First Investment Property

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First Investment Property

Reuben Stone
Investor · Burlington , VT · Member since 2014 · 39 posts · 10 votes

So far I have not gotten involved in BP as much as I would like too. My property management company is in the middle of a major program change and tax season in coming up! But I am on here today to ask a question that I have never really gotten a good answer too. So here it goes...

I want to know what  is more advantageous for my first investment. Option 1: Invest in a foreclosed property for under 50K fix it up and then leverage that property to buy my next one. Option 2: Invest in a 500K property right out of the gate? Option 3: Somewhere in the middle of option 1 and option 2. 

I am 23 years old, never owned property, and own my own property management company. I have the ability to invest in the 50K properties right now and I have the resources and connections to allow me to invest in the 500K property as well. I want to make sure that my first investment will not effect the rate I can grow my portfolio. I want to own many properties and I am having a hard time determining where to start. I understand that the foreclosed option would allow me to use the equity to purchase my next investment, but do not know how I could leverage a 500K property to make my next investment purchase. I dont want to invest in anything under 4 units and all the foreclosed properties in my area are less than 4. The rental rates in my area just dont produce enough cash flow to justify a duplex or a triplex investment. 4 units is where you start seeing some return.

Any suggestions or advice? Any feed back will be greatly appreciated! Basically I just want some advice on where to begin and what option would allow me to grow my portfolio at a healthy rate.

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  • Daniel Miller
    St. Petersburg, FL · Member since 2012 · 173 posts · 44 votes
    11y

    It really depends on your end goal. If you want to be in the fix and flip business I would go with the first option and try flipping a foreclosure. 

    You said you are in the property management business so I am going to assume that your core competency is dealing with rentals. If it was me (we are four years apart) I would buy a $500,000 income producing asset, more specifically an apartment building. As long as there aren't any balloon payments on your financing by the time your 53 (at which point a hypothetical 30 year mortgage would be paid off) this investment will probably have doubled in value and you will own it all free and clear. This is the strategy that  I am employing right now. I have purchased two properties (a 5 unit and a 7 unit). I am fixing them up and in couple years I will open a portfolio loan across these two properties and buy a third apartment complex and keep the ball rolling.

    Congratulations on being 23 and having those kind of options! Learning and Investing at a young age is very important. It gets you into the game and starts the wealth building process. I focus on apartment buildings if you come across anything I'll gladly take a look at it for you. PM me with any questions. You should be super excited. Less than 1% of people have the opportunity and financial wherewithal to invest in a $500,000 property at the age of 23.

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  • Joe Fairless
    Investor · Cincinnati, OH · Member since 2013 · 2k+ posts · 1k+ votes
    11y

    @Reuben Stone congrats on getting going. Assuming that you have the necessary knowledge for both strategies, I'd say the best option is to buy larger and leverage more - especially if it is a value-add property that you. That way you can get the money back out of it after you add the value and then do the same process again. 

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  • Reuben Stone
    OP
    Investor · Burlington , VT · Member since 2014 · 39 posts · 10 votes
    11y

    Dan and Joe, 

    Thank you both for the input! Dan, my end goal is to be heavily invested in commercial properties. I like the concepts and the overall business strategies that come with commercial. However I do understand that with commercial comes the increased possibility that your building will sit empty for a long period of time and you have to be able to handle that mentally and financially. Hence the reason I think I should begin with some residential buildings that produce decent cash flow. I just need to better understand how to leverage properties. If either of you know of any good books or other resources on this topic I would love to give them a read! 

    Again thanks for the input and the advice, I am glad that there is a place like BP to ask questions and get some guidance. 

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