What to do right now?

Question

Hi there,

I am writing seeking advice on what to do in this in between time and whether I should buy a primary residence first or a rental property first.

My husband and I plan to get into buy and hold properties and eventually have enough properties to live off the cash flow from them (isn't that the dream for everyone?). We live in the Modesto area in California, we recently moved back from the Dallas area in TX. We have about 40k in savings (just sitting there not earning me anything!) from the sale of our home, and we are renting an apartment (ugh). The real estate market in our area is way inflated right now, and I have no desire to spend over $300k for house around here right now, and we are banking on the market dipping in the next 1-2 years, and we will buy something then. We have a family business where we should be able to save about $5,000 per month and that we will use for our investment properties. I was interested in the Phoenix market but the more I read on here I see that Indianapolis is making more sense right now numbers wise. So my question is what should I be doing Right Now? I hate that my cash is sitting there not earning me anything, but I was sort of thinking that maybe by next summer I can put about 50K into a buy and hold in the Indianapolis area, and then after that buy a primary residence here for us. I am betting on having to put down large down payments at least at first as we had to jump through so many hoops when we bought our house here as we were self employed, so I can only imagine what it will be like trying to purchase an investment property. Should I keep saving? Should I buy a house for us first, or should I look into buying a cheaper income property out of state? Any advice and input will be very much appreciated! Thank you in advance.

Jenny

Rosston Smith · Answer

So what did you decide to do?

Louise A. · Answer

@Jennifer Burgess

Are there any multi-family properties in Little Elm that you would be willing to move into?  If you buy a 2-4 unit multi, you can use an FHA loan (3.5% down).  Buying out of state for your first rental is tough. I'm in Indianapolis, buying multi families here and lots of out of state people are getting taken advantage of.  Prices are low here, but you get what you pay for.  Buying something that you can live in and manage yourself will be a lot easier if you can find something that makes sense financially.  Happy to help in any way I can if you have more questions!  Good luck!

Omar Ruiz · Answer

Jenny,

Ultimately you have to decide based on your goals and objectives on what feels right for you. If you want to live off the cashflow from a portfolio, determine the amount needed and work backwards from there. Depending on that amount you may need more time. If your just starting, you may need more education. From your comments, you sound a little anxious to put that money to work, but it's important not to let emotions decide your course of action.

I'm currently in Indianapolis for another week overseeing operations on an apartment, so if you want to reach out and talk a little about the market, we can schedule something convenient for both of us.

To your Success!

Omar

David Veeder · Answer

I have purchased 10 rental properties and I still don't have a home of my own.  I invest extra cash for cash flow, until I have more than I need, your home is not an asset it is a lifestyle choice.  If you purchase a rental property you get a stream of income, as long as you purchase it correctly.

I would not by an investment property in California.  If there are cashflow returns they will be very small, and tenant laws are anti-landlord in California.  Here is a list of some properties available in Indianapolis via Jason Hartman's network.  http://platinum.propertyshopper.com/index.php?path=investor.search.results&area_code=26900

David Thompson · Answer

Since you are from Dallas, not sure why you are not looking there.  Think Acres of Diamonds.  Dallas continues to be a solid long term bet.  Are you accredited?  Consider MF large value add apartments.  Syndication as an out of state limited partner in strong cash flow plays still make sense.  Leverage the best operators, who can find and negotiate the best deals, force appreciation thru a value add approach and lean / business savvy property mgt operations focus and you have a winner.  Hurdle is accredited investor status, but if that applies, reach out to me for more education on it.

Luis Vega · Answer

Hi Jennifer, there are many options as you can see.  The best thing for your money is to not risk it entirely.  I'm a Vice President for the 5th largest residential real estate firm in the country.  Even though we expect a dip, market correction here soon.  It will not be a dramatic one.

My opinion is to find a home in Dallas for you to live in.  Yet, buy right, find a short sale, or a property that needs some remodel.

1. You can get into this property with a low down payment for FHA

a. plus i can suggest methods of getting all or some of your closing costs covered.

2. The remaining you have in savings you can use to remodel.

3. Your lower monthly payment then rent will allow you to save more per month.

When you move this will be your rental property.  With equity in it to ride the ups & downs of the real estate market.  You will have enough in savings to take advantage of owner occupied rates for your newer homes.

There are more exciting options which are a bit more complex to write in detail.  Yet I can always talk to you and your husband about them over the telephone.  Good luck!

Luis Vega

Sherry Maxey · Answer

Hi @Jennifer Burgess,

I agree with @Rosston Smith.  Utilizing a portion of your capital to invest in a property you are able

to live in but also utilize as an investment is a smart move.

This allows you the ability to move forward with:

• start your real estate investing portfolio
• eliminates paying someone else's mortgage
• own your own home- no more renting
• lower down payment since you will be living in property (3.5% vs 20-30%)
• ability to get FHA financing with lower interest rate

This is the best way to leverage funds you have and get into an investment property very quickly with a ton of benefits.

Stay in the loop here on bigger pockets.  A great way to partner and share best practices.

I look forward to hearing of your successes.  Best of Luck Jennifer!

Demetrius LaMarr · Answer

Indianapolis is a great area to invest for most of the reasons you suggested.  If you let me know what kind of homes you are looking for in the area, I can point you in the right direction.

Rosston Smith · Answer

1. Leverage your capital. Don't put all $50k into one property.2. Use an FHA loan and move into a 4 unit complex with a 3.5% down payment. Then you'll have a primary residence and a rental property in one.3. Continue to save and keep the remainder of your $50k in reserve, until you're comfortable enough to get another property.