in real estate?

2.   I’m a retired and disabled teacher.   I get my salary from SS now.

3.  I make plenty of money but want to make more.

4.  What are your concerns now?   What were they as each year went on?   Interested in hearing your mindset shift.

[Jennifer Fernéz]

Quote from @Bruce Woodruff:

So can I assume you are wishing to replace your $5k mo income with income from property(s) ?

Of course it depends where in the USA you choose to start, but let's guess using averages....

With $50k to start with (as a 20% down payment on a rental property) you can purchase a house up to about $250k, right? Assume $1500 - $2000 mo for rental income and assume PITI at $1800 with 6% interest, you are already at break-even. And that doesn't include other expenses.

So the traditional SFH route may work eventually including appreciation and other factors, but probably not in 10 years because you need to refi and purchase other houses to make this angle work.

Buying a 2/1 somewhere and living on one side is another option, as is renting both sides, but you'd have to identify an area where you can afford a duplex. Or you could house-hack. I still don't see 10 years here.

Flipping is an option as well, but do you have any skills that would help? Paying a Contr to do everything sucks up a lot of $$...

Personally I would buy the worst house in a run-down area of a nice city that is getting ready to gentrify. Fix it up, rent for a year or two until it pops, than sell and take profits to buy a couple of the same type deals. Repeat again.

This might get you there in 10 years. Maybe.

Or you could think outside the box and do something like this: https://www.zillow.com/homedetails/569-N-Front-St-Reading-PA...

It’s better to stay away from inner city Reading.   I’m interested in renting in zip codes 19606 to 19611.    Lots of murders and stuff in the city , included with people I know.   There is also a bedbug infestation there.   I taught in a school
for a brief 6 months and my students had the bites everywhere.

I’m looking to purchase multi unit or commercial property.   They passed new loan regulations where I only need to put 3% down on owner occupied 2-4 units, which is where I plan to start.

I do have skills.   I own an interior design and full home renovation business.   And I taught math forever in secondary and post secondary settings so I know the number side of things too.

[Bruce Woodruff]

Quote from @Jennifer Fernéz:

It’s better to stay away from inner city Reading.   I’m interested in renting in zip codes 19606 to 19611.    Lots of murders and stuff in the city , included with people I know.   There is also a bedbug infestation there.   I taught in a school

for a brief 6 months and my students had the bites everywhere.

I’m looking to purchase multi unit or commercial property.   They passed new loan regulations where I only need to put 3% down on owner occupied 2-4 units, which is where I plan to start.

I do have skills.   I own an interior design and full home renovation business.   And I taught math forever in secondary and post secondary settings so I know the number side of things too.

Hmmmm....my thoughts:
1) Putting down less is not necessarily good because then your monthly loan payment is much higher, i.e. putting down $50k as about 3% on a 4-plex for $1,500,000 would give you (roughly) a mo payment of almost $10,000. Now you need to rent out the other 3 units (besides yours) at about $4k per month to make decent profit. I doubt units rent for $4k in Reading , PA, right?
2) With all due respect, teaching math does not prepare you for running a business and producing Real-World spreadsheets, P&L statements and balance sheets.
3) Every city has it's gentrifying areas and zip codes. Find yours, preferably before others do. Wait out the criminals and bedbugs.

[Nathan Gesner]

Quote from @Jennifer Fernéz:

Most people will tell you to start investing now and snowball up. 

I would tell you to get really, really smart on self-storage, mobile home parks, or something that can be run by a low-skilled employee and pretty hands-off. 

Example: I wanted to invest in self storage so I learned just enough to be dangerous. I called every facility in my market, introduced myself as a burgeoning investor, and asked if they would consider selling. After six months, I got a bite and bought a property for $525,000 that cash flows over $7,000 a month. That's real net cash flow, after all expenses.

It takes time and patience. You may have to invest in another market. It's even harder because 172,426 other investors decided to jump into self-storage in the last four years and there will be a lot of competition.

Anything worth doing is going to be difficult.

[Tim Ryan]

Quote from @Jennifer Fernéz:

Quote from @Tim Ryan:

This can be done.  One way to better your odds is to find a partner and do this together.  It will be easier to get $10k monthly cash flow together than $5k on your own. 

$5k is not overwhelming, but if you never really get started then it's a moot point.

Power in numbers.  Go for it !

 What is the difference in numbers?   It seems more like a headache to partner with someone but I’m interested in hearing your take.

Here's my point:  It would appears making $5k on your own is equivalent to making $5k in a partnership. So what's the difference?

I'm making a point that many people who are new to real estate investing (which I think includes you) have a very hard time ever getting started or taking that leap on their own. 

Then I see newbies who team up, motivate each other and work together as a team. It being a headache is only if you can't work with people for properly set up a company with someone.

This is what is great about investment partnerships. You only need to partner on a deal by deal basis. Do one deal together. If not working out, don't do more.

If it works do a lot.  I have numerous partners. One of my first partnerships, we owned 330 units together. The partnership has been amazing. Perfect? Of course not. But very lucrative for sure. Neither of us would have done this without the other.

Something to think about. Maybe you'll have to go out first on your own before you'll really understand what I'm saying here.

[Jim K.]

Quote from @Jennifer Fernéz:

Quote from @Jim K.:

This is way too hypothetical with massively important variables missing.

1. The most important one, as @Tim Ryan points out, is the question of whether the investor is single or married. I am living proof that there's absolutely nothing more important than answering this first question first. My wife is fully involved in our business. She brought us our first deal. She handles many of our tenants these days.

We wouldn't have gotten off the ground if my wife was not right in this with me.

2. What's the stable blue collar job? Blue collar jobs is that they are usually linked into larger networks within communities. Here's a great example: C.S. has been my dumpster-rental guy for the last five years. He came to me by way of my mason, who also uses him.

C.S. is really damned good at what he does, and a big part of this is that he's a great communicator. Of course people talk to him, so he knows EVERYONE in the single-family renovation game in Pittsburgh. And he knows who's working regularly, who's only off-and-on, who's going through troubles, who needs extra work. C.S. is one of my first calls when I need somebody good at something specific. Ironically, C.S. isn't in the real estate game himself because his wife isn't up for the life.

3. How tight is your money game? Especially starting out, you're never going to get anywhere if you don't manage to get full and complete control if you don't have an absolute grasp on all your personal finances, if you don't know about lifestyle creep and the hedonic treadmill, if you or the person handling your money can't pinch a penny until the shield dents.

4. This business is never linear. Once you get to ten years in, your life is going to look very, very different than what it does today. I recently hit a buffet far away from our normal one down the street, and there were two guys in T-shirts and jeans in there talking at the top of their voices about how they were "$125K into this deal" and were working on "getting $50K out of this flip." That was me six years ago. Now I have other concerns.

Sure, I've been self-employed in the business now for two years and my wife just quit her main job, but we're not slowing down now. If you end up being the same way, your ten years may end up looking more like fifteen -- it might just be a better deal. Are you willing to accept that?

That's the real world of investing, instead of pie-in-the-sky strategizing at the buffet.

 1.  Single.   Finally.   Why does it matter in real estate?

2.   I’m a retired and disabled teacher.   I get my salary from SS now.

3.  I make plenty of money but want to make more.

4.  What are your concerns now?   What were they as each year went on?   Interested in hearing your mindset shift.

Best of luck to you.

[Scott Mac]

You have some money, and it is wise to have cash reserves available as well as the down payment and closing costs. 

Your lender will probably require a certain amount of cash reserves so it would be wise also to look into lenders who might lend to you -- and get to know their requirements.

Ultimately your expansion ability is going to hinge on your ability to borrow money, which to a part relies on how much down payment you can get.

Just my 2 cents.

[V.G Jason]

Quote from @Jennifer Fernéz:

This post is for seasoned investors.

You are starting out and do not have a mortgage, yet.   You work a stable job and make $5K a month.   You've been able to save up and have $50K in liquid cash.   Your goal is to create an income producing portfolio so that you can retire from your blue collar job in 10 years.   

Tell me your best strategy to reach your goal.

 I wake up from my dream, and start being realistic. Realize my income is too low, my cash reserves are too low, and my timeline is too short. I start being realistic, and realize I can still get what I want just maybe not all at once or all in the same way. And focus on just the first step. 

You're looking miles deep, but you haven't even gone 1 step on mile 1 5280 steps in. Let's focus on getting cash set aside, closer to $120k-$150k while researching a market you want to invest in.