Taking the leap in investing in a rental property

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Taking the leap in investing in a rental property

Justin Tamayo
Rental Property Investor · San Francisco, CA · Member since 2020 · 5 posts · 0 votes

I’ve decided to take the leap into investing. Looking at the markets across the US, I have selected a few.

Would it be wise to start with a dueplex to see if I like it, buy up as many as I can right away, or try and grab a larger multi fam property?

I can’t wait to start!

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Lee RipmaPro Member
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
6y

@Justin Tamayo

Doesn’t matter, just do something!

Podcast Guest on Show #373
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  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    6y

    @Justin Tamayo

    Doesn’t matter, just do something!

    Podcast Guest on Show #373
    3Reply
  • Hunter Vigneault
    Real Estate Agent · Boca Raton, FL · Member since 2015 · 74 posts · 57 votes
    6y

    @Justin Tamayo I don't know enough about your background or goals to say for sure. If you are like a typical new investor, I assume you don't have an especially strong income or deep pockets and that's ok. It is common advice on here (because it is pretty sound advice), but I would recommend looking into househacking a 2-4 unit. I bought a fixer upper duplex in a less desirable area of my hometown using an FHA 203k loan as my first home and investment property. It was "expensive" from a fees and points perspective, but since I was young and had very little cash on hand, the ability to put 3.5% down for both the purchase and rehab was critical to my eventual success.

    Also beneficial for a new real estate owner, as part of the 203k process you are required to use a HUD consultant to help verify contractor bids and make sure work is progressing. They also sign off on contractor draw requests, so if you don't really know what you are doing they can help keep a contractor from taking advantage of your inexperience. Mine was good - I assume there is a range.

    By taking that route, you can get into real estate with generally preferable terms and make sure you have a personality that fits the task. Even with the low down payment, I was able to gain enough equity through rehab (and a generally rising market - less of an immediate guarantee there right now) to refi out of the FHA within a couple of years and end the PMI.

    I assume you are researching multiple markets because your area is higher priced, but I would really recommend trying to find a way to make your local market work for a first entry into real estate. I'm sure there are others who will have a different opinion.

    Going back to the beginning of my post, if you do have a strong income and deep pockets you will likely have more flexibility to make mistakes without significant risk to your overall financial health...but I'd still recommend starting relatively small. That is just one person's opinion - there are plenty of forum members that will tell you that you need to take "massive action." Just know that going from zero properties to one is massive action. 

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  • Scott Curry
    Investor · Lake County, IL · Member since 2019 · 4 posts · 0 votes
    6y

    I would recommend a 4-plex if you live in one of the units.  If you can structure the deal correctly, the other three units can cover your own housing costs.  Are you currently employed?  This will be essential to acquiring a property if you need to obtain financing.  How do your reserves look?  You will need money for any initial repairs to each unit plus enough reserves for any future issues that arise.  Will you manage the other units or will you hire a professional property manager?  Will you be inheriting any tenants?  

    There are many factors to consider before making the leap into investment properties, even more than I mentioned above.  However, the hunt of tracking down the property and figuring out how to make the deal work is the fun part.  If this gets you excited about real estate, KEEP GOING!

    Make sure you listen to all the house hacking podcasts on BiggerPockets. If you can cover your housing costs using this method AND you have full-time employment, you can use that money you are saving to quickly build your reserve. Also, Felipe on the new Real Estate Rookie BP podcast had an interesting way of using a HELOC as his reserve for his newly purchased rental properties. This is a great way to cover yourself for any emergency repairs if you don't have much of your reserves in cash.

    Good luck!

    0Reply
  • Matthew PorcaroBusiness Member
    Lender · Long Island, NY · Member since 2016 · 456 posts · 336 votes
    6y
    Originally posted by @Justin Tamayo:

    I’ve decided to take the leap into investing. Looking at the markets across the US, I have selected a few.

    Would it be wise to start with a dueplex to see if I like it, buy up as many as I can right away, or try and grab a larger multi fam property?

    I can’t wait to start!

     I did the same thing Hunter mentioned above. If you're just starting out, the best thing to do is house-hack, and you can double down on that house hack by purchasing a distressed small multifamily property with an owner occupant loan. In doing this, you can force equity on the rehab using a loan like a 203k or HomeStyle loan, as well as live for free or close to it since you'll have tenants occupying the other units paying you rent. 

    Owner occupant terms are the best you'll find, so if you're open to the commitment of doing a live in flip and not buying your "forever home" right away, you can really reap the benefits!

    Best of luck.

    The 203k Way
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    1Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    6y

    I find many new investors want their first purchase to be a big multi- which is fine if you have the resources or the team to get a deal done and manage it, but that's a tall order for a first investment. 

    Why wouldn't you invest in your own market? You could house hack a duplex and get some experience, learn the ropes and take advantage of a very low risk investment. I know some markets are cost prohibitive, especially for first timers, but if you can pull it off, that's the way to start. 

    0Reply
  • Justin Tamayo
    OP
    Rental Property Investor · San Francisco, CA · Member since 2020 · 5 posts · 0 votes
    6y

    Thank you all for your kind words.

    I would normally start in my market, but I live in the San Francisco Bay Area....needless to say, EXPENSIVE! So that is why I have chosen out of state investing. 

    I am already in a SFH with my family (Wife and 2 kids). I have a very stable job and stable income. I am now at a point in my life were I have the ability to start investing.

    I am excited to start this journey and it is reassuring to have a great community that supports one another!

    0Reply
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