What I've learned after six months and two rental properties

[William S.]

Hi All,

I wanted to share with those who are just starting out some things I've learned so far in my investing journey. 

My first purchase was a SFH property from a turn key provider in Kansas City. This was an out of state purchase for me, but I am originally from the area so I was not very concerned in doing this. Here is what I learned:

Turn key learnings:

1. You are paying market price

2. Make sure they have property management in place

3. They need to be trustworthy

4. If you decide to go out of state make sure it is a good market with low property taxes and a investor friendly government! 

5. It will be hard to acquire several due to 25% down payment (not BRRRR strategy)

6. Your cash flow (if financed) will be minimal due to buying at market price/CapEx

7. Don't forget all of the expenses... Repairs, capex, lease fee, etc...

Overall thoughts on turn key properties:

If you are someone who doesn't have or want to spend the time to buy low, renovate, find a tenant, manage, or lives out of state this could be a decent route for you to explore. Holding a 30-year fixed mortgage on these will not cash flow very much, if at all, once you consider $150-$200/m for long term CapEx expenses. Yes, you bought these fully renovated, but everything has a shelf life.

Possible strategy for all turn key portfolios:

Buy 3-5 turn key properties with 25% down 30-year fixed mortgage (or a shorter term loan). Reinvest CapEx budget to acquire these properties quicker. Once you reach 3-5 properties, use all cash flow from the properties and savings to payoff each loan.

My second purchase was a rental in my local market (Milwaukee). I'll be honest, I don't really like this market much. The property taxes are really high, people don't take care of their homes, and the government isn't investor friendly in my opinion. However, the rental market is very tight. If you have a nice home, it will rent very fast for a high price. I purchased this property with 25% down 30-year fixed and put roughly $9k into renovating it. I would not say this renovation was as good as a turn key property though. Paint, flooring, touch up kind of stuff.

DIY Learnings:

1. You can buy below market value, but it depends on how much repair work you want to take on

2. The small stuff in renovations quickly add up (landscaping, blinds, dumpster, etc)

3. Contractors can be difficult to work with

4. You'll find out what parts you enjoy doing and what you do not. I didn't mind finding, hiring contractors, but property management wasn't for me

5. Your local market may cost you more than going out of state.

6. Your monthly cash flow will be higher if you hold long term, but it will cost you more money upfront.

7. At the end you'll ask yourself if it was worth the time/money vs buying something already fixed up

Overall thoughts on DIY:

I bought this property roughly $10k under market value. So if I decide to exit I can cover my realtor fees. DIY can be good because you can pick durable materials (vinyl plank) vs what turn key companies give you (carpet). Your monthly cash flow will be slightly higher than a turn key company, however your initial out of pocket cost will be greater. Your ROI, when comparing the two, will give a slight edge to the DIY approach (at least in my case).

Possible strategy for DIY portfolios:

In the end I think its all about the purchase price and your time. In my opinion if you go DIY you mine as well do the BRRRR strategy so you can get your initial capital back. It will take more time, but the light rehab property still took my capital used for a 25% down payment, plus rehab costs.

So what's next for me? I'm honestly not sure. I started simple buying a turn key, the next purchase was done with a light rehab to learn a little more. I love the idea of BRRRR and I think if you're going to invest in real estate, this makes the most sense. If you're starting out I highly suggest looking into house hacking a duplex/fourplex. That is what I wanted to do, but my significant other was not interested unfortunately.

I hope this helps anyone else who is starting out.