First Real Estate investment - Setting up for success, hopefully.

[Adam Zagorsky]

I am looking to get some advice or guidance on my entrance into the real estate world. I have been doing a lot of research, learning and listening to learn about real estate investing in the past few years and it seems to me that your first property can really influence how quickly or slowly you could scale your business. My goal is to house hack and work towards owning cash flowing properties.

Fortunately, I am a very handy person and would be able to do a lot of work myself to add value to whatever property I start with. I grew up remodeling homes with family and remodeled a house myself in the past.

Currently I am working towards improving my personal finance position in preparation for buying my first property i.e. paying off debt and minimizing monthly expenses and lifestyle spending.

I currently live in Portland, OR which is an expensive market and isn't easy to find cash flowing properties. From what I have seen the tactic here would be finding value add opportunities like rehabs, adding a bedroom or ADU etc. to help build equity/increase monthly rent potential.

My partner and I live in NW Portland and pay $3200/mo. for rent but rent out a downstairs studio space for $1600/mo. so we each pay $800/mo. plus utilities. In terms of my living expenses rent is my largest expense. The property owner potentially wants to sell the home and depending on where you look the estimated home value is between 480K and 550K. The home is on 0.6 acres on a steep hill so it has the potential for building an ADU separate from the house but the site work would be more difficult on the hill. As it sits buying the house seems like a good move as it would decrease our monthly living expense despite it being a very expensive first home (part of why I’m asking for guidance) and also has some value add potential.

The Numbers:

Mortgage: $2450-$2787 (based on 480K-550K range@ 4.5%)

Taxes and Insurance: $700-$800/mo. ($1500/yr. ins. & 1.04% property tax/yr.)

Total: $3150-$3587/mo.

Downstairs rent: $1600

Our total: $1550-$1987 + Utilities or $750-$993/mo. split (currently $800 + utilities)

Would that $1600 coming in every month eventually count as rental income to help qualify for the next property?

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Now for the value add part

Build an ADU for $40,000-$90,000 (Property allows for a number of ways to build something).

Or on the simpler end of the spectrum build a deck with a Yurt for $5,000-$10,000 to move into.

Rent out the upstairs and downstairs ($3587-$3400= $187 remaining or $3150-$3400= $250 cashflow)

Or there are definitely ways to add value to this house through bathroom remodel or adding some square footage to accommodate an additional bedroom.

Seems like the sale price of the home really will drive whether the opportunity makes sense or not.

Now that I am putting all of this on paper it is becoming clear that no matter what, this property is on the edge of making sense if not making no sense at all.

Anyone have input or ideas on this scenario? Anyone have any thoughts or recommendations on the best way to begin my journey in an expensive market? Your input is greatly appreciated!