Where and how to invest?

[Logan Allec]

What to do?  I know nothing.  I don't even know my strategy.  I'm looking for wisdom, stream of consciousness, whatever--any suggestions that wouldn't require me to step away from my current employment.  I have a growing pot of disposable income to invest as I'm single, living like a bum, and keeping steady at a decently-paying job.  I want to make the smartest moves I can financially before settling down, getting married, buying my own home, etc., and I'm willing to live like a pauper in order to do so.

I've been seriously considering buying turnkey property out-of-state (I have been thinking in Austin for appreciation [that's what the turnkey companies tell me--though some reports I've found online claim that Austin is wayyyyyy overpriced right now] or Indianapolis for cash flow [ditto]), but given my age and station in life I feel like I can be a bit more "risky" than merely paying retail (or more) for a property to get a few thousands a year in cash flow just to sit on it and wait until the mortgage is paid off.  Or is that just youthful naivety talking?  Does this rather boring approach actually pan out if I start now and acquire 5ish properties by the time I'm 30 and 10ish by the time I'm 35?

And this probably sounds silly, but recently I got the illustrious and romantic idea to purchase a 4-plex using FHA financing in San Diego (read: expensive and won't cash flow, but vacancies would be low [very desirable city], and although prices have increased substantially in the past few years, I have to think there's still some room to grow, especially if I'm in it for the long-haul, though I know that multis don't appreciate as much as singles). Is there any redeeming value to this idea? I figure I am going to buy a personal residence in the next five years anyway, so might as well take advantage of the FHA program. Or is this stupid and should I just keep my expenses crazy low like they are right now and invest invest invest somewhere else? My gut tells me the latter.

Any words of wisdom?  Were you ever in my shoes?  If you weren't, what would you do if you could turn back the clock?

[Jay Hinrichs]

@Albert Bui   Exactly these are base fundamentals.. however for this particular first time buyer... He is living in one of the units so if he bought a home to live in he would have zero cash flow.  Or I guess he could rent rooms.. 

And its the point you make exactly were investing out of state becomes very risky because you cannot mitigate those factors as easy when your thousands of miles away from your asset.. Heck just one trip to check on things cost 2k or so  or a whole years worth of cash flow.

The risk that when someone lives in his 4 plex compared to renting in another setting is no comparison..... What many do may not realize is that when you live in your duplex or 4 plex the discrimination rules no longer apply to you... You can pick and choose who you want to live in your units without fear of anyone claiming your discriminating on any class of renter. 

If your a young single male and only want to rent to strippers you can do that  :) Ya know LA.....

Plus any sale of your owner occ property you get the exclusions you do not get with IP properties.. Lots of benefits...  And in a market that has a History of going up pretty nicely one will make far more in tax benefits and appreciation than taking unnecessary risks.

NOw again I am talking low to lower end rentals in any market... 

[Matt Spicer]

I would consider analyzing what immediate goals you have and how much risk you are willing to take.   My first deal after paying off our personal property was small and we are in the process of finishing it now. 

I chose to pay off our house to have the equity to fall back on if needed and increase cash flow by eliminating bills.  How comfortable are you with the thought of turning a loss on your first deal?  You're chances are much higher with out direction..  If you're single why not look into house hacking for your first move and you could maybe reduce, eliminate or profit from your housing situation. 

[Charmaine Trahan]

Lake Charles, La is a pretty hot market right now. We're experiencing a pretty substantial economic boom (mostly in the oil and gas industry). The cost of homes are still relatively low for now, and the need for rentals keeps increasing. Let me know if you would like to learn more.

[Matt Skinner]

Talk about a quality problem.  First of all let me congratulate you on your success in life; not because you're 25 with a great job and a pile of cash, but because you are wise enough to seek advise.  

I own apartments in Texas and I would say that market is topped out.  It's never had higher prices, it's never had a higher demand, and vacancy has never been so low. These are all signs of "top of the market".  

I also bought notes SFR's in Indy 5 years ago and foreclosed to make my own turn key rentals. I think Indy could be approaching it's own historical top as well.

Both Indy and Austin were great markets to buy five years ago.  But don't buy stocks or real estate when they hit their all-time historical high. 

If I was you I would follow Gordon Cluffe's suggestion; buy a home with FHA, get your buddies to pay the mortgage by way of rent, and live there while you ride the appreciation of the OC market back up.

Remember, California has not made it's full recovery from the crash just yet.  In fact it is way behind the curve compared to Texas and Indy.  

If you can make anything cash flow (or break even while living in it) in so cal, you will reap the benefits. I've had houses go up $100k in a year or two in so cal - which would never happen in Tx or Indy.

Keep playing your cards right. 

And have fun. 

PS: I live and work in So Cal

We are developing luxury homes and buying large Multifamily here in so cal for cash flow.  

[Ali Boone]

@Karen Margrave  @Jay Hinrichs 

I'm sorry you both think I'm some kind of... whatever you think I am. In the future I think it would be more professional, and less intrusive on people's posts (since the point of them asking questions is to get answers rather than being forced to tune in to people debating amongst themselves) if you message me directly with any concerns about how I do business. Or shoot, post a whole thread with your opinions on me for all I care, but I don't think it's fair to take over someone's post to go after someone you don't agree with. I will respond briefly here though, since you did put your concerns out there...

I wish I had a more entertaining answer as to why I don't have my license number out anywhere (because it is always more fun if I am trying to con people or be a sneak or whatever options are out there for dramatic effect), but unfortunately the reason is really boring- I actually didn't know my license number needed to be listed until about a week ago when someone asked me about it and I realized I do need to have it on there, but then I didn't have internet until today because I was gone for the holidays. So, I just didn't know. Sorry for such a boring response on that one. I do, however, disclose quite often that I make referral fees. It's on my BP profile, it is on my company website (go to Disclosures at the bottom of the page), and anytime I tell people I can refer them to turnkeys on the forums, I do tell them I can make a referral fee if they buy ("can" being because I don't make referral fees from everyone I refer for. Another boring twist to the story, I know).

Karen, I'm sorry you feel like I only steer people towards out-of-state. That's not my intention at all, and I think if you search through my responses or blogs or wherever you want to look, it will be very clear that I'm in favor of everyone doing whatever works best for them. The only time I do recommend out-of-state is when people are trying to invest for cash flow. Cash flow doesn't work in SoCal. But I've said plenty of times, if you want to do the appreciation play, or especially if you want to flip, definitely invest in SoCal. Even if you aren't doing either of those, if you are still gung-ho to invest in SoCal, then go for it, but just do it with the education under your belt to understand what you are doing. I don't think there is anything wrong with buying in SoCal, or anywhere for that matter, assuming you are fully educated on all the ins and outs of what each method of investing entails. Buying in SoCal is just a different method than buying for straight cash flow. Nothing wrong with it, just everyone needs to be sure they understand what they are doing. Even with this post, Logan just said he's decided to buy the SD property first. I say rock on! He got tons of education from this post, lots of pros and cons for both sides of it, and made (what I think to be) an educated decision. You won't hear me knock it, regardless if I would do it myself or not.

Jay, we've talked about this before but since you are clearly still concerned... my responses to people on the forums only go in as much detail as their question warrants, unless they ask for more information. I'm not interested in cluttering up people's forum posts with tons of details or 'education' that they didn't ask for. Sorry my posts are boring to you, but buying out-of-state rental properties (believe it or not I do own non-turnkey ones too) while living in CA is my niche, hence why I tell people that. I think telling people what I buy is quite benign compared to what I could be doing, which is what you suggest I do- pushing people towards buying turnkeys. I challenge you to find one post for I do that. I don't even mention turnkeys unless they are mentioned first. So since this is the second time you have jumped on my forum responses, and if you are still concerned about it, I really do suggest we take the conversation out of people's posts and talk amongst ourselves, and we can even bring Brandon in on it. If that would make you feel better about it.

And the last thing, that I've said quite a few times before... I don't refer for just anyone who will pay me money. Trust me, I get a lot of offers and the offers are usually for a heck of a lot more than I currently make. I turn them down though because I will only refer people to companies I have bought through myself. I wish that weren't the case, because I can't even tell you how much more I would make if I did take other companies up on their offers. I've had offers for more than triple the referral fees from what I currently make. And I tell them no. Again, another boring non-dramatic response to keep this fire burning, but it's the best I've got. 

Okay, long enough response. I do invite either of you (or anyone for that matter) to talk to me privately about any concerns you have. Or, if you insist, keep taking up Logan's post.

[Jay Hinrichs]

@Ali Boone 

  Case closed.... its funny how any agent would not know the rules of advertising that is RE license 101 ... its usually only the fact that you are an agent and the name of the brokerage not necessarily your specific license number.. but those rules are easy to find.

[Mike D'Arrigo]

@Jay Hinrichs I'm jumping in on this late but wanted to respond to your following comment:

 "I have an AU client that has a house in Indianapolis that has been stripped 3 times in 24 months.. I personally have had probably 20 of mine stripped over the years"

I think that this is more of an issue of what neighborhoods you're buying in in the Midwest, than buying in the Midwest in general. I've only had one property in Indianapolis get vandalized and stripped and that was a duplex which I'm not a big fan of.

To your point, this is an issue of buying, low end, cheap properties in bad areas and can happen in any market, not just the Midwest. Thieves know no geographic boundaries. Unfortunately, we don't have caning here. Maybe we need to try it!

[Ali Boone]

@Jay Hinrichs

Are they as easy to find as the rules about selling securities?

[Jay Hinrichs]

@Ali Boone 

  sure Aly happy to discuss it anytime

[Ali Boone]

@Jay Hinrichs

Lol. Nah. Just might want to remember your own past before you start telling someone what rules are easy to find.

[Jay Hinrichs]

@Mike D'Arrigo 

  Agree every city in America is subject to these issues.  Its just more prevalent in certain areas .  And there is just no question that its epidemic in low end areas of the mid west.. It just is... I never saw an air conditioner cage until I went out east.. Never heard of a GPS chip for the Condenser unit.  I personally have never had a home in Oregon broken into and stripped of all its operating systems copper hot water heater appliances etc.. And I have 21 new construction homes going right now and the homes do not even get fully secured until well after all the HVAC plumbing and electrical are in.. The door is wide open just walk in and have at it... If we did the same in ANY market in the MID west at say 75k an under those houses would be stripped.. Security helps but not always.

It is one reason investor take much larger risks when they buy down in the market.. NOw you take smaller towns that are not in the metro areas and these issues are mitigated but that is not were out of state investor purchase by and large.

Once you move above the mean in price point these issues go away...

I was sitting in my closing attornies office in Atlanta a few years back and commented why it was so hot.. He said " my condensers were stolen last night" this in a solid A class commercial park.

Its an issue is all I am saying

[Account Closed]

Originally posted by @Ali Boone:

@Jay Hinrichs

Lol. Nah. Just might want to remember your own past before you start telling someone what rules are easy to find.

@Ali Boone Since @Jay Hinrichs is open to this discussion I would like to see your continued participation in the discussion that you initiated.  Is there some "past" that needs to be vetted?

[Jay Hinrichs]

@Ali Boone 

  Really Aly what past is that ? I am sure your dying to tell. but for those reading your comments I have mentioned my little te' de Te with the state of Oregon many times.

And [edited] you would understand what my little issue with the state was. and after I paid a small fine went on to buy 350 homes under the same model that the state slapped my hand for.. And the company is still up and running ( I sold out personally a year ago nice liquidity event thankyou) with the blessing of the state feel free to call or contact them to get the current RE paper offering for the company and the one we operated under ...And like I said I have mentioned this many times on these post. but of course you probably never saw them that's why you put your foot in your mouth..

Its why there is no cash flow In LA and why you only invest in the mid west and why you hide the fact that your just a marketing agent who may or may not have a license and your license number is not on your website at least it wasn't a few weeks ago.. When you said OH I forgot.. All I said was its RE 101 to include the fact your a broker on any public advertising.. Your far to smart to not know that rule.  And I think the people on BP are far to smart to know a marketing maven when they see one and one who is just out to make money selling property... Maybe if you took the tack of others that are in the business and just came out and said Hey I am a marketing agent I post on BP for one reason and that is to get clients so I can sell  you properties so I can make commissions that I may make legally or not legally,, that would be nice Just LIke Karen Margrave suggested your posting is very sly in its approach and many that I have talked to have commented when they see your posts they just jump over them because they are repetitive and give no real benefit.

Any way I like your tag line Hipster , Pilot , Gogo dancer...  that probably fits. RE expert probably not.... I myself am not a hipster or a gogo dancer but I am a pilot.. so we share that love of flying I am sure.

[Jay Hinrichs]

@Account Closed 

  Nothing secret here Bob its on the internet... When I started TWH  my Oregon attorneys did not think I need a special offering in the state of Oregon. As we felt we were selling notes that were not securities .. Just like many note sellers. However the state of Oregon decided we did need what they call a RE paper offering so.. I went with my attorney to a voluntary meeting . We produced What the State of Oregon calls a RE paper offering.. IE we sold notes. They approved it.. WE paid a 5k fine to the state.. and went on to do 350 transactions under that offering... We had done about 50 when the state came in and said we need to produce this offering and they required us to give each of the 50 clients a right of rescission which we did.. Not one client rescinded...

I sold out to my partner last Oct.. he still runs the company and model and adds 5 to 10 properties a month to his portfolio under the same RE paper offering that we got our hand slapped for not having....

Any way I have mentioned this many times on my posts on BP.. Aly has just taken offense to what I have posted and what Karen Margrave posted.. so she is just trying to hit back.

And I could give a +++++  I don't make any money on this site.. I just try to give the other side of the coin about investing in the Mid west.. Its not all wine and rose's and investors need to know there are real risks in many markets and certain assets are all but losers. Along with the fact that CA is one of the best markets in the World to invest in Period. 

And that if CA investors want to go out of state they can go direct to providers no need to talk so some person sitting in LA  trying to sell mid west properties..

I mean really if you wanted to buy a home in LA or SF would you contact a broker in Memphis... Well that's what LA people are doing they are contracting a maybe broker in LA to sell them homes in Philly.. which she may or may not be licensed to do.. As it does not specific on her website.

[Ali Boone]

@Jay Hinrichs 

Well then it's a shame we don't get along on the RE front because it would be a blast to talk flying. It's my favorite! And good call on me not being an RE expert... I'm certainly not one (or I'd put it in my tagline). I just buy properties and have learned whatever I've learned. 

Think what you want of me, call me what you want...but now I'm just bummed we apparently can't be friends because we both do fly. I don't meet many RE+pilot folks! Maybe one day we can talk flying.

@Account Closed 

Sounds like Jay has posted about it elsewhere, so maybe ask him where if you want to know more about it.

[Jay Hinrichs]

@Ali Boone 

  I have a Cirrus SR 22 I bought new in 04.... IFR rated 1000 plus hours.. and no dents or dings.. and trying to keep it that way.

[Ali Boone]

@Jay Hinrichs

Nice plane! I instruct out of Santa Monica and the Cirrus is definitely the predominant airplane at that airport. I haven't gotten into them yet.

Okay, I'm tapping out of this thread. It's been taken over enough from the original topic.

[Brian Gibbons]

I wish there was a "PaperSourceOnLine W. J. Mencarow" level educator here on BP. @Jay Hinrichs is there such a section on line?  

Or a "Alan Cowgill like" educator for Getting Private Money?

With SEC Reg D caliber of info.

[Dale Hensley]

Originally posted by @Jay Hinrichs:

@Mike D'Arrigo 

  Agree every city in America is subject to these issues.  Its just more prevalent in certain areas .  And there is just no question that its epidemic in low end areas of the mid west.. It just is... I never saw an air conditioner cage until I went out east.. Never heard of a GPS chip for the Condenser unit.  I personally have never had a home in Oregon broken into and stripped of all its operating systems copper hot water heater appliances etc.. And I have 21 new construction homes going right now and the homes do not even get fully secured until well after all the HVAC plumbing and electrical are in.. The door is wide open just walk in and have at it... If we did the same in ANY market in the MID west at say 75k an under those houses would be stripped.. Security helps but not always.

It is one reason investor take much larger risks when they buy down in the market.. NOw you take smaller towns that are not in the metro areas and these issues are mitigated but that is not were out of state investor purchase by and large.

Once you move above the mean in price point these issues go away...

I was sitting in my closing attornies office in Atlanta a few years back and commented why it was so hot.. He said " my condensers were stolen last night" this in a solid A class commercial park.

Its an issue is all I am saying

 I live and work in the richest county in Indiana and our new construction gets hit constantly. Houses start at over 200k in this area and go well into the millions. No major systems go in until they absolutely have to and all plumbing is PEX. Buildings are locked up long before systems go in. I have an alarm on all of my properties now because I get hit twice on my very first one. The funny thing is that the house was vacant for 3 years before I started the project and was never touched. After I started working on it, we started getting hit. Never been touched since the alarms went in them.  

[Karen Margrave]

As for properties cash flowing, making blanket statements that investors cannot get cash flowing properties in California and other areas is an exaggeration. You can get properties that cash flow in many parts of the state, including in southern California IF you buy right. My point is, EVERYONE that is investing needs to take the time to get to understand the local areas where they are investing, and what drives those markets. I personally think new investors, with limited resources, are better off staying closer to home, and others believe they should invest out of state. (those are opinions) 

Wherever you invest, here's a partial list of what I think should be considered:

• The local markets where they are considering investing (Supply and Demand, Vacancy rate etc.)
• Economy of the local areas (Broad based economy, Unemployment rate, Median Household Income, etc.)
• the types of properties in any given area (SFR, MFR, Condos, Mobile homes, Mixed Use, General Office, Medical Office, Retail, Parking lots, Marinas, etc.)
• Investors may also want to look at properties such as Vacation Rentals (Which is a growing segment of the market in certain areas, and can in fact cash flow very well) though they require much more management
• Other segments of the market that can cash flow very well are group type housing (sober living, transitional housing for the homeless, and other types of housing) that rent bed space and can be very lucrative. Again, high management. 

There are so many things that drive the market, being off by a block in a type of property, or buying a type of property not suited to the investor, can mean the difference in it being a great investment or a money pit. No matter where you are investing your money, do your homework! 

[Matt R.]

Sidebar- I always see brokers info cospiciously formatted on any advertising offline or online. This seems like a standard regulation nationwide. I assume that is for legal reasons and recourse purposes.

Like Karen says you can get cash flow in LA with out of the box methods...vrbo, house hacking, roomies etc. I would consider house hacking with discounted rent a form of cash flow especially if your rent was $2500 and now you pay $500 to live in and own. I would call that 2k cash flow per mo with a catch. There were over 10,000 seller financing deals in Cali last year maybe some of those were zero down cash flow types:)

[Jay Hinrichs]

@Dale Hensley 

  wow  then you can imagine what happens in the lower end areas. Its an art to rehab those and not get ripped off.

we are lucky in our market.. the worse we get is someone using our dumpster for household trash.. and our porta potty... LOL

[Mike D'Arrigo]

@Karen Margrave Another great way to get CA properties to cash flow is through short term, corporate housing. There's huge demand for it here in the SF Bay Area. I just had a woman on my radio show that is doing it and getting 3 to 4 times the normal market rent. I thought it was pretty intriguing. Or, you can just rent a glass house in Beverly Hills to Justin Beiber for $60K per month. I just saw an article about that. $60K/mth should cash flow.

[Karen Margrave]

@Mike D'Arrigo Hadn't thought of that one. That's what's so great about BP, there's always someone that thinks of something you missed! There's so many great ideas, hopefully we'll get some other ideas too. Thanks for sharing. 

[Mike D'Arrigo]

@Karen Margrave Which one hadn't you thought of, renting the glass house to Justin Beiber or short term, corporate housing?  LOL. Seriously though, I hadn't thought of it before until I met this woman at a local MeetUp and after talking to her, had to have her on my show. She was ery educational and opened my eyes a lot. If anyone wants a podcast of it, I'm happy to share it with them.