Property Investment Decision Just Starting Out

[Peter Khoury]

Hi All,

New to the real estate investing arena and very excited to start my investing journey. My wife and I currently own a home in the Phoenix area, current outstanding mortgage of 231k with a property value 350k conservatively. I am interested in a long term buy and hold strategy and interested primarily in single family homes . I am looking to purchase a home in a "B" or "A" neighborhood that hopefully provides more stability and lower tenant turnover. The price range I had in mind was on the order of 200-220k. I have about 20k in cash and was considering taking out a home equity loan to help finance the initial 20% down payment. Most likely half cash and half home equity loan. I am torn trying to decide if this is the route to take or if I should hold off and try to save up for the down payment all cash. I feel the price of the Phoenix market continues to climb I may be priced out in the near future. Alternatively, I could look at smaller properties further out of town where I could afford more of a cash down payment or perhaps townhomes/condos but I worry about the HOA costs and less potential appreciation for these types of properties. Really looking to get some thoughts and advice as I start my investing journey. Thanks in advance!

[Stone Jin]

@Peter Khoury

I invested in PHX metro from 2009-2017.  I didn't buy any deals last year in Phoenix as the numbers just didn't make any sense for the returns that we wanted.  I think the play for SF is more compelling than condos or small multi families, the tenant class will likely be better and will stay longer.  

We currently are looking outside of the Phoenix area both in state and out of state.  We look for returns of $400 cashflow and 10% cash on cash.  A wise investor once told me that cashflow pays bills, so every deal we look at must have strong cashflow numbers.  

You can certainly debate that the tenant is paying down the principle and that you get to depreciate and get tax benefits, however you can still get all of those things by buying in a market that makes sense. I'm not advocating that you buy in a different market as I think for the first few deals you should buy local and self manage and learn the business. It is just hard to find deals on MLS and what the wholesalers send aren't much better.

However if you approach your first deal as a learning opportunity and think of any money spent as tuition, then I would say that mindset will set you up for success.  It all really depends on what is important for you.  Check out some of the local meetups to get some fresh ideas.  @Shiloh Lundahl hosts one every month that is great for new investors as it is usually a smaller group and gives you an opportunity to ask questions.  The larger AZReia is good for information but not great to ask questions( I was at the meeting last night in there was about 200 people there)