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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...
@Tyler Kress
You can’t prove anything to anyone unless you do it, until then it’s all talk. My family and friends stopped running their mouths and started taking credit for my success when I bought my second property. No point in fighting them, just do you.
House hacking is the best beginner investment in my opinion. I learned how to landlord and gained a basic foundation in investing.
Don’t discard commercial real estate. Less competition, more money, more complicated. It’s a different beast than residential but fortune favors the bold. Which is why I’m looking into commercial real estate.
@Tyler Kress If your dad’s cousin hated it so much, why is he still holding on to those properties? There lies your answer. People will tend to under estimate you until you have tangible results to show, it’s normal. Now the key point I would make is, you don’t need no one’s permission (but you know that anyway) unless you are raising money from them. Now, I did not tell anyone about my investments until I cracked my third deal because to me it’s a business and just like I don’t tell around what I do at work, this is no different.
Do your homework, jump In multi family unit and expect to have bumps in the road but also know these are just the bumps and not dead end.
Good luck.
Why wait 15 years? you can do it fast, but you have to be careful, if you want freedom you need to look at your entire life, financial freedom means different things to different people, and there are 2 ways to get to financial freedom, I choose to do both. 1 Make more income to invest more to create more cash flow creating more income. (yes its a circle) 2 Reduce your Lifestyle. many people get caught up in the make more money increase life style mindset ad end up going no place but they have more stuff they can show off to their friends. Personally I downsized, I moved from a big house in the country to a very average home in town, I keep my vehicles for ever,, and I watch what I spend money on. I find it fun to be a mizer, the challenge of finding a great deal for me goes way beyond the properties I buy. My wants are few, and all the "normal" liabilities most people have (mortgage, car payment, ect) Yea I dont have those, my stuff is paid for, so my monthly nut is pretty easy to crack, I mean I could work part time at Menards or Home Depot and meet all my needs.
I purchased my first rental in 2015, (yea I flipped a bunch before that) and have grown it to 24 locations, 27 doors, the key is value add, you MUST buy deal they are worth a lot more than you pay, and can do a rehab they pushes that value, otherwise you will run out of money fast. All of my rentals would make great flips, and some day they will be, but when I run the numbers I cant beat the cashflow vs the after tax money of a flip, also the tax play is huge, you pay much less tax after a year when you sell for a profit.
Just remember, it takes a lot of money to play this game, and if you dont put as much as possible away for when you need it, this business can ruin you just as fast as it made you. My stories are here to help, be real, and hopefully inspire, they are not for everyone, and my way works for me, but may not for others, thats what great about Real Estate, there are a million ways to do it, and they all CAN work.
Originally posted by @Cody Coonrod:
@Scott Schultz excellent story. This is where I want my life to head in the next 15 years.
Congrats for being at this stage in your 20s! As to the cousin, my first thought is "His first mistake was renting to college kids by a school." I have a few SFR rentals and a duplex and I love them. I'm looking for a nice 4 plex and saving up for one when the market drops. I pick the right tenants though and do a load of research on them first (credit, driving history, criminal cases, civil cases, verify employment, etc.). I also only look for people who will be there 1+ years and who show they are responsible. Knock on wood, but I have never had an issue in the 8 years since I started. My parents have had several SFR rentals for 30+ years and have only had had one issue the entire time. Their mentor had over 40 of them in Southern California and a friend of my mom has 50 in Nevada. Screen your tenants right and life will be great.
Your family's reaction is based upon the choice of rental that your cousin chose. If he had rentals in the city and rented to non-college kids, he'd probably have a much different view.
As long as your wife is on board then who cares about anyone else? My wifes family thought I was crazy when I first started. My family wasn't sure what to think. Now everyone is asking my wife and I how they can get started.
You have to remember than majority of people only think in terms of a W2 job working 9-5. That's ok, nothing wrong with it, but most will never see things the same as most of us on here.
As many have said, don't worry about other peoples opinions. Life is full of people very ready to tell you why you won't succeed.
My addition to this discussion is to ask you to question whether or not you want your family (other than your wife) even knowing what you are up to. My extended family vaguely knows that I do some real-estate stuff on the side. But my wife and I are careful to "spill the beans" on how many rentals we have or what our cash flow looks like. I'm pretty confident that I'd be asked for loans and flat out hand-outs pretty quickly if they did know. Just something to consider.
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@Tyler Kress why do you feel the need to convince anyone of anything? Let them think what they think, you do whats best for you and your family
@Tyler Kress I love the plan as that's the path I'm on in about 10 months when my work contract ends and I move back to MN. I currently have one accidental rental for the past 2 years and have been absorbing as much as I can to apply to that accidental test and continue on with a small multi family house hack.
I have a couple skeptical family members/friends as well but I see it as a learning opportunity for private lending conversations later. I've heard/read time and again that if the deal is good enough (i.e. the math works) then the money will come. In other words, prove out the deal and you'll convince a stranger (or hopefully someone you've already built a relationship with) to give you their financial support. Practice on your family by proving the deal, and getting at least their moral support if not financial.
Good luck to a fellow newbie!
Originally posted by @Steve B.:
@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?
Actually I have a good friend who owns Fed Ex routes and it is a very lucrative industry. It comes with its struggles such as your employees are truck drivers that think the owner is “the man” and if the rout doesn’t get completed you don’t get paid and you can lose your rights to the route if it happens often enough.
Long story short it is a real thing and a full time gig.
@Tyler Kress man there so many other people with way worse problems when it comes to family disapproving of their ideas/careers/life choices. Maybe they think you think it’s easy. Either way, just do it
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...
Have them subscribe to the W2 Capitalist Podcast and show them you are ready to EARN. INVEST. REPEAT.
Everybody who ever told me to not invest in rental properties is still working a 9-5 job and will not be able to retire until they are 70 years old. Many of them are 60+ years old and still not close to retirement.
For some reason, everybody's uncle (or dad's cousin in your case) knows a guy who told them about some other guy who got burned by a tenant and lost all his money trying to manage a rental property. Those same people are usually way smarter than all their bosses but are still working for that boss and will work for that boss for 10-20 more years. Doesn't seem to add up.
I listen to that type of person one time, then I avoid them at all costs and replace them with people who are actually making things happen. If your dad's cousin wants to be helpful and believes in commercial real estate, he should be giving you advice on which car wash to buy. Like some other readers alluded to, maybe you can get him to sell you the properties that are wasting so much of his time. You'd be doing him a favor!
In the meantime, buy your first rental, consult the forums and podcasts for help, and don't give up. If you get a bad tenant, don't blame real estate investing. Realize you made a mistake, fix the system that got you into the mistake, and don't repeat it. There are very few things in RE investing that don't have solutions. Any problem I've had was because I made a mistake. Once I realized this and stopped crying about it, I found a solution on BP and the problem disappeared!
Good luck!
1. Be clear in your RE purpose and reason. (always think with the end in mind)
2. Write down your 1 or 2 realistic short term goals that align with your reason & purpose.
3. Network with RE mindlike people here on BP and thru your local investment groups
4. Educate and learn but don't overload yourself with useless information
5. Remember, you will never be100% ready to make your first move, example / your first offer, etc...But One thing is for sure, at some point, you must take "MASSIVE ACTION" and follow thru.
6. Once you take "ACTION", get heavily involved, learn from your mistakes because you will make them regardless of how perfect you try to cover every angle. It's the unforeseen mistake that makes us good at what we do in the long run.
7. And finally, once you take massive action, don't you ever stop till you finish. keep going thru the process and do whatever it takes to piece the deal together, don't ever give up because you don't know something, seek the information from here and everywhere, or from your mentor, do online research, etc...but you must keep going even when the tough gets bad, and the bad gets worse.
The one thing I've learned in RE investing - deals are not a "One Way Street" - This is a very creative business and there are many ways to skin a cat as the saying goes. There's always a way to make a deal work, it will depend on our ability and creativeness "thinking on the fly"....and that's why friends and family opinions cant fit in our decision-making process when we are in the trenches of creative-thinking trying to make our deal happen. That's the fun part of the business!
@Ryan Dossey am I missing a part where you walked into a huge amount of money to invest at 20 years old?
If not how'd you do it?
@Tyler Kress if your dad’s cousin really hated it that bad he would have exited the business long ago. Something fishy is going on.
@Andy LaVoy Hello Andy, your comment was very helpful to me. You mentioned REIA meetups so I was wondering, do you know where I could find and join local meeting on BP? I read I could create a group but I was looking more into joining an existing one.
Jump in @Tyler Kress!
1. Educate and absorb everything you can.
2. Do your due diligence and buy right (this will give your cashflow a cushion for those unforeseen expenses).
3. Buy that plex with at least 10K in reserves.
After a few successful deals those naysayers will be changing their tune! Maybe even asking to jump in on your next one. Best of luck!
@Tyler Kress wow, there are some great responses on here! You probably have stopped reading by now, LOL but it is sweet that you are concerned about your family's buy-in. First off, renting in a college town to college students is its own thing, that's totally different than house hacking. It's easy to dismiss naysayers but *sometimes* (not always) they have your best interests at heart.
If it's what you and your wife want to do and the numbers MAKE TOTAL SENSE - do it! Don't worry about buy-in. They can be against it but you have to live your life. One thing -- Remember with FHA the PMI/MIP adds a LOT onto your monthly.
When we took a tenant, very close family members went on and on and not very savvy real estate agents went on and on about tenant headache. 3 years later -- not one problem with our tenants! They were a dream. So you never know.
Awsome, awesome, awesome! I’ve read nearly all the comments in this thread, and there is some great responses here. Good luck @Tyler Kress! We’re rooting for you!
Originally posted by @Ann North:
@Tyler Kress wow, there are some great responses on here! You probably have stopped reading by now, LOL but it is sweet that you are concerned about your family's buy-in. First off, renting in a college town to college students is its own thing, that's totally different than house hacking. It's easy to dismiss naysayers but *sometimes* (not always) they have your best interests at heart.
If it's what you and your wife want to do and the numbers MAKE TOTAL SENSE - do it! Don't worry about buy-in. They can be against it but you have to live your life. One thing -- Remember with FHA the PMI/MIP adds a LOT onto your monthly.
When we took a tenant, very close family members went on and on and not very savvy real estate agents went on and on about tenant headache. 3 years later -- not one problem with our tenants! They were a dream. So you never know.
Oh I am still reading LOL I was not expecting this amount of discussion and encouragement but it is great! At this moment my dad's cousin wants me to call him back to talk more about commercial ideas he has but I am dreading another hour long bashing of small rentals... I will probably take the advice of comments here and ask him what exactly his numbers look like and what he is thinking a week later with the hopes that maybe I can get a piece of his rentals or maybe he's willing to offer some free equity for input. Either way my wife and I still fully plan on doing our sell/move in duplex no matter what he throws at it but now I know to just nod my head and let the blanket criticism go on by.
By the way I also appreciate the comments advising to make sure my wife is 100% on board. We have had our share of long conversations and she is fully supportive + ready to be a part of it. She has always been a huge advocate of saving+investing in general and said she has always been interested in the real estate world (HGTV probably helped lol). We know it will probably be more work than we are expecting and we are prepared for that. Luckily with our planned first step we are only managing one tenant, and even then inheriting a lease that goes through May so hopefully that makes the transition very smooth. She loves to write and a BP podcast reminded me about BP blogs, maybe she will be Journaling our experience :)
Hey Tyler, glad you are thinking of investing in RE, I think most importantly you should focus on improving your RE education and networking. If your family is against your investing, that`s fine, it is their opinion and you don`t have to listen to them. I would advise you to make sure you succeed though and would advise you and your wife to have adequate reserves for the unexpected. This might require you guys saving up a bit and I would advise you to do your first deal, learn what didnt work, what works and what you can do better. Hope it goes well for you and the wife, best of luck.
Hey again to anyone who is still following this thread, I wanted to say thank you again for your encouraging comments and constructive feedback/insights for us to keep in mind as we get started. We have continued to educate ourselves and network over the past month, and I am happy to say we are very close to signing our first purchase agreement for a duplex in our area (Moline, IL)! Our current house has been on the market for a week (HOA- No renting), and we are going through the steps on a private sale with a fellow experienced investor in the local monthly meetup group. The great thing about this deal is he has agreed to make the closing contingent upon our house closing and he is helping with all of the newbie questions.
To close up the thread on my dad's cousin - he gave me another call a few days ago to see how things were going. I told him where we were at and why it was a good fit for us and he kept his negative comments to himself this time - he has been forwarding us random commercial opportunities which are reminiscent of the AOL days when I would see chain mail a few times a day (lol). In all fairness I told him we are not just shunning all commercial opportunities (for down the road), we are still just starting to learn at this stage. I explained for us a simple house hack at 5% down and managing one tenant was our way of dipping our toe in the investing world in something that seems relatively easy to grasp and manage- we do not want to creatively finance and become the owner of a $600K glass company or a $2M gas station right now. And he was cool with that and said to let him know if we were ever interested in learning that side of things. So while his and my parent's approval wasn't needed (and we moved on without it), it is nice to not hear such strong naysaying on the other side of the phone :)
Now that we are close to completing our first deal I am already thinking of ways to get the 2nd. The last meetup this past week was a pretty inspiring one with other people that were in our same position back in March completing their first deals (or getting close like us). A couple guys are into the buy and holds and a couple are stronger at the wholesaling/flipping side, it was a great mix and open discussion/networking. Always walking away learning something new or getting some good books/apps/etc recommendations.
I gotta say if I had waited for my family's approval I would not have 11 rentals (looking for 18 by the end of the year). Just saying. Do what feels right. I also wish I had started as young as you are. If I had I would be retired now.