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Updated over 5 years ago, 08/20/2019
Disapproving Family - Starting in Rental Property Investing
Hi all,
Since early March I have been learning as much as I can about rental property investing through BP articles, forums, podcasts, and local meetup groups. I have started to establish relationships with local lenders, realtors, property management companies, contractors, and fellow investors through the meetup group.
Just as a brief intro my wife and I are in our late 20's, we bought our first house 4 years ago but the property taxes and HOA fee has increased significantly since we first bought in (including insurance/taxes in escrow it is roughly $1,200 per month). Luckily the market value for our house has gone up to the point that if we were to sell today, even with the realtor fees we would gain about $12,000 from the sale. Due to HOA we can't rent it out, and the timing seems right to sell for us.
We also at this moment have about $10,000 in our bank account we are willing to invest. In the search for something to invest in, I stumbled on BP and was hooked on the idea of REI since. For our situation, it seems like selling our current house and using a low downpayment (3.5% FHA or 5% conventional) on a 2-4 plex is the perfect first investment. Not only are we dramatically reducing our monthly house expenses with a cheaper mortgage, but we can bring in more income on the side. Of course, I am doing everything I can to make sure we are prepared prior to closing our first deal (how to analyze deals, landlord forms, managing properties, legal, CPA, etc.).
As I'm sure most of you do I started telling all of my family and friends about the exciting plan my wife and I have to get started in real estate investing. My parents told me to reach out to my dad's cousin, who rents out a couple SFH houses on the U of Wisconsin (Madison) campus to ask him about his experience. I called him up and 5 seconds into my REI 5 year plan he says "Let me stop you right there" and proceeds to go on a 45 minute tirade of why we should not waste another second on rental property investing. Mostly just complaining about when tenants decide not to pay or want to move out and maintenance/capex items. Telling me over the years they have learned to only to rent to junior-senior students, never adults, never younger partying students. He assured me also his cousin who also has a couple rental properties loathes it just as much as he does. His conclusion essentially was to save up to invest in large, commercial properties/businesses. He also owns a car wash and FedEx routes today.
Besides general story telling there were 3 points for this post I was hoping you could help me with...
1. Other than just proving my success later on, how do you think I can convince my family we are prepared and this is the right move for us?
2. Probably not the most unbiased forum online, but which concerns should I give weight to and which could be chalked up to my dad's uncle's lack of preparedness/management/bad apples/etc? In other words, what are some of the things which pose the greatest danger for those like me about to get into their first house hack/rental investment? I have been trying to learn about all of the pitfalls and instead of saying "I can't" say "How can I" overcome them.
3. Any other beginner investment vehicles worth pursuing that could yield a similar opportunity for return for my wife and I? For our specific residence situation unless we rented a place we would be getting a new mortgage anyways, it seems to make sense to house hack instead of following the traditional path of 'moving up' to a larger house and a larger mortgage. But I'm curious to hear everyone's thoughts...
#5 Medium-Term Rentals Contributor
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#5 Medium-Term Rentals Contributor
- Investor
- Youngstown, OH
When I graduated and decided to look for a rental, my dad suggested I buy a house and rent out the spare bedrooms. Everyone thought it was a terrible idea; they wouldn't pay, they'd destroy my house, they'd have strangers over who'd steal from me, and they'd stab me in my sleep while they ate my food.
I did it for 3 years, and the worst thing they did was bring in fleas and occasionally clog the shower drain.
Then my dad decided to flip a house. That was a terrible idea. I bought it from him. That was a terrible idea. We rented it out. That was a terrible idea. At this point, my dad and I decided we would no longer discuss our REI operations with close friends/family.
It wasn't until I bought my 3rd that I stopped getting negativity, and we are now opening up about our endeavors, which is important because we all know from BP how that opens doors.
Go do what you want to do. Talk to your friends at meetups about it and talk about it on BP. Stop discussing it with friends/family for the time being.
Best part about what you're going through is once you have success everyone is going to say "it happened overnight".
Enjoy that. You'll be fine. Your life. Your mission.
@Joe Splitrock your comment is dead on about the age/generation of naysayers about how bad landlording is. I don't blame them though. The biggest advantage I have to getting started is the internet and a forum of landlords that tell you almost to a "T" what to do so you don't have the problems of landlords past.
It's really that simple. If a person tells me about how tenants don't do this or that. I go right to the bigger pockets search bar.."how to get a tenant to pay" "how to avoid evictions" "what is tenant proofing"
It's nice to have family approval and support especially family that you respect, I understand. It's okay to respect their opinion because RE investing isn't for everyone whether your an existing landlord or not. Also, people in general always find something to complain about especially with work or business even when they are doing very well for themselves.
IMO if this is what you want and you don't need family help with funding then go for it. Just keep in mind in this business to take the good with the bad.
I can barely keep up with the comments but keep them coming! Thank you for reading the post and your feedback/supportive replies! It is great to read about everyone's experiences and the support is super inspiring :)
For those saying we should build more reserves, technically our bank is about 23k, we just figure with the sale of our house at 12k and expected up front cost of the prospective first duplex being only around 10k we will have enough reserves. Plus we are inheriting "good tenants" who mow the lawn and are professional cleaners, lease goes through May 2020 and they were asking current landlord about a 2 year option which seems encouraging in minimizing vacancy risk in the short term. Also it feels like our reserve is safe since we are going from an expensive mortgage to a cheaper one, so we can afford it even if we didn't have tenants at all. Last, this duplex is a private offer from a friend I've made at the local meetup. He is doing all the needed reno/repair and offering a 1 year warranty to ensure that we are really minimizing any extra upfront cost outside of down payment and closing. So it is an exciting prospect. With his schedule we have about 3 months to sell our house which seems to be perfect timing to get things lined up and ready.
I think most people are only familiar with stocks and bonds investing in general. A lot of peoples' ideas of REI is 'that's what rich people do' and you get rich by stocks and bonds!
Imagine being one of those poor saps that had to explain to people years ago that you're investing in this crypto-currency thingy that makes ZERO sense to 99.9% of people (talking 2011-2015).
All this to say: It's just a different thing than what they're used to. Explain that's it's not a get-rich-quick a d that you'll have to grind it out for years with smart decisions and it'll humanize it a bit for them and they'll understand. The fact that you have something tangible is worthwhile, too.
Keep in mind something that many new investors forget: Run it like a business and it'll become one, whether it fails or not is just a few decisions' difference.
Ignore them! My parents, brother in law, family in general, friends, thought I was nuts when I said I was going to invest in rental property out of state back in 2016. They told me it was a big mistake and I should be getting my own personal residence. To this day I don't have a personal residence, mainly because I wouldn't be able to keep purchasing rental property at this moment if I did get one in SoCal so for now I still rent where I live and own what I rent. I currently have 7 rentals which isn't a lot although I have a lot of equity in those properties now that I'm going to start tapping into this year and begin expanding my portfolio even more.
Funny enough, it was about a year ago my parents realized I was on to something and decided to sell their house so they could start investing in real estate to have passive income for retirement. Now everyone wants to know how I'm doing it. I think people don't realize that it's not like 1 out of a million succeed at this. If you spend time educating yourself, learning from more experienced people and take enough measures to mitigate risk and understand your market, you're gonna do well in this business.
Originally posted by @Patrick M.:
Best part about what you're going through is once you have success everyone is going to say "it happened overnight".
Enjoy that. You'll be fine. Your life. Your mission.
This is so true. A local multimillionaire flips a lot of vehicles and equipment. People always say "everything he touches turns to gold." What they don't see is him going bankrupt right out of high school trying to start the exact business that he and his partners have now built.
One of my best friends is a state champion kickboxer. People always talk about how tough he was back in highbschool. And he's lucky he can take a hit. What they don't see is him dropping almost 200 pounds and spending YEARS getting beat on by a world champion kickboxer while working 40 hours a week packing and shiping big heavy parts.
The best thing i ever did was just give up on advice from my fellow working class citizens. Almost everyone i know is telling me "real estate is a terrible idea." Yet they get up the next morning, put their work boots on, and make an average wage working for someone else. Untill a room full of independently wealthy people tell me what a bad idea real estate is I'm not taking any other bluecollar's opinions.
Originally posted by @Patrick M.:
@Joe Splitrock your comment is dead on about the age/generation of naysayers about how bad landlording is. I don't blame them though. The biggest advantage I have to getting started is the internet and a forum of landlords that tell you almost to a "T" what to do so you don't have the problems of landlords past.
It's really that simple. If a person tells me about how tenants don't do this or that. I go right to the bigger pockets search bar.."how to get a tenant to pay" "how to avoid evictions" "what is tenant proofing"
Yes and no. It is much easier to know what to do than it is to do it. Most landlords who make mistakes will openly admit, "I know I shouldn't allow X but they seemed nice." So yes, today we have more information available for free than at any other point in history, but information is not what determines success. It taking action and taking the right actions. If information alone was the answer, every person in the world would be wealthy, happy and healthy. The reality is despite the internet, people are generally less wealthy, depressed and more out of shape than 25 years ago.
@Tyler Kress
This is great advice that I was given years ago and it holds very true in my experience. Only take advice from rich and happy entrepreneurs.
Never ask for or take advice from pissed off broke landlords.
@Scott Schultz excellent story. This is where I want my life to head in the next 15 years.
@Andrew Cornstubble take one step away from the average and they'll try and pull you back. If you fail it's "told you so" if it's success "you got lucky". Either way you're a lot more interesting to talk to at parties haha
Originally posted by @Tyler Kress:
Hi all,
Since early March I have been learning as much as I can about rental property investing through BP articles, forums, podcasts, and local meetup groups. I have started to establish relationships with local lenders, realtors, property management companies, contractors, and fellow investors through the meetup group.
Just as a brief intro my wife and I are in our late 20's, we bought our first house 4 years ago but the property taxes and HOA fee has increased significantly since we first bought in (including insurance/taxes in escrow it is roughly $1,200 per month). Luckily the market value for our house has gone up to the point that if we were to sell today, even with the realtor fees we would gain about $12,000 from the sale. Due to HOA we can't rent it out, and the timing seems right to sell for us.
We also at this moment have about $10,000 in our bank account we are willing to invest. In the search for something to invest in, I stumbled on BP and was hooked on the idea of REI since. For our situation, it seems like selling our current house and using a low downpayment (3.5% FHA or 5% conventional) on a 2-4 plex is the perfect first investment. Not only are we dramatically reducing our monthly house expenses with a cheaper mortgage, but we can bring in more income on the side. Of course, I am doing everything I can to make sure we are prepared prior to closing our first deal (how to analyze deals, landlord forms, managing properties, legal, CPA, etc.).
As I'm sure most of you do I started telling all of my family and friends about the exciting plan my wife and I have to get started in real estate investing. My parents told me to reach out to my dad's cousin, who rents out a couple SFH houses on the U of Wisconsin (Madison) campus to ask him about his experience. I called him up and 5 seconds into my REI 5 year plan he says "Let me stop you right there" and proceeds to go on a 45 minute tirade of why we should not waste another second on rental property investing. Mostly just complaining about when tenants decide not to pay or want to move out and maintenance/capex items. Telling me over the years they have learned to only to rent to junior-senior students, never adults, never younger partying students. He assured me also his cousin who also has a couple rental properties loathes it just as much as he does. His conclusion essentially was to save up to invest in large, commercial properties/businesses. He also owns a car wash and FedEx routes today.
Besides general story telling there were 3 points for this post I was hoping you could help me with...
1. Other than just proving my success later on, how do you think I can convince my family we are prepared and this is the right move for us?
2. Probably not the most unbiased forum online, but which concerns should I give weight to and which could be chalked up to my dad's uncle's lack of preparedness/management/bad apples/etc? In other words, what are some of the things which pose the greatest danger for those like me about to get into their first house hack/rental investment? I have been trying to learn about all of the pitfalls and instead of saying "I can't" say "How can I" overcome them.
3. Any other beginner investment vehicles worth pursuing that could yield a similar opportunity for return for my wife and I? For our specific residence situation unless we rented a place we would be getting a new mortgage anyways, it seems to make sense to house hack instead of following the traditional path of 'moving up' to a larger house and a larger mortgage. But I'm curious to hear everyone's thoughts...
I have not read the entire thread ...
That said, here's what you need to understand about your family (and friends): They likely don't share your entrepreneurial mindset. So, soliciting their input is "FYI", at best. You're not likely to gain their support.
Fellow investors - especially the educated ones - will be a better resource. You would do well to get educated yourself, and I'm NOT talking about lurking on BP. Check out the podcasts here and listen to the hosts tell how much money they lost in their early deals due to inexperience and lack of knowledge. Education doesn't cost - lack of it costs. The "School of Hard Knocks" is THE most expensive education there is.
Find a supportive investor group in your area. Start one, if you don't have one. That might be best idea for you ...
@Tyler Kress
As others have said, don't worry about your family's approval. If you find a deal where the numbers work, you're not stretching yourselves, it's in a decent area where people would want to live, you don't mind sharing the house with other people, AND you are handy with self repairs and won't be overwhelmed with common (not necessarily frequent) plumbing, patching, and painting issues, I'd say it's a great plan. Good luck.
@Tyler Kress Simple! you don't need their approvals. Just make sure you don't ever have to ask them to borrow money for REI. I've learned to stay quiet when pursuing my dream. I'm sure your uncle started small before his success. Buy you and your wife some earplugs and go for your dream. Good luck!
Since early March I have been learning as much as I can about rental property investing through BP articles, forums, podcasts, and local meetup groups. I have started to establish relationships with local lenders, realtors, property management companies, contractors, and fellow investors through the meetup group. general story telling there were 3 points for this post I was hoping you could help me with...
1. Other than just proving my success later on, how do you think I can convince my family we are prepared and this is the right move for us?
2. Probably not the most unbiased forum online, but which concerns should I give weight to and which could be chalked up to my dad's uncle's lack of preparedness/management/bad apples/etc? In other words, what are some of the things which pose the greatest danger for those like me about to get into their first house hack/rental investment? I have been trying to learn about all of the pitfalls and instead of saying "I can't" say "How can I" overcome them.
You started your Real Estate Journey in early March, which means at the time of my response you have less than 4 months experience. Continue doing what you're doing; i.e. getting an education. Don't try and prove or convince your family. It takes most people 2 years to get an associate degree, 4 years to get a bachelors & 6 years to get a masters. If you want to pursue a doctorate then it takes even longer. Once a person has the education they don't go back and try to convince their families. You should treat your real estate journey the same. Get educated, then put what you have learned to work.
House hacking is a great way to learn. Make sure you can cover the note with your own income.
Just got my first house under contract in Georgia.. would love some help
@Tyler Kress I’m sorry but I honestly stopped reading after you started in about what your uncle said, and skipped to the bottom. The reason being IM GOING THROUGH THE SAME THING! Everyone acts like they know what there doing. My boss at work ridicules me because since he rented out his house after he moved for 4..? 5..? Months and had a bad tenant (completely his fault) that I’m going to crash and burn. All my coworkers also go on about how you don’t even make any money until after a few years (obviously they don’t know about rental analysis and cashflow) and parts of my family either think it’s the worst idea ever and others I don’t even mention because I know for a fact they will get jealous and tell me how much of a failure I will end up being.
Here is my honest opinion and what I do. I personally have been through crap like this most of my life from one (or many people at once) person or another. Keep your head down, keep making those babysteps toward your goal, to paraphrase millionaire real estate investor (highly recommend reading) set big goals to get big money created by big actions! Don’t listen to the haters. Like they say, haters gonna hate! When your at the top they will always ask why and how.
1. Other than just proving my success later on, how do you think I can convince my family we are prepared and this is the right move for us?
2. Probably not the most unbiased forum online, but which concerns should I give weight to and which could be chalked up to my dad's uncle's lack of preparedness/management/bad apples/etc? In other words, what are some of the things which pose the greatest danger for those like me about to get into their first house hack/rental investment? I have been trying to learn about all of the pitfalls and instead of saying "I can't" say "How can I" overcome them.
3. Any other beginner investment vehicles worth pursuing that could yield a similar opportunity for return for my wife and I? For our specific residence situation unless we rented a place we would be getting a new mortgage anyways, it seems to make sense to house hack instead of following the traditional path of 'moving up' to a larger house and a larger mortgage. But I'm curious to hear everyone's thoughts...
1.
- YOU have to have the vision, no matter what anyone else in your family says. If you think you can make it work, and the numbers make sense (remember, numbers don't lie, emotions do though) go for it. And remind them every so often -- the majority of wealthy people made their wealth through real estate.
2.
The numbers don't lie. If you prepare for the worst case scenario and create very conservative numbers, and your deal STILL looks profitable in those scenarios, make a plan, stick with it, and go for it. The richest people in the world own real estate, keep remembering that. If people who own real estate don't like it, they could be doing it wrong. Some people know you can fail, but they also don't know the steps to succeed. You have to figure those out -- they're just steps that involve numbers -- and take action. That's all.
3.
I think your idea of a 3.5% down via FHA and getting a 2-4 unit MF is a tremendous idea. Think about this -- your investment of around $22k only at the beginning (based on the 12k and 10k numbers you mention) will get you into a multi-family home that you are collecting rent on 1-3 units. If the rents in that area competitive and your numbers work with conservative estimates, you have a no-brainer my friend. Don't wait another second and you won't regret it.
RE is the most proven asset class in the history of time. It has created the most amount of wealth for the most amount of people. You aren't re-inventing the wheel.
Grant Cardone said to never ask your mother for advice because she loves you too much and wants to protect you from any and all pain.
I don't tell friends or family about what I do. If they ask me how RE investing is going I act stupid and just tell them I don't own any property and have no idea what they are talking about. The only people I will ever talk to about RE are other RE people bc they are the only ones that understand. I don't need people that have absolutely no clue what they are talking about giving me advice and putting things in my head.
- Luka Milicevic
@Tyler Kress
I did the same thing back in 1999 and wife thought I was insane until she saw the rent checks coming in. Obviously it’s a wise move but at the cost of your marriage be careful. It may not be wort it. Consider wholesale
Or just buy an inexpensive SFH or JV with someone. The options are plentiful but you have to research. All the best
@Tyler Kress The sooner you can stop caring about what others think (especially your family) the sooner you start living.
I was in the investment business for years and always thought it was interesting that on one side the stock investors think that RE is high risk, and on the other side, RE investors think the stock market is high risk. No matter what you invest in, seek to reduce risk through knowledge. You also have to choose a niche and from there you expand your knowledge base. Diversification is very important to me. Whether it's small cap growth stocks, large cap value, laddered bonds, single family houses, duplexes, syndicated apartment deals, medical office buildings - Learn all you can to get started, be willing to make mistakes and then just keep learning.
I was so completely lucky with my first rental, I rented a nice place at below market to a woman and her young boy with cancer - I kind of felt like it was a contribution to the universe to keep it affordable for her - and what I learned was that if you can stay just below market people won't leave. Where you lose big time is through turnover. As a self managing landlord the other thing I learned is you have to keep track of what rents are doing in the market or one day - as I did - you wake up and find out you are so far behind the market you're going to lose your tenant when you raise the rent and then have to remodel because they lived there so long. Lesson #2 out of that one was - keep abreast of what's going on, and either keep fixing places up along the way or have a slush fund to remodel when a long time tenant leaves - either way, it costs money to maintain a building
Second property - I bought the cheapest house in a super high demand town by Xome auction - won't ever do business there again - it took 6 months to receive the title. Then it cost me $80,000 in contractors to rebuild the entire place because I lost all my contractors waiting for the title to arrive and I had to make do with a string of contractors in the middle of summer who didn't have my best interests at heart. Lesson # 3 - have your act together and know who you will do business with before you leap into a purchase - you can network every week through meetings, your local realtors, old landlords who like to shoot the breeze over coffee. Because of wasting money on contractors who didn't do things right and having to redo them - I make about 9% cash on cash at this house now but it was painful and my husband thought I was completely nuts. When it was done and he saw profits, he became a believer and told me to keep going because I learned so much the hard way it would be a shame not to.
Third Prop - slightly overpaid for a ready 3 BR house and put about $9k into electrical, tree trimming and pouring a driveway. My cash on cash is about 14% now - but before I got here I used a property manager who failed to put utilities into my name when a tenant left last Dec and it was 4 degrees below zero. The entire house froze, even the water meter busted out. Lesson #4 - you can't take your eye off the ball and you have to manage the managers at some level of frequency till you know you can trust them.
4th Prop - finally understood why people like multifamily, bought a slightly shabby solid brick 4-plex in a fantastic growth town and make about 13% cash on cash. 1 apt totally rehabbed, taking a forgiveable landlord rehab loan through the local govt to rehab 1 apartment and agree to a section8 tenant in that apt for 8 yrs. The other 2 rehabbed as money became available. Lesson # 5 - Ask questions, demand more and then ask some more questions. Keep asking till you get the answer you want. Don't be afraid to negotiate, don't be afraid to ask more than once when you get a No, just be polite about it.
5th prop- duplex, old siding on the outside but the owner spent $51,000 on it 8 yrs ago and redid the entire place all the mechanicals, new roof, wiring, interiors - the important stuff. Sat on the market for 18 mo as people turned up their noses at the mustard yellow aluminum siding - which I can replace for about $6k when I get to it. Meanwhile my cash on cash return is 22% and the tenants are keepers. Lesson # 6 Just because its ugly doesn't mean it won't make money. I can fix ugly. When I got started I looked at properties too much through the lens of whether I would live there. I'm more balanced as an investor now, and also more realistic.
I'd say most people outside of RE think that RE is high risk. Just go for it, you're young, if you fall down you'll get back up. Have fun!