Not sure what kind of property to start with & looking for advice

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Not sure what kind of property to start with & looking for advice

Justin C.
New to Real Estate · Boston, MA · Member since 2017 · 3 posts · 0 votes

Hi Everyone!

I’ve been doing a lot of reading and listening to podcasts to learn more about the RE investing world and form a foundation of knowledge. As someone starting out with no actual experience, it’s a bit of information overload. Since I’ve been lurking for quite a while I figured it was finally time to introduce myself and make a post to see if you knowledgeable folks could share your wisdom and help me break down some of these ideas and concepts so that I can figure out the best plan to move forward with.

Bit of background about me:
31 years old
Single (in a relationship but unmarried)
20k student loan debt, no other debt
70k saved (20k more in Roth IRA but probably wouldn't want to touch that since it's for retirement)
Stable full time office job - 70k/year
790 credit score
Located in the greater Boston area of MA
Currently renting and do not own any property

Now that you have a little bit of background, I was hoping I could get advice on the best way to get started with something. As you may be aware, housing prices are ridiculously crazy around here with low supply and high demand. Because of this Ive been looking in areas outside of the city like Framingham, Billerica, Norwood, Dedham, Stoneham, Tewksbury, etc as this is all I can get a loan for. My struggle so far is that any good deal that comes up is grabbed super quickly by cash buyers or someone offering way over asking price.

I'm interested in house hacking and the BRRrR method after listening to the BP podcast on it, but I'm open to any ideas where I can use RE to build equity/passive cash flow. Ideally, I'd love to find a 3 bed 2 bath SFH that needs work but not a complete gut, live in it for a year while I fix it up, then refinance and start renting it out. The downside seems to be the lack of options. Anything I can afford is going to be pretty far outside the city and much more rural which I imagine would be harder to rent out and would also probably need a complete rehab on top of the already high sale price.

One idea I've been toying with is buying a condo/townhouse. I know they don't have the best reputation on here, but there's a lot of them around those towns I mentioned and many seem to be in my price range (under 350k). I've found quite a few with fairly low condo fees which include exterior maintenance which is a plus and some even include heat. Cash flow probably wouldn't be much at first but over time as rent increases and mortgage stays consistent it'll slowly get better. With the crazy rise in cost of housing here, condos are gaining popularity because it's all people can afford and young professionals like them because they tend to be in busier downtown areas.

Another idea I had was buying something out of state. It’s mind blowing how much cheaper real estate is in other cities further south and I feel like I could possibly get a multi family somewhere else that’s in decent shape. Is this even realistic to look into as a first time buyer? Could I even get a loan for this?

Again, SFH would be most ideal, but given the location/prices/competition I'm just a little discouraged and feeling like that's probably out of the picture.

I know this has been a long ranting read, so if you've made it this far I appreciate it. Let me know your thoughts! What would you do if you were in my shoes? Should I avoid townhouses/condos, or keep looking into them? Only go for SFH? Buy out of state?

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Sebastian MarroquinPro Member
Real Estate Agent · Pasadena, CA · Member since 2015 · 477 posts · 263 votes
6y

Everyone on here is right :) really even me :) (except for the comment that said... you are too inexperienced to do it... you may be right now, but you sound intelligent enough to learn. 

What I mean by that is that you actually have a lot of options! That's the good news. First of all you need to know that you "can do it!" You have to believe it and you have to make a plan and take action. You are already asking better questions than people that are on their 3rd and 4th homes, so you are ahead of a lot of people. A couple of things: 

with 70k : you could probably buy something cash somewhere else and get 100% cash flow minus expenses. But do you actually want to is the question... 

It sounds like your market is a lot like our market in CA: prices are high and low inventory makes it extremely difficult. 

The problem is that a lot of buyers/investors want to hit a home run their first deal... and you may not or will not... 

Ask yourself: 

1- how conservative do you want to be? or what kind of risk are you ok with? 

2- what is your 1,3 and 5 and 10 year goal in real estate ? 

3- how stable is your job

4- do you have any other debt and expenses over all? (reduce overhead and save more). 

* the answers to these questions will enable you to choose a strategy and to draft a plan! 

Less risk: strategy 

See what you qualify for with a lender with your current situation? What about paying your student debt off completely and any other debt and how much do you qualify for now? (this is bc debt to income makes a difference with buying power and a lender can tell you these numbers). If you pay off 20k in student loans, sure you will have less cash to work with, but your buying power may go up by an extra 100k or more... and this way you may be able to leverage loans further (so you can put less of a down payment and therefore use less of your savings also!) 

Look into: getting an FHA loan (3.5% down) on a property (say a condo or town home): this is a marathon (if you choose to run one :) based on your answers to the questions above).

Look for a fixer condo: say condos are going for $400k renovated : you should be able to find one for $350k or even $300k (how do i know this? well, bc although I am not there... I bet you investors are finding them and flipping them, you just have to learn how to find them and get them). Trust me they are out there: even if you get one for say $375k as a fixer: then you put 10k to 15k and walk in with some equity! 

The math is this: you buy a condo for $400k : after 5 years - that condo will have appreciated to about $450k and the mortgage loan on it will have been paid down to about $340k (down by about 50k also): so in 5 years you will have about 100k equity on it. At that point you can choose to hold it or sell it and trade up. Wait a bit longer and refinance it or do a HELOC and buy a second home (now maybe a SFH/ SFR ) and again do a 3.5% down payment and do it all again.

At that point you will have saved money from wages and the equity from the first one, along with hopefully getting a higher salary: so you will qualify for more! and also have more experience owning property to now have one rental and one primary home. Do that every 2 to 5 years and become a millionaire by the time you retire. 

Theres more aggressive and risky methods : as you can see - i would need more time and space on here to explain... but you get the point. 

Flip condos, flip homes, buy 2plex , 3plex etc, look at for sale by owners, expireds, off market deals... etc 

** Look for a good realtor to help you and a lot of this would have come from them a long time ago. :) 

Do you want to leverage your money or not... do you want to buy and live in the property or not... do you want money yesterday or are you willing to wait a bit... You have been very conservative thus far so I don't see you doing anything hasty any time soon... but I could be wrong... 

Choose a focus, study it, learn from other investors, read books, visit different markets when you travel, and take action. 

Set a standard you want to follow and do it. :) 

Here to help if you needed. (no agenda as I am not licensed there... ) 

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  • Lien VuongBusiness Member
    Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
    6y

    Thanks for sharing @Justin C.! You've certainly shared a lot of info right there. Looks like you're off to a good start in terms of sorting out your finances and making sure you're in the position to buy. 

    If you're looking for a RE investment to reduce your expenses and hedge the safest risk I would say go with condos. The cap ex costs in the unit is very minimal and the repairs you do would be mainly cosmetic so what's great for someone starting out. The downside is lower appreciation on them and you are still at the mercy of the HOA (home owner's association) that can rule out rentals or limit the use of your unit.

    In terms of SFH, the appreciation and control you have on the home will be more but the typical buyer who purchases that kind of property is usually owner occupied meaning that their math on the home is not going to be numbers that 'make sense' to investors but rather an emotional purchase. You would be competing in that arena. The repairs would likely be higher but having independent control of the property.

    Have you explored multi families? That would be a more ideal way of entering the market being able to leverage your funds as an owner occupied and getting the mortgage supplemented by the tenants. 

    That's my two cents - hope you got some insight! 

    [email protected]
    The Elle Group5153 Reviews
    WebsiteView Page
    0Reply
  • Logan Freeman
    Specialist · Kansas City, MO · Member since 2018 · 331 posts · 148 votes
    6y

    Hi Justin, first off, thanks for introducing yourself and reaching out - you've taken a great first step! Also i commend you for putting yourself in a solid place financially, which is now affording you the opportunity to explore real estate investing as a tool to leverage your assets. 

    You've clearly been giving a lot of careful thought on how to proceed with investing, and are trying to determine what might be the best option(s) for you. You're correct in looking at out of state investing as a potentially cheaper way to find some awesome properties in great markets. 

    You should consider Kansas City! With population growth and job growth that both beat the national average, as well as diverse industries, rich history and culture, and affordable rents, Kansas City is a great market to invest in! 

    I'm an investor, developer and commercial agent who can help you acquire, renovate, lease and maintain your properties in KC. I'm currently managing over 1,000 and adding more all the time. 

    With any city, it's very important to invest in the right areas in KC. If you're interested I'd be happy to provide you with more info on the different approaches you can take, as well as a list of the prime areas in the city. 

    Feel free to reach out

    Logan Freeman, Founder / LiveFree Investments

    Screen Shot 2020-01-23 at 8.50.52 AM.png
    “Ambition is the path to success, persistence is the vehicle we arrive in”
    1Reply
  • Justin C.
    OP
    New to Real Estate · Boston, MA · Member since 2017 · 3 posts · 0 votes
    6y

    @Lien Vuong thank you for your insight. A 2-family home would be perfect but they pretty much don’t exist around here for less than 600k which I could never get a big enough mortgage to cover. That’s why I was wondering if getting one out of state could be a possibility

    0Reply
  • Lien VuongBusiness Member
    Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
    6y

    Honestly given your lack of experience and if your limited budget I would not suggest going out of state. If anything you can explore southern NH and western MA where prices are reason as opposed to going many states away. 

    There are some 2 fams in the greater Boston area such as Everett that would be under $600, there's four right now in that area. 

    [email protected]
    The Elle Group5153 Reviews
    WebsiteView Page
    0Reply
  • Khalid Hasnaoui
    Investor · Dedham, MA · Member since 2015 · 13 posts · 3 votes
    6y

    hi, the Worcester area has triple deckers going for 400k or less but I would not recommend it for someone who is starting out in RE. the tenants there are tough to deal with. best of luck budd

    0Reply
  • Brian J Allen
    Real Estate Agent · Worcester, MA · Member since 2018 · 519 posts · 410 votes
    6y

    it is good to learn  and experience real estate investment in the lowest cost method possible.  if you can live there, you can make a lot of mistakes without feeing as much financial pain.  if you can buy a smaller property, you might not have as much upside, but you can improve your property for less money.  The most important thing is to surround yourself with people who are willing to provide you with honest advice. Find the right neighborhood first as all real estate is local, then work from there.  Does the house need cosmetics, or real work (plumbing/electrical/structural) . there are many choices for the cosmetics work, so you can get better pricing. If you need a license to do the work like electrical or plumbing, your costs go up, since it is expensive to get those skills.

    0Reply
  • Nataly D.
    Worcester, MA · Member since 2017 · 10 posts · 2 votes
    6y

    It's best to just dive right in. I did. Don't regret it one bit but investing in RE isn't for everyone. Late night calls, chasing tenants for rent, and dealing with unexpected repairs... just to name a few. I started out with a 4 family. You can buy up to a 4 family and still stay in the residential mortgage side of things versus the commercial 25% down and all that jazz (5+ units). Plus think about it you can live in one of the apartments and rent out the other 3. You get 3 other rents, minimizing your risk in terms of the ability to pay for your mortgage. What are the chances all 3 tenants won't pay? Less than 2 other (triplex) tenants or 1 other (duplex). The other thing to keep in mind is the price is usually 50K more for a 4 family versus a 3 in Worcester, MA. Your mortgage will be a little bit more but you will make more than the additional amount in your mortgage. If you need to talk to anyone let me know. 

    0Reply
  • Sebastian MarroquinPro Member
    Real Estate Agent · Pasadena, CA · Member since 2015 · 477 posts · 263 votes
    6y

    Everyone on here is right :) really even me :) (except for the comment that said... you are too inexperienced to do it... you may be right now, but you sound intelligent enough to learn. 

    What I mean by that is that you actually have a lot of options! That's the good news. First of all you need to know that you "can do it!" You have to believe it and you have to make a plan and take action. You are already asking better questions than people that are on their 3rd and 4th homes, so you are ahead of a lot of people. A couple of things: 

    with 70k : you could probably buy something cash somewhere else and get 100% cash flow minus expenses. But do you actually want to is the question... 

    It sounds like your market is a lot like our market in CA: prices are high and low inventory makes it extremely difficult. 

    The problem is that a lot of buyers/investors want to hit a home run their first deal... and you may not or will not... 

    Ask yourself: 

    1- how conservative do you want to be? or what kind of risk are you ok with? 

    2- what is your 1,3 and 5 and 10 year goal in real estate ? 

    3- how stable is your job

    4- do you have any other debt and expenses over all? (reduce overhead and save more). 

    * the answers to these questions will enable you to choose a strategy and to draft a plan! 

    Less risk: strategy 

    See what you qualify for with a lender with your current situation? What about paying your student debt off completely and any other debt and how much do you qualify for now? (this is bc debt to income makes a difference with buying power and a lender can tell you these numbers). If you pay off 20k in student loans, sure you will have less cash to work with, but your buying power may go up by an extra 100k or more... and this way you may be able to leverage loans further (so you can put less of a down payment and therefore use less of your savings also!) 

    Look into: getting an FHA loan (3.5% down) on a property (say a condo or town home): this is a marathon (if you choose to run one :) based on your answers to the questions above).

    Look for a fixer condo: say condos are going for $400k renovated : you should be able to find one for $350k or even $300k (how do i know this? well, bc although I am not there... I bet you investors are finding them and flipping them, you just have to learn how to find them and get them). Trust me they are out there: even if you get one for say $375k as a fixer: then you put 10k to 15k and walk in with some equity! 

    The math is this: you buy a condo for $400k : after 5 years - that condo will have appreciated to about $450k and the mortgage loan on it will have been paid down to about $340k (down by about 50k also): so in 5 years you will have about 100k equity on it. At that point you can choose to hold it or sell it and trade up. Wait a bit longer and refinance it or do a HELOC and buy a second home (now maybe a SFH/ SFR ) and again do a 3.5% down payment and do it all again.

    At that point you will have saved money from wages and the equity from the first one, along with hopefully getting a higher salary: so you will qualify for more! and also have more experience owning property to now have one rental and one primary home. Do that every 2 to 5 years and become a millionaire by the time you retire. 

    Theres more aggressive and risky methods : as you can see - i would need more time and space on here to explain... but you get the point. 

    Flip condos, flip homes, buy 2plex , 3plex etc, look at for sale by owners, expireds, off market deals... etc 

    ** Look for a good realtor to help you and a lot of this would have come from them a long time ago. :) 

    Do you want to leverage your money or not... do you want to buy and live in the property or not... do you want money yesterday or are you willing to wait a bit... You have been very conservative thus far so I don't see you doing anything hasty any time soon... but I could be wrong... 

    Choose a focus, study it, learn from other investors, read books, visit different markets when you travel, and take action. 

    Set a standard you want to follow and do it. :) 

    Here to help if you needed. (no agenda as I am not licensed there... ) 

    1Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    6y

    @Justin C.

    I would get a turn key SFR out of state in the 100-150k range with 20% down. Let it appreciate and watch someone else manage it pay it down for you. Then do a 1031 exchange on it down the line once you get all your other finances under control. Maybe house hack with it later or just move up to a better rental. That's what I did and have slowly grown to 9 properties since I started investing 5 years ago. Go for base hits and be patient. Good luck!

    0Reply
  • Amit Aggarwal
    Member since 2020 · 11 posts · 4 votes
    6y

    @Khalid Hasnaoui hey can I get your advice on the new construction townhomes in Worcester? I think the address is 407 Cambridge. They are 3 bedroom 1.5 baths going for 250k. I was thinking about making that my first property. I currently live in NJ. Would you reconsider?

    0Reply
  • Brian J Allen
    Real Estate Agent · Worcester, MA · Member since 2018 · 519 posts · 410 votes
    6y

    Make sure you are comfortable with the condo situation in any townhouse you buy (Worcester in Particular). In Worcester they have what is called ZERO LOT LINE where you can share common walls with someone but everyone is responsible for their own exterior maintenance and roofs.  You can drive neighborhoods in worcester where 1/2 of the house has a new roof, and the other 1/2 does not.  you will also see everyone with different front doors and even different windows.  Make sure you know how things are deeded.  Also, make sure you have a home inspection as there are different levels of new construction.  See if you can get an idea of what the other rents are in the project.  Best of luck Worcester is very different from other places in projects like this.

    0Reply
  • Kiera Underwood
    Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes
    6y

    @Justin C. I've seen hundreds of OOS investors come to my area in the last couple of years. It is hard to beat 60-80k price points and 8% cap rates. I've got a great national lender that can help you in any market. His threshold is a minimum of a 62k lending amount and I know local lenders that will go as low as 40k but that's only for this market. 

    0Reply
  • Eric Rosiello
    Rental Property Investor · Boston, MA · Member since 2016 · 82 posts · 27 votes
    6y

    @Justin C.

    I would strongly recommend buying a multi family (3 or 4 units) and living in one of the units. 

    You can get an FHA loan for 3.5% down if you live in one of the units. You will have additional costs for PMI (mortgage insurance) that you will need to factor into your numbers, however. I'd be happy to explain PMI in more detail if you would like.

    Alternatively, you may qualify for Masshousing which is a minimum of 5% down and no PMI.

    This investment strategy is incredibly powerful. Since the down payment % is so low, you can afford to buy a much larger property (more units) than you would have been able to putting 20 or 25% down. Multi family will almost always cash flow better than a single unit, so this is a huge advantage.

    As an example, at 5% down you could buy a 3 family property in Boston worth $800k for $40k. You would have $30k leftover for rehab and renovations.

    With FHA, after 1 year you are allowed to move out and can rent out the unit you were living in. So with this strategy you would have 3 or 4 rented units after 1 year. In contrast, if you buy a condo you'll have just 1 unit and your cash-on-cash return will almost certainly be lower.

    If you do go with a FHA, you are going to want to refinance to a conventional mortgage at some point (as soon as you can) to get rid if the PMI and improve your monthly cash flow. You will need to build 20% equity in the property to get a conventional mortgage. The best way to do this fast is to buy a property that needs work and force appreciation through rehab and renovation. Always run your numbers assuming you can't refinance though, so if the market turns or stagnates and you can't refi you will still be cash flowing.

    Hope this helps and happy to explain further!

    Eric

    1Reply
  • Steve Bracero
    Real Estate Agent · Westboro, MA · Member since 2016 · 1k+ posts · 471 votes
    6y

    @Eric Rosiello

    Excellent advice!

    I am in the process of a refinance on my FHA property i bought a few years ago, and plan on using FHA again.

    If you have the ability to use FHA, its a great way to get started with investing

    0Reply
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