A bunch of questions about getting my first door

[Daniel Lopez]

Hello everyone. This is my first post and have a lot of questions. About me? I am a single father living in Denver, CO. I want to start investing in rental properties. I have been listening to the Bigger Pockets Podcast for about 5 months and love it! I have been reading anything I can find on real estate investing and I think I have my plan. I am hoping to get more eyes on it in the hopes that I may get some good advice!

I currently live in a one bedroom condo with my 11 year old son. I have roughly $50k in equity in my condo. I plan on selling to get the equity. I will then rent and use the cash to start to BRRRR. I am looking into markets where I can buy a property, probably around $20-25k and put and additional $20-25k into it and rent it out. The hope is to get at least 75% ARV so I can refinance and do it again, all while creating a little cash flow from renting it out (obviously after paying for a PM, taxes, insurance, capex, etc first). I would then BRRRR again, and again, and again, assuming all goes as planned.

I do want to mention that I do not believe I can qualify for a mortgage at the moment which is a challenge right now. I believe buying something cash will allow me to start earning some rental income while I work to repair my credit at which point I can take out a mortgage and start to BRRRR.

Also, yes, I have ordered David Greene's long distance real estate investing book. It is in the mailbox at home, but I wanted to get the conversation going here first. 

Here are some of the questions I have:

- Are there markets that should be avoided? One major difficulty I have is that I the market in Colorado is insane and I think with the limited cash I have I am best off investing somewhere with a not so insane market. I have been looking at Kansas City, Indianapolis, and Milwaukee, but to be honest, I have not done much research other than checking available houses on Zillow and Redfin. Does anyone have any feedback or suggestions on markets where my plan would work and reasons why? As much as I want to jump right in I also want to select the right market first if possible. I will be building a team in a far off city. If I am going to BRRRR long distance, I hope to only have to create this team once (at least for the foreseeable future). Any suggestions on a market to start looking into would be appreciated!

- The long distance rehab kinda scares me. My family here in Denver flips, builds, and rents houses. While I have fantastic resources here at home I do not have those resources anywhere else. How to you deal with a long distance rehab? I worry that without being able to keep close tabs on my contractors I will run into problems. You hear nightmare contractor stories when they live down the street... Halfway across the country? This worries me. My initial thoughts are to keep is small and simple but I think the appreciation would also be minimal if I do it this way. Can anyone offer any advice here? 

- Is the ARV I am looking for obtainable with $50k cash to put into the deal? As in, does finding a home that I purchase and rehab with $50k cash that then appreciates enough for me to refinance and get my money back out exist? I know this is a large and vague question, but there are so many moving pieces right now, and so many deals to analyze. I have never calculated an ARV before, I am trying to find the sweet spot, the best way to split purchase cost and rehab cost to get the most from each dollar. Any advice here?

I appreciate you taking the time to read this. I am a newbie (I have yet to do a deal), but I am motivated. I am hoping to make a move sometime this summer, likely the first one being selling my condo and moving into a rental. Once that is done, I want to start BRRRRing. 

Thanks!

[Marcus Auerbach]

@Daniel Lopez you are asking the right questions, but here is something else first; and what I am about to say, I am sorry, may sound a bit harsh, but it's not meant to be.

To be brutally honest with you, I think investing in real estate with no-cash/no-credit is generally a bad idea. Investing will amplify your personal and your financial patterns, no matter what they are. The results that you have today in form of your savings account and your credit score will translate into similar results, just on a larger scale, when you start to invest in RE. More money, more problems..

So step one is to start with yourself and master your own finances before you take it to the next level, where the rewards are bigger, as well as the risks. Lot's of great books to read about personal finances and personal development. Your credit score and your savings are a result of your systems and your behaviours. Once you change your systems and how you think and what you do, as a result your credit will change and your bank account will change. Many of us have not been financially educated by our parents, so now you have to teach yourself as an adult which is a lot harder - I speak from personal experience.

It may not take you that long, but this is going to be your foundation and it is important. If your foundation is not solid, whatever you build on top of it will collaps. Worst case you may find yourself living in a rental and having not only lost your condo, but also your equity. That's really a step in the wrong direction!

From a Milwaukee perspective your plan has two problems: first is that a $25k property will put you in the middle of the worst area. A lot of contractors will not go there; they fear for their tools, their wallets, their vehicle and worse. Property managers are the same. There are some who will work there, but usually that is because they can't find work elsewhere, so you know you are going to be in for a ride. And that's all before you have experienced the tenants.

The second issue is that you need enough spread between purchase price and ARV to cover improvements and generate equity. The cost of improvements does not change with the price of the property. A roof on a $25k property costs the same as on a 125k property. Your repair cost is disproporportionate to your property value and your appraiser will not see the value you need to come out ahead when you refi.

I should mention that I have been BRRRRing in Milwaukee since before it has been called BRRRR. And I almost never walk away with a clean 25% in equity as described in the book (which to be fair is also a little by design, because we try to fix everything the right way the first time).

To put things into local perspective: as of January our local median sales price has been $175.000 for single family homes, up 8% over 12 months ago. So you can see where sub 100k properties are compared to the median. We only have a few neighborhoods were property values are really low and that is for a good reason. Most local investors who have been around the block once or twice and have now deeper pockets will not even consider these parts of town. It can be done, but it is far from an easy business.

It sounds like you have a great family with REI background you can lean on for advice and support, they know you best and I am sure they are happy to work and brainstorm with you. I wish you much success!