How to choose an investment strategy?

Question

Hi all!

I am student at Purdue University beyond eager for Real Estate investing, trying to enable my girlfriend and I to live a financially free life as soon as possible since we are all about family.

I know that asking "what investment method should I pursue" is a haughty question, but while I am researching, I would like to know how to focus my limited (due to work) time to a specific niche/strategy should I explore that fits my needs. So the question becomes: What factors should I consider when determining my investing niche/strategy?

For anybody curious as to what I would expect to be the biggest factors of mine are:

• I am developing an organic mentorship with my realtor neighbor who has educated me on the basics of realty, what his job looks like, and how I can get started. This week I am meeting with him so he can prepare me for a meeting with the manager of his brokerage next week.
• I am enrolled in a 90-Hour pre-licensing brokerage course 
• I am financially blessed to have a full-ride at Purdue and spent my first year exploring careers (from PT to Primary Education), and am deliberating switching majors (again...) to secondary education with a focus on business teaching, or switch to a business program
• I have ~$1500 to my name, but have parental support on rent
• (I'm sure there are other pertinent factors, but really if you have taken the time to consider what I've laid out, you're already too generous with your time, and I reckon those should give you a gist of my endeavors)

Thank you so much for any edification you can give to me, I am in full-blown sponge brain mode right now, and the drive is there, so I know "thank you" is read the same by anyone who writes it, but mine encapsulates a lot of gratitude. Thank you.

Alina Trigub · Answer

@Sean DeRue

I think @Derek Diamond gave you excellent advice. If you consider yourself a sponge, then stay in a sponge mode for a while through reading books, listening to podcasts and networking with like-minded investors via REI clubs. You will know what you want to concentrate on after you digest enough educational material to make an informed decision.

My very best!

Derek Diamond · Answer

@Sean DeRue

Hey Sean! Welcome to the B/P community. Sounds like you are off to a great start.  I would suggest that you keep learning from your real estate mentor and just see what interests you.  I started with a  multifamily and then went to a condo investment and then to a Single family.  Over the years I have learned that I enjoy multifamily investing and that is what I focus on now.  You don't have to have everything figured out before you leave school. You will learn and change as you go.  Focus on something you enjoy and make sure to do a deep dive.  My one piece of advice would be not to chase the shiny ball.  Pick something and give it a full effort.  Good luck and welcome to the party!

Joshua A Kloos · Answer

@Sean DeRue

Well it really depends what you want your career to be. I advise learning some basic contracting to save a lot of money (YouTube is enough for this if you’re okay with tools)

I redid one of the bathrooms at my duplex. I decided to tear out the old tub, install new valves, new toilet, new vanity and sink. I also wanted to put in new lights, new vinyl flooring and repaint the bathroom.

To hire an Eletrician for the lights, plumber for the tub, general contractor to fix the Sheetrock, painter to paint and flooring guy to do the floor would probably have cost me $5000-$8000.

I completed the project myself over the course of a week for under $800.

Also, during the sale process, my real estate agent did not specialize in multi family purchasing and had no idea how to structure a lease, negotiate the sale or even what the property should be listed it. He was a fantastic help, but he just couldn’t really advise on landlord stuff!

My point in this is that since you’re young and don’t have 10s of thousands of dollars in the bank, it may be a good idea to be prepared to learn how to plunge a toilet (a toilet plunging company is $120-$175/hr) and a toilet snake is $15.

Also, make sure you are clear on your goals. If you want to buy and hold then I would recommend not becoming an agent. Becoming a real estate agent will teach you how to become a fantastic real estate agent and not how to make money holding rentals. My agent recommended I list my property at 225k and I listed it at 250k and we received a cash offer the next day.

Again, it’s up to you what you do! But I find someone who does EXACTLY what you want to do and make them a mentor.

Hope this helps!

Best,

Josh

John Teachout · Answer

Different people seem to gravitate to different kinds of investing strategies. My personal opinion is that everyone would do well to start out with a smaller single family home. Probably a fixer upper. Go through the refurbishment process, select a tenant and rent it out. This will be relatively low risk and during the process you likely will find out what you like and don't like, what your good at and what your not and so forth. An sfr has a simple exit strategy. After that dipping your toe in the water, choose a strategy that fits and go for it.

Joshua A Kloos · Answer

@Sean DeRue

Hey, great idea to getting started at your age.

I just sold my first deal today - was a duplex that I owned for a year and was able to pull a 200% roi on my initial investment. However - it caused me months of stress, 5k in remodels and an eviction (one of leases had drug problems and needed to kick them out).

Going into it I had spent a year working with a property management company and had learned to do repairs myself and build a relationship with the management company where the owner helped me navigate the legalities of leasing and eviction. Because of this, I might recommend staying away from something that could become a full time job and cost $1000s.

Be careful with your real estate agent as his money is made by buying and selling - not buying and holding. Unless he specializes in rentals, he is not a good source of information for this one. If you choose a buy and flip strategy, he may be a good option.

Judging but your position, if I were you, I would get a summer/winter job with a general contractor (or as a maintenance guy!) pay is usually good $18-$25/hr, learn general repair skills.

Then I would purchase a condo - look for b class/c class building. This means the building is sort of crappy but the neighborhood has some nice areas. If that makes sense - older building, decent neighborhood (agent can help with this).

Find a property that has room for growth. Easy/cheap repairs are faucets, door knobs, carpet, flooring, paint, appliances, lights, etc. With some general co tractor connections/YouTube you can do a lot of this yourself.

I had an electrician come out to my property this week and he quoted me $3000 for repairing 3 faucets - I told him to go home and my agent gave me a referral and it cost me $250. Network hard to get the best prices.

Live there for a year, so some repairs and flip the thing or lease it out and become a landlord.

Hope this helps! Let me know if you have any questions!

Best,

Josh

John Teachout · Answer

One thing you'll see over and over in the forums here is that for rentals, turnovers are the profit killers. ie, the longer someone stays in a unit, the more profitable it is likely to be because often when they leave it's the same things that need to be done. ie, painting, flooring, new locks, etc. So really think about student rentals before going that route. Of course there are people that do well in that market but it's a niche that comes with its own set of challenges. The reason I suggested starting with a smaller/cheaper sfr is that for many people it's easier to get into, is easier to get out of and will still give an opportunity to learn plenty of lessons. Even if your goal is multi-family, starting out in sfr would still be my suggestion. Of course on the internet, if you ask a question of 9 people you'll get 14 answers and everyone's way is THE way. Starting young is an excellent strategy and many on here wish they had begun sooner.

Sean DeRue · Answer

@Derek Diamond, @Alina Trigub, @John Teachout, @Joshua A Kloos

Thank you all so much for your time and input!

@Derek Diamond I'm glad to see that your portfolio shows success in multiple property types! It makes it less daunting to know the first one isn't as much of a contingency. I think I am leaning most towards multiplexes to start as well so I can house hack it.

@Alina Trigub I am just about done with the first B/P guide, and it is already painting a much clearer picture. I'm excited to keep figuring everything out as soon as possible in hopes of owning a property by the end of the year.

@John Teachout I'll admit that aiming for a multifamily rental to start feels a bit lofty, but if I do it well enough, I think it would be ideal for me. Hopefully it would be around campus, and currently Purdue has a massive shortage in student housing, so I don't think the vacancy would be a huge issue...now that I think about it though, it is probably more difficult to screen students as tenants since they have less of a life trail behind them...but I digress. What would you suspect the biggest discrepancies in acquiring/owning multifamily rental for the first time is vs a sfh. Either way, thank you for your input!!

@Joshua A Kloos Congrats on your sale!! Sounds like you earned the ROI with everything it put you through...I appreciate that you are looking at it from the a focus on the contracting/property management side of things. But I most appreciate how practical your action steps are!

The way I figure it, I don't think that I would want to spend effort pursuing mastery in contracting and realty; I think I'd spread to thin and inhibit the pace of getting the snowball rolling. Which is a shame because of how interesting I find contract work too... But I think if I can make some listing commissions during the fall semester, and save the cash for the investment, that I would be in good shape. What do you think about that?

I'll definitely include your advice on how to pinpoint a good property when I am looking for them.

Again, thank you all so much for contributing to my career!

Joshua A Kloos · Answer

@Alina Trigub

I disagree. A friend of mine was looking for a building 16 months ago when I started out.

In that time he has read 20 books and closed on his first property a month ago.

I have purchased, rented and sold my first deal and walked away with a chunk of change almost equivalent to one year salary at my current job.

Now I’m looking for my second job.

I always recommending picking a strategy, committing and jumping in and be willing to do whatever it takes to make it work! Reading only goes so far!

How to choose an investment strategy?

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