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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...
It’s all what you want out of life, personally, I want enough to travel and do the things I want to do, I live a simple life, a basic home, (paid for) older vehicles, (paid for) very little worries. I work on the rehab of properties when I buy them, then turn it over to my PM, I have created a life where I work when I want If I want, and if I decide to put a project on hold for 6 mo so what. I don’t have to do any of it, I pick and choose what I do, or don’t do. Now if you create a business that won’t run without you, that’s a different story, then you are trapped.
Originally posted by @Andrew Cornstubble:
Originally posted by @Scott Schultz:
@Andrew Cornstubble I also recommend never taking advice from someone you wouldn’t trade places with, I know plenty of people wealthier than I but I wouldn’t trade places with them because I am free, they are trapped
Wow. I've never thought about that. Freedom is what excites me about all of this.
I know a guy who is part owner of an oil company. They sold out for over 40mill and built it right back up even more. He said when he hits 1,000 barrels a day he's going to retire. He's been hauling rock in a dumptruck fixing lease roads lately. No air conditioning. It's mind boggling that he's still working. But i guess all of that work is about to pay off. Oil around here is pretty low at $40 a barrel. I'm sure expenses are high but there's likely some wriggle room in $40,000 a day.
I just dont get it i guess. I never want to work again. Publicly anyway. Good advice. I thank you.
@Tyler Kress A man came upon a fork in the road; one side was well trodden and groomed for travel, the other frought with peril and tricky to traverse. He took the road less traveled by - and that has made all the difference.
Fables aside, any time you expose yourself to risk someone will tell you all the bad things that could go wrong and that the sky is falling. Your keys to prevent that is to turn uncertainty into risk, and manage or mitigate that risk to not effect your bottom line.
@Tyler Kress. I don’t tell most my family what I do. They’d either not care, or have some unsatisfactory opinion of it. I just keep doing it because 1) I enjoy it and 2) it works.
Opinions are like belly buttons, everyone has one. I wouldn’t worry about their opinion. Just execute your plan.
#5 General Landlording & Rental Properties Contributor
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#5 General Landlording & Rental Properties Contributor
- Rental Property Investor
- Erie, pa
if you got into this business thinking you’ll get the admiration and support of friends and family you will be sadly mistaken . Look We’ve all gone through this with the naysayers and dream
Killers . we’ve all been called slumlord and we have been warned about a dear cousin vinny out in jersey who had all his tenants trash out his place and not pay him on his rentals resulting in him getting a divorce and losing all his hair . You gotta look passed all that junk and follow the plan anyway . Don’t share your success with losers , it’s not part of their language ..Most importantly you MUST take action . A dream without action is just a hallucination! Best way to overcome fear is massive action !
@Tyler Kress how do you “own FedEx routes”? Is he in the mafia?
Also you have 10k to invest. I’m curious how you break into commercial reality with that?unless it’s that Warehouse I saw in flint, Michigan. What’s his erudite advice?
Originally posted by @Erik W.:
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?
Don't worry about what others think. If that's a problem for you, then you shouldn't be in REI.
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.
Screen, screen, screen! Contrary to popular belief, land lording is not a real estate business: it's a PEOPLE business. If you get the wrong people no "Great Deal" will work. People who don't pay rent, tear up the property, cause you headaches, show up late, never finish a job on time, lie about the property will destroy your potential for profit. Things are hard enough in this biz just with getting enough rent to pay the bills and have money left over to eat. Nothing in this business is a substitute for doing your own due diligence to the nth degree.
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...
House hacking isn't for everyone. I recommend sitting down with your wife and having a glass or two of whatever beverages you both enjoy and make sure this is REALLY something you want to do. Your tenants will be your neighbors. You will hear their dogs barking at 2 am, at 3 am, at 4 am, at 5 am. Their babies will be crying all night, and their kids crashing around next door. They will think it's okay to knock on your door at 11 PM and tell you about the toilet they noticed flooding the bathroom last week. You will be wanting to sleep in after an exhausting week of day-time work followed by night-time renovations and they'll be pounding on your door at 7 AM Saturday morning to let you know they are moving out next week because (reason X)...
All of those things still happen with REGULAR rentals, but they don't come at you from the next wall over or your front door. The good news is property inspections will be easier, because the tenants are next door. The bad news is....you guessed it...the tenants are next door and every piece of their drama will directly impact the quality of your life.
You and wife need to be 100% sure you are on board with this idea and are willing to gut it out if you get troublesome tenants, which is common for first time investors because you won't know how to screen as well. Because getting out of it isn't as easy. There are few owner-occupant buyers for plexes, so most likely you'd sell to an investor, and we're all cheapskates. Think in terms of a 1 - 2 year plan to get the project stabilized, then moving out and getting your own SFH.
As a live-in LL in a 4-plex, I can tell you that I talk to my tenants less than I used to talk to my neighbors in the house on the .25 acre lot! I noticed it after 6 months. We still talk to most of our neighbors, but the tenants hear from us more than we hear from them. We set expectations up front, and tenants don't want to be your friend, so they just keep to themselves. We do not tell them that it's okay to knock on our door, and the speech is, "If it's an emergency, call 911," same as when we weren't live-in LLs.
It goes to your first point -- screen the heck out of them and don't lease out of desperation.
As far as the original post, Don't take advice from people that aren't where you want to be. And it sound like the uncle wouldn't have moved to other businesses without owning the rentals in the first place. And in the second, why still have them if they're such bad investments? Just a thought.
The right approach to anything in life, you already have. How CAN I _____?
- Dan Maciejewski
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- 727-288-7325
Originally posted by @Tyler Kress:
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?
Your spouse is the only one you need to convince, nobody else's opinion in life matters. Is the rest of your family rich? Because if they aren't then why would you take financial advice from poor people? Find successful people, and copy what they did and you will likely achieve the same results they did.
It sounds like your dad’s cousin doesn’t manage his properties well. Of course he’s going to complain.
You just learned your first lesson in real estate investing. Poor management of your properties will make your life difficult.
Don’t worry about getting your family on your side. It’s easy to give someone advice when you don’t have to live with the decision. People won’t tell you to do what they’re afraid to do.
My Dad doesn't really like REI at all, and would not approve of it. But, guess what? I DON'T CARE!
All a person can do is push on in their journey. Your going to get those people who say "Why are you doing this?" "I lost all my money in real estate investing, don't do it!" but don't listen! If they are not supportive, than all you can do is continue your journey of wealth building, and let your life speak for itself!
@Brian Van Pelt Oh, thank you Brian. I am currently 20 and on my way to acquiring my first rental with a preference of it being in my previous college town. The town has a graduate school as well. Thanks for the information.
#2 General Landlording & Rental Properties Contributor
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#2 General Landlording & Rental Properties Contributor
@Tyler Kress You are adults, so do what you want. Both you and your wife are on the same page which is the most important part.
Why not buy a duplex and rent out the other half? You can build equity by living in the 'worst' half and doing any renos or repairs that need to be done, then move to the other half when it becomes vacant and repeat. Your tenants live separately from you and pay more than half of your mortgage.
I didn't bother seeking my family's approval before I started. My mom had some words about "being careful" but I know a lot more about real estate and knew how to properly evaluate a property. I only have one property now, but they ask every so often and I say it's going well, and it is. Be smart. Don't take on a flip on the other side of the country with no experience or contacts for your first deal. Get an investor-centric agent, get a PM that will be honest about the area and rental rates. Having those two people on your team will help you to be successful and lower risk.
why don't you try getting together with someone who has done it already, take them out to lunch. bring your wife with you. listen to his/her story. maybe that will inspire them to agree with you.
@Tyler Kress@Tyler Sounds like your uncle wants to get out of the real estate game and/or isn't set up to manage properties efficiently. Perhaps you should approach him and offer to have him owner finance the properties so he can keep an income stream from it and you can manage them and do the hard work of wringing value out of them. They may need to see you be successful with a few other properties before agreeing to do so, but I'd keep asking him every 4-6 months because Madison is a phenomenal market especially on campus which it's sounds like is where he owns property.
I went to school there and rents have increased 35% in the building I used to live in since graduating in 2013. Also its a slightly unusual market in a huge % of students all sign leases for the next year in October/November time frame. I actually signed a lease freshmen year with people I had met 90 days earlier because inventory had run out so vacancy is rare. The current development boom is continuing to push prices into the echelon of a market like downtown Chicago for Class A buildings and and limited land supply since its surrounded by water makes new supply very very difficult to come create.
No offense but I think he's out of his mind I'd give my kidney (kidding) for a good deal in Madison on campus as they almost all sell off market. Yes you deal with college kids, but the market is phenomenal and usually they don't expect the kind of CapEx market tenants would.
As far as your family they're thinking conservative on your behalf because they care about you, once you make some smart deals and make money they'll come around quick! My dad was similar when I started, but in the end he said you're a big boy and are going to do what you want, just be smart about your deals.
Moral of the story you should find a way to buy your cousin's houses from him
@Tyler Kress I didn't read all the awesome responses. Want to make sure I point out that you already have the two biggest keys to success despite the rest of your family. You have a supportive partner and you attend meetups to provide environmental exposure. Put in the effort and find someone more experienced who will push you when you're nervous about a deal. My parents never supported my REI interest. My wife's father/ stepmom think we're naive despite being more financially stable than her siblings. The siblings and her mother all expect a benefit bc we "must be rich." They don't even know about the multi family stuff we don't manage. Don't worry about proving anyone wrong, just plan on building something for/with your family unit.
At your age, I would think about a child. I care more about living in a good area than making a few bucks off real estate. There are many other investments to earn money in the short term. Once you have more, you can start to really do more.
If someone has a legitimate concern, explore if it has any validity-- like you're doing here.
Expect the naysayers. Believe it or not, their comments are not as much criticisms of your plans but their own excuses as to why they should stay complacent with the status quo in their own lives.
And use the naysaying and doubt as fuel to excel.
@Tyler Kress
In 2000 I was 24, on a whim bought my first house, to live in. My mother said I had no business buying a house, and that I had no clue what it took to buy and run a house. 2.5 years later I sold that house, walked out of closing with $40k tax free profit.
Do your thing Tyler!
Tyler I think you just gotta go for it. I had mentioned real estate investing in passing to my parents 5 or 6 years ago, when I was still in college. They shot it down pretty quickly, saying it's too risky, you could lose all your money, life's not all about money, and everything in between. I mentioned it to my sister once, she talked about how much her landlord hates being a landlord and how it's a bad idea. So, I didn't say anything to them about it when I was going through my first deal. I closed on a triplex, THEN told them what I did. When it was real, they kind of changed their tune. They definitely weren't all on board, but once I had the place, they were a little more hesitant to bag on it so hard.
Now I'm up to 3 places, 6 units total, and my dad is starting to ask me more and more about real estate investing, how my places are doing, could I help him get one in the future, etc.
People are usually afraid of what they don't know, and you and your wife are putting in a lot of time learning about REI, figuring out your strategy and how you want to move forward. Your family isn't. My advice is to just do what you want to do and as you have success, you can share that with your family to show that you're not going to be living in a cardboard box under a bridge even if it doesn't all go exactly according to plan.
Best of luck on your real estate journey!
There are many different rental business models that are VERY different:
College rentals "by the room"
Short-term rentals like vacation rentals or corporate rentals marketed to a particular community like traveling nurses, line guys, pipeline guys, flight attendants
'Community' rentals for artists, old-folks, sober-houses, and care-homes
1) Family opinion:
Since you do seem to value the opinion of your family, make sure you are aware of the many different ways to make money as a landlord and be prepared to discuss the pros and cons of diiferent business models when the topic comes up. That will let your family know that you have done your homework.
2. Avoiding pitfalls:
Find a niche that you suites both your skill set and your mindset.
With our strong diy renovation skills, we look for value add properties that have been decently maintained but need updating, and where we can still get a good deal. This means buying in neighborhood's that will attract tenants that are often struggling with credit issues.
What I'm going to say next is probably controversial: we don't believe that a person's worth, value, decency, and/or cleanliness depends on wealth or a credit score; If you don't respect your tenants, you won't enjoy the work and they will be way less likely to respect your property. i believe that this is the reason we find low-income housing rewarding and profitable when so many others do not.
If you think poor-people are 'losers', don't do low-income
If you think 'most young people today are entitled brats', then college rentals probably aren't for you.
3) if it's all about the bottom line:
mobile home parks look really lucrative. I even saw ONE where the owners employed decent managers that actually created a fun and engaged snow-bird community (but the 'family' parks that I have had knowledge of were pretty grim).
Or you could consider investing in a syndication for a large multi,
or buying short-term rentals under management
Best of luck whatever you choose.
People who give part time effort to something, get results they don't expect sometimes and what I mean by that in this case is they have unrealistic expectations from an investment because they didn't fully know what they were getting themselves into. That leads to the frustration your family members have experienced.
I bet your uncle knows the car wash and FedEx business like the back of his hand so the bad parts about the business do not bother him as much because he knows what to expect and his knowledge base is such where he is fully prepared when unexpected things happen. You want to get to this point with real estate or whatever business you get into.
Give real estate a try and see if it is for you, I would recommend getting better capitalized before purchasing though because while $10k may give you the ability to purchase a home it leaves you in a vulnerable situation for the first couple years while you are building cash reserves back up.
You will win over open minded people when they see your dedication to what you are trying to accomplish. That comes with consistent effort over time as others have mentioned on this thread.
- Michael Noto
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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...
Tyler I can tell from your post that you are thoughtful and have absorbed a fair amount of education already. I work with a lot of first time investors and house hacks are the single best move for most people to get started. The difference between to don't-do-it stories and the success stories is of course in the execution.
Your wife needs to be on board. The rest of your family may approve or not, that does not matter. Most couples I work with have one person who is the driving force and the other one is the passive supporter. If the spouse is sceptical, it usually doesn't work and they never pull the trigger.
I can also tell you from my own experience that my date at the time (wife today) was very irritated with the whole idea of REI. Why would anyone want to do that? And she had heard a few really bad stories including tax fraud and personal desaster. So I made her listen to educational CDs (later podcasts) and brought her along to REIA meetings. Going to meetings is powerful - when you see 300 people excited about something, many of them already sucssefull for years, and feel the energy in that room, you get a sense of possibilities.
Over the course of 10 years my wife went from shaking her head about the idea, to being a careful supporter (still pumping the breaks when I bought a property every six weeks) being a property owner and actually a vocal advocate to other wifes when we host a workshop or go to a meetup.
- Marcus Auerbach
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@Tyler Kress why are you trying to convince your parents again? This is your dream, your vision not theirs. I realized that my parents don’t have what I want so I stopped going to them for financial advice and started reading books and listening to bigger pockets podcast of people that are successful real estate investors and are financially free.
When my wife and I started we were 20. We were renting a crappy 600sqft apartment in a rougher part of town and our folks didn't understand why we owned houses we didn't live in.
My grandpa told me I would flip burgers for the rest of my life.
My inlaws wondered how I would feed their daughter yet alone put her through grad school.
I'm not going to sit here and tell you it was all rainbows and butterflies. In 2016 I barely kept us above water. At one point we had a flip that wasn't selling and I owed a HML over 300k just on that deal.
Here is my timeline:
2015 this was a game. I did a few deals and bought 2 rentals.
2016 I went full time and wholesaled 5 houses.
2017 I did 74 wholesale deals and kept 4 rentals.
2018 I did 3 dozen or so wholesale and kept 73 units.
YTD 2019 I've done about a dozen wholesale and have closed on 59 units making our total unit count 132 doors.
I employ 30+ people in my various businesses, could retire if I want, and am having an absolute blast.
It's going to be harder than you think. It's going to take you more time than you think it will. Stick it out and you'll be glad you did.
One of my main driving factors when I first started was a father telling me it couldn't be done.
- Ian Walsh