Starting out. Here's my plan..

[Stephen Gimber]

Hi Everyone!

My names Steve and I live and am looking to invest in the South central PA area.

I've been thinking about investing in Real estate/Rentals for a couple years now and have spent time listening to the BiggerPockets podcast, researching/reading, and looking around the forums. I'm hopeful to make the jump. My goal is in the next 5 to 8 years be free of the corporate, 9-5 grind. I have the outline of a plan in place and would love to hear some feedback from the people in these forums who have the experience, and started where I'm at now.

I'm 32 years old and bought my first home, a townhome, 6 years ago. I currently live in this house. This townhome is in Lititz, PA, a small buzzing town with a lot of restaurants, bars, and shopping. There's a lot foot traffic on the weekends and seems to be an area people are eager to move into. This home is an end unit, next to a farm with beautiful views as I sit on top of a hill looking over farmland. Its a 3 bedroom, 2.5 bath. Master bedroom and bath. 2nd full bath upstairs with hallway bedrooms and a half bath downstairs in the main living area. This house also is complete with a garage and finished basement area(newly renovated) on the first floor. I have done mostly cosmetic changes throughout my years there(painting, fixtures, door replacements, flooring). I bought the property for $150,000 with little to no money down.  

My current plan is to purchase a duplex, preferably in the same town, and house hack it. I will live in one of the units while renting the other. I also want to rent out my townhome. I've researched some rents in my area and even some homes in my current neighborhood. Most rentals seem to be going for $850 - $1275/month. Most of the comparable properties I have seen are lacking a 2nd full bath, or a garage. There's a townhome down the street from me currently looking for renters listed at $1250/month. This property is lacking the 2nd full bath and does not have the privacy my lot provides. I'm hoping to be able to rent my townhome for $1400/month. I have concerns that this might be asking too much but again this property has amenities that others I've checked out seem to lack. This would leave me making around $300/month over my mortgage. This does not include vacancy/repair costs. Not much but its a start.

I believe the duplex rental(don't have anything yet) wont allow me to completely cover my mortgage on that property but will help with a majority of it. I have little to no money to put down on this but believe by making this my main residence I can get away with not putting down the 20%. This will allow me to save the capital from not paying a mortgage for a year, and put that money to the side for future investment. I will still be working full time so I plan to take a year to get my feet wet in landlording, and gain experience before looking into a 3rd property. After that year, I want to cash out refi my townhome and use that for my next purchase. Hopefully, a multi unit property(the more units the better). This is when I believe I can start to make a profit in real estate rentals and really start grow that business to reach my goal stated above. Then a cash out refi of my duplex will hopefully give me capital to buy another property and so on.

I'd like to hear from folks here to see if this plan is feasible? are there any holes in the plan I'm missing? Any suggestions and tips are always welcomed.

Thank you

[Joe Villeneuve]

As of yet, I'm still looking for your plan.  I don't see a plan.  What I see is a description of a couple of events, that may of may not achieve the goals you set forth...but no plan of how to make it happen.

"My goal is in the next 5 to 8 years be free of the corporate, 9-5 grind."

This means you will need to be able to cover all of your needed income through rentals...in 5-8 years.  I mention this because in order to do this you need a plan that shows how you plan on doing what you want to do.

"This home is an end unit, next to a farm with beautiful views as I sit on top of a hill looking over..."

You're an investor now...this verbiage means nothing.  You're describing your emotions about the house...and trying to equate that to how it matters as an investor.  It doesn't.

"I bought the property for $150,000..."

Now we're talking REI verbiage...but then you stopped.

"Most rentals seem to be going for $850 - $1275/month."

Narrow it down to a range where both high and lows ends are in the same universe.  You need an exact number for your unit.  This range has to be based on comps that include ones that have nothing to do with your unit.

"Most of the comparable properties I have seen are lacking a 2nd full bath, or a garage." 

Then if they are rented out, that extra bath and garage may not matter.

"There's a townhome down the street from me currently looking for renters listed at $1250/month". 

...and how does this relate to your unit?  Just because it's down the street, doesn't mean you can use it as a comp.  It may also mean that $1250 is the ceiling for rent in your area...regardless of an extra bath or garage.

"This property is lacking the 2nd full bath and does not have the privacy my lot provides".

...regardless of an extra bath or garage.  Again, you're adding emotion (privacy) to this.  Privacy doesn't mean it's worth more. 

"I'm hoping to be able to rent my townhome for $1400/month".

What makes you think this is achievable? 

"I believe the duplex rental(don't have anything yet) wont allow me to completely cover my mortgage on that property but will help with a majority of it."

What do you base this on?  I haven't seen anything you've written here that tells me you can, or can't get it.

"I have little to no money to put down on this but believe by making this my main residence I can get away with not putting down the 20%."

Why?

Here is where math comes in.

"This will allow me to save the capital from not paying a mortgage for a year, and put that money to the side for future investment."

 Based on my math, and the info provided above, you might be able to accumulate about $12k in that year...if all goes well.  What will $12k allow you to do?  How many years of this will you need before you can have enough to go onto your net property?

"I will still be working full time so I plan to take a year to get my feet wet in landlording, and gain experience before looking into a 3rd property. After that year, I want to cash out refi my townhome and use that for my next purchase."

 After "what year"?  How many years will you have to wait with only one property before you can go onto #3.  How many years will you have to wait until you have enough to get that 3rd property?...and so on.  How many years, at this pace, will it take to get to your ultimate goal of no 9 to 5 job?

This is where an actual "plan" comes in...with actual number$, based on actual property examples, without using the words, "I think", "if...", "...in the future...", etc...

Here's your immediate plan (I bet you thought I was just going to shoot this "plan" down didn't you?   Nope):

1 - Learn how to analyze with real numbers

2 - Learn what a plan is, and how to develop one for REI

3 - Learn what is important to a REI...and then start thinking like one, instead of a homeowner.

4 - Learn how Money Works

5 - Learn how to analyze Markets (not economic...geographic) in order to find where the properties whose profiles match the criteria you need to execute the plan you developed.

6 - Learn how to eliminate any emotions, both yours and the ones you think are driving forces for the buyers/renters that will be your clients

7 - Learn how to eliminate any for of "rationalization" (most expensive word a REI can use) from your thoughts.

8...and last, for now, learn how to describe yourself (when asked what you do for a living) as a "Successful Real Estate Investor".  You'll be surprised and how much of a positive impact adding the word "successful" has on both the people that ask that question, and most important...the person (you) that answers it.