Have funds, but where do I start?

Question

Hello BP Community,

I have been a long time lurker here and a big time fan of the BP community. Really excited to finally become a member and start my path to financial independence.

A little background about myself: I have a well paying job that allows me to save about 40K a year after all my expenses. I also have roughly 400K saved up and would like to start investing in real estate. I have always been fascinated with real estate versus the stock market but I just don't know where to start.

My goal is to have about 8-12K of monthly passive income coming in from real estate investing without having to dedicate a lot of my time to managing the properties (I understand for this I would need hire well established and reputable Property managers for my investments). My first thought process before I started reading up on real estate and listening to the many podcasts on this platform was to get into the flipping side of SFR's, but the more and more I read I feel that buy and holds are probably the best bet for building wealth and having a monthly income stream coming in from your investments.

I just have no idea where to start. Multi Family's seem very hard to manage and I personally am not that confident to pursue that path for any of my initial investments. With that being said, I am thinking of pursuing SFR's in good cash flow areas of the US (Kansas City, Houston, Jacksonville, etc...). I live in Germantown, MD and there are no cash flow properties in this area, we don't get anywhere close to the 1% rule here. However, buying properties in cities that would require a flight to get there seems very risky since I am physically so far away.

So I have a few questions:

1) How do the professionals in this industries ensure that they are purchasing investments in areas where vacancies rates are low? Given that not everyone lives in a great cash flowing area.

2) If I am buying strictly for cash flow, should I be worried about appreciation or depreciation on the properties? It seems like most of the areas that are good cash flowing areas do not appreciate as much.

3) Is 400K enough to achieve my goal of 8-12K passive income every month with buy and holds or should I pursue a different path?

Also, I would love to connect with agents/investors in my area (20871) if you are out there!

I am new to this, so I am completely okay with harsh replies :-)

Cheers,

Nick G.

Account Closed · Answer

@Nick Gupta

Hi Nick, pleased to meet you.

Decide which kind of investor you want to be (SFR, Commercial, Land, Tax Liens, HML, Multi-Family, Notes, Fix & Flip, Buy & Hold, “Subject To”, apartments, duplexes, assisted living, REOs, Foreclosures, Short Sales), etc.. Decide how much money you have access to, & the zip codes, city or state you want to focus on. That will determine the next step. Outline where you want to be in five years. Put it all in writing. Start working your plan. The amount you have to work with is sufficient if you do "Subject To" investing.

If you have further interest send me a Colleague notice and I can email you some info. Ken

Account Closed · Answer

You can definitely reach your monetary goal with SFRs, but you stated you wanted, "passive income coming in from real estate investing without having to dedicate a lot of my time to managing the properties... ." SFRs will require you to dedicate more time even if you outsource the PM responsibilities. Hence, the multi-family advice.

AJ Singh · Answer

@Nick Gupta

you live next door to Cordova, Bartlett and east memphis locations. why would you be investing out of memphis?

Vivek Khoche · Answer

@Nick Gupta - I am curious, assuming  $40K saving every year you have been saving for last 9 -10 years? Investment always require time, being passive you would accumulate lot of experience to be next REI guru.

Happy Investing

Vivek

John B. · Answer

@Nick Gupta exactly in your same boat, with a little bit more savings coming in on a good year.

I have done your exactly same progression of thinking. When I started studying, the TK options seemed like the best, I was so thrilled to have found out that alternative.

However, after researching much more on the topic and going through the exercise of evaluating a few deals, I came to the realization that the way to have a profitable passive investment is to assemble your own team, and buy yourself at a reasonable price, whenever a deal comes through. Otherwise, you're only banking on appreciation to offset the losses you'll get when you want to exit (and they'll eat into your extremely thin CF margin you built up over the years), and typically TK providers are in very stable markets, where you can't exactly count on that either.

I keep researching, but until then I'm sticking to 30% of my portfolio allocated to REITs global index funds (100% passive and 10% return over the past 5 years). Downside of that is you're exposed to the volatility of the stock market.

The next thing I'm going to research are syndicated commercial deals, it seems like with the right network of sponsors it should be feasible to achieve double digit returns in a completely passive way.

If/when there will be a market correction, I will be looking into buying SFR in my backyard (Northern CA) so I can assemble my team through BP references and always be within driving distance in case something happens and I have to manage my own investment. That has the potential for being a very financially rewarding strategy, because you can stay on top of everything and you'll have so many tax benefits.

It's probably not what you wanted to hear but after a couple months studying it's a pretty realistic vision at this point :)

Nick Gupta · Answer

Thank you for all of your replies, a bit overwhelming but extremely helpful none the less. I see most people are advising to go down the multi family route. Does that mean similar goals are not attainable with SFR's?

I received a few inboxes from TurnKey providers, but everyone on BP lives by the "you make your money at the buy" rule; which to me means that I shouldn't work with turnkey providers as the markup for the home is already in place.

@Lee Ripma I would love to talk to about your story and how you started off with your first deal, appreciate the helping hand and I will be reaching out to you shortly.

Michael Le · Answer

Welcome to BP, @Nick Gupta

Brent Coombs · Answer

@Nick Gupta, welcome to BP. Your post shows you have much more understanding than the average first poster. In summary, it looks like you're well aware that if you use your $400k as a 25% deposit on property purchases totalling $1,600,000, you SHOULD be able to clear  $8-12k/m (ie. 0.5-0.75%/m, or 24+% CoC), right? I concur. You've arrived at the correct website for feedback!

Have funds, but where do I start?

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