How to get started Real Estate Investing in this tough market?

Question

Hi everyone. My name is Alexander. I am currently interested in starting in Real State investing. I want to start in multi-family homes. I live in Hillsboro, OR. So I've been looking into Hillsboro, Beaverton and Portland Markets. Most of the prices here in the market are really high most of the good neighborhoods are ranging between 400k+. I don't know how to get started in this journey specially if I have to put a 20% down payment for the deal to produce some cash flow. The cap rates in this area are pretty low. It seems like a very difficult market to get into. I decided to post here to introduce myself and get to know other people that are making deals in these areas.

I would also appreciate some tips on how to get started too. I have read several books already, including Brandon Turner's book on rental property investing. I have learn a few things on how to get started but it also feels like I don't know anything yet. I did get the idea on how I should I do my analysis of the property, how the due diligence should be, and most importantly to create a team that should include lenders, property managers, contractors, etc. to get started.

Some of the questions I get after going through all of this, specially if I want to start in my local market are the following:

Should I accumulate some saving from my current job before starting to invest? Enough for a down payment on the first rental property? I ask myself this because some properties lose some or all the possibility to cash flow because of the mortgage payment.

Should I just wait till the supply increases on my area to start investing? This for me seems like it would be dangerous, specially if the property prices continue to increase.

I sincerely thank everyone who read through this post and took the time to answer.

John Teachout · Answer

Certainly accumulating cash from your job is helpful to enable you to act on a deal when you find one. Lots of people say you don't need any money to invest in real estate but all of it requires money, who's are you going to invest with? With no proven track record, funding can be more challenging to acquire. So, save some bucks while you look for good deals.

Carter Butler · Answer

@Keith Pinster Thanks for your response and the opportunity to clarify. My intention wasn't to say to ignore market cycles, I do think you should do as much as you can to understand what's going on in a given market. However, the sentiment that I have gotten from, and generally agree with, in listening to various BP podcasts/books, etc. is that for someone in a position such as my own or Alexander's, what is most important is getting that first deal. Obviously you want it to be successful but the true value in the first deal is the experience you gain. And I agree with you, I think the problem is in how to exploit them, if you have any tips on that I would love to hear them - however I think my understanding is that markets are difficult to time (especially for an inexperienced investor). Certainly the aim in the long run is to build wealth, but for investors like myself, the shorter term goal is just to make the leap into investing at all and if we are trying to time it perfectly we could be waiting years at the opportunity cost of gaining valuable connections and know-how. The best you can really do in timing a market cycle is put forth an educated guess in my opinion. Would love to know if you disagree!

Brent Paul · Answer

You just need to branch out to a different area.  Can you save up enough to put 20% down on 180k?

You will want to save up your down payment as well as some extra money for repairs or other things that break.  In my first year I spent almost 3k on things that broke in the first 9 months.  The next year was 4k.  The point is make sure you know what you are getting into.  I knew a few of these things would need replacing, but didn't expect so in the first year or two.  If the house you buy needs a lot of repairs be sure you can cover it.

Keith Pinster · Answer

Alexander Velez -- The book I mentioned is Emerging Real Estate Markets: How to Find and Profit from Up-and-Coming Areas by David Lindahl.

As an example of finding markets like this, I've recently moved to Tucson because I happen to know that they are building a new freeway on the west side of this city and also happen to know exactly where it's going in.  I also know which zip codes here are still appreciating at 12% to 15% and which ones are sitting stagnant.  As we all know, real estate doesn't move in wild swings, you can see when an area is going to shift months before the prices are affected if you are paying attention.

The other resource that will give you amazing insights into what areas are appreciating, which are depreciating, which are in a bubble and which are severely depressed is www.housingalerts.com.  I've been subscribed to it for a couple of years now and, so far, they have been spot on with their analysis.

By the way, I know what zip codes are appreciating and which aren't because of Housing Alerts.  It's an extremely easy tool to be able to zero in on the markets you want to spend time researching, allowing you to not waste time with markets that won't get you anything.

No matter what people like John Teachout say, RE investing is just like stock market investing.  If you do your due diligence, you can see what areas (or stocks) are going to take off and which ones will tank.  The beauty of Real Estate is that that analysis is available to laymen like you and me.  I have no idea how to research a company to see if its stock prices are going to soar, but it's easy to find a depressed area on Housing Alerts and call the Chamber of Commerce and find out how they plan to bring jobs into the area.  Or, better yet, let Housing Alerts do it for you.

My strategy is to buy and hold as much RE as I can get my grubby hands on.  I'm just finishing up a book by David Greene named Buy, Rehab, Rent, Refinance, Repeat that I got here off Bigger Pockets.  He talks a lot about using systems to leverage other people; agents, contractors, lenders, property managers, even friends and family.  If you can do the same thing with Ken Wade's algorithms to find emerging markets, why wouldn't you?

The combination of Housing Alerts for general knowledge and then Emerging Markets book gives you an advantage over people like John, who are stuck in their own little bubble.

Chauncy Gray · Answer

@Alexander Velez

Hello Alexander,

I found it very beneficial going out and meeting people. For the past two to three weeks, I have attended local real estate investor meetings, and I have picked up a lot. I went on my first property tour, and I saw what a finished (I'd say about 85-90% finished) fix and flip looks like. The husband and wife who gave the tour of their property were amazingly kind and were very genuine. They collaborated with other successful real estate investors and they wrote a book, discussing their experiences investing in real estate: both successes and failures.

The husband actually gave me a free hardcopy and I have been reading it daily. I'm learning from others' mistakes, as well as re-learning the basic concepts of real estate investing (terminology, strategies, etc.). Again, this all happened only because I got out there and I started meeting people.

I am still in the works of doing this, but the best thing that I can say is continue getting outside exposure, take lots of notes, write down what your financial goals are, and develop your own plan of action. Ask yourself what kind of returns you want to make, and build your strategies around making that mark.

More importantly, build your own team. Find people who want to help you. You can do all of this while investing in your first multi-family home.

Very Respectfully,

Chauncy

Alexander Velez · Answer

@Christian Rojmar Investing out of state? Sure, I think is important to diversify. Some markets may be affected more than others when hard times come by. So I am looking into possible future risks and exit plans as well as going to different state markets. I am just doing you could say constant training and analysis everyday, talking to different people in the area so that I can learn more.

Carter Butler · Answer

Hey Alexander,

Like yourself I am new to the game, however, if you haven't yet I would suggest reading David Greene's book, Long Distance Real Estate Investing. I myself live in an extremely expensive and competitive market - this book opened my eyes to the possibility of investing remotely in areas that ARE primed for continued growth and cash flow, and it counters the idea that you need to see a property in person before buying (as a result of today's technology).

As for your other questions, I will leave those to the more experienced investors but I will say that most (if not all) of the experienced investors advise against trying to time the market - whether or not the market it at its peak, what's most important is that you gain the experience.

Hope this helps!

Carter

Keith Pinster · Answer

@John Teachout -- Hey John.  Thanks for chiming in.  If you don't know how to find emerging markets, then that's really good news for the rest of us.  Stick to your own market and don't worry about the rest of the country.  It appears to be working for you.

John Teachout · Answer

The problem with market cycles is that it is impossible to know what they "were" until after the fact. People can say otherwise and use all sorts of algorithms, graphs, charts and guesses, but knowing when a market is near its peak or will continue to go up or whether it has bottomed or will continue to go down is just not feasible. Just make sure deals are solid and you should be ok. The less leverage, the safer you'll be if things take a turn.

Alexander Velez · Answer

@Keith Pinster I would love to have that information.  That sounds very useful.

How to get started Real Estate Investing in this tough market?

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