Help Defining Strategy for New Investor

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Help Defining Strategy for New Investor

Sarah Szuhay
New to Real Estate · Portland, OR · Member since 2018 · 15 posts · 11 votes

Hello BP community! I've been casually learning about real estate over the last year or two but am ready to take it more seriously and make my first deal. My struggle right now is determining the right strategy for me. If anyone is willing to offer input/advice for my situation, it would be greatly appreciated!

Here is my situation: I have about $30k in cash to invest and a good credit score. In the coming months I'll be moving from Portland, Oregon to the Bay Area, so investing locally (Bay Area) is out of the question for my budget. I currently own my home in Portland and will be renting it when I move- CF will be slightly negative but I believe the property will appreciate significantly so I want to hold onto it.

I've decided I want to invest in Pittsburgh- it's my hometown so I know the area, visit regularly, and the numbers look good for both cashflow and appreciation. I have a demanding job so will not be able to put a ton of time/effort into my investment and I will definitely need to hire a PM.

My ultimate goal is CF...the dream is to generate enough CF to "retire" early. For me, that would be ~$10k/month. So I need to get started :)

I've narrowed down to four strategies for my first investment:

1. Buy and hold SFH in B-ish area- I think this would ease me into REI- there would be high likelihood for good tenants and having less doors starting out feels less intimidating. I'm willing to pay for cosmetic rehab as part of my total investment, but not significant reno (seems difficult to manage from across the country).

2. Buy and hold MFH (2-4 units) in C-ish area- This is appealing because more doors= more CF opportunity, but as mentioned above, starting out in MFH feels intimidating.

3. Lease option SFH- Lease options are very appealing to me, since once you get the tenant in, they take care of all maintenance. Plus it can really benefit the tenants by giving them a chance to own a home when they might have trouble otherwise. However, I'm not sure how I would find rent-to-own tenants remotely or if there are businesses that offer this service for OOS investors.

4. Turnkey- Appealing but probably would generate the least CF and the least learning for future deals.

If you were in my shoes, what would you do? Thanks in advance!

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    Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    6y

    @Sarah Szuhay your first instinct on investing out of state is the smartest, you are way ahead of the curve. Investing in your hometown where you know the area and know the streets and have contacts is imperative to the market knowledge you need to not screw up out of state investing. Pittsburgh is definitely a viable market for you to do this in. Don't be sure you need a PM company to start when you are from there. I have used friends in out of state areas for years to start managing one-offs and sometimes start with a handyman and then convert them to a PM when more properties come in.

    I don't think turnkey would be worth it in Pittsburgh as there are way too many value-add options where you can make more by doing that instead of taking a finished project which are usually overpriced. I like option 1 to start based on how much time you have to manage. Even when you hire a PM, you still need to track your investment. Single-families are a great way to bank on appreciating areas. My best investments have all been single-family homes. Multi is what everyone wants, but it is also a headache, even with a PM. Two units = twice the problems. Four units = four times the problems. To do #1 you can find a property to lipstick flip (light reno for renters) which is ideal or if it needs more work you just make sure you rental value will go in line with your reno.

    [email protected]Podcast Guest on Show BiggerPockets Daily 667: 5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t) by Gino Barbaro
    Zen and the Art of Real Estate Investing59 Reviews
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    • Jonathan GreeneBusiness Member
      Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
      6y

      @Sarah Szuhay your first instinct on investing out of state is the smartest, you are way ahead of the curve. Investing in your hometown where you know the area and know the streets and have contacts is imperative to the market knowledge you need to not screw up out of state investing. Pittsburgh is definitely a viable market for you to do this in. Don't be sure you need a PM company to start when you are from there. I have used friends in out of state areas for years to start managing one-offs and sometimes start with a handyman and then convert them to a PM when more properties come in.

      I don't think turnkey would be worth it in Pittsburgh as there are way too many value-add options where you can make more by doing that instead of taking a finished project which are usually overpriced. I like option 1 to start based on how much time you have to manage. Even when you hire a PM, you still need to track your investment. Single-families are a great way to bank on appreciating areas. My best investments have all been single-family homes. Multi is what everyone wants, but it is also a headache, even with a PM. Two units = twice the problems. Four units = four times the problems. To do #1 you can find a property to lipstick flip (light reno for renters) which is ideal or if it needs more work you just make sure you rental value will go in line with your reno.

      [email protected]Podcast Guest on Show BiggerPockets Daily 667: 5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t) by Gino Barbaro
      Zen and the Art of Real Estate Investing59 Reviews
      WebsiteView Page
      1Reply
    • Brian Garlington
      Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes
      6y

      What part of the Bay Area will you move to? If you move to certain parts of the East Bay you could get an FHA Loan and buy a duplex.........

      Otherwise if you are dead set on renting here in the Bay Area, see if you can find a landlord that does not prohibit you from subletting....just make sure that in the lease it does not prohibit you from subletting........if you rent a 2 bd apartment, sublet one of the bedrooms.....

      As for Pittsburgh.......if you are from there and have contacts there that is phenomenal. You are correct, cashflow will not be as good with turnkey. See if your people know a realtor out there that is used to working with OOS Investors AND investment property there in Pittsburgh. Then see about a duplex or triplex in a "C" neighborhood with at least one section 8 tenant in one of the units. Guaranteed income.

      0Reply
    • Account Closed
      Real Estate Agent · Oklahoma City · Member since 2020 · 46 posts · 35 votes
      6y

      Hey Sarah,

      Glad you're starting to look into RE Investing.

      A good place to start would be looking to build your team. Deal Finder/Boots on the ground, Property Manager, Lender, and Contractor. 

      Turnkey will help you start off and gain some experience, but you'll be competing with other investors and home buyers looking at the same thing. If you learn to rehab, you'll be able to increase your chances for better returns and open up your options.

      Good luck!

      0Reply
    • Dustin Goldstrohm
      Raleigh, NC · Member since 2019 · 8 posts · 6 votes
      6y

      Hi Sarah,

      It is my completely biased opinion that Pittsburgh is the greatest city in the nation! If you do decide to invest in the Pittsburgh area let me know and I would be willing to help wherever possible. Not sure where you are looking but I currently live and own properties just outside the city limits on the North East side and I'd be willing to drive wherever you are looking to invest. I travel a lot for my W2 income so being a full time PM is out of the question but at the least I can help out by video chatting with you for virtual tours, using my 360 camera to build a quick tour, or verifying contractors are actually showing up for work.

      Let me know if there is anything I can do. Good luck with everything.

      Take Care!

      0Reply
    • Alex Olson
      Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
      6y
      Originally posted by @Sarah Szuhay:

      Hello BP community! I've been casually learning about real estate over the last year or two but am ready to take it more seriously and make my first deal. My struggle right now is determining the right strategy for me. If anyone is willing to offer input/advice for my situation, it would be greatly appreciated!

      Here is my situation: I have about $30k in cash to invest and a good credit score. In the coming months I'll be moving from Portland, Oregon to the Bay Area, so investing locally (Bay Area) is out of the question for my budget. I currently own my home in Portland and will be renting it when I move- CF will be slightly negative but I believe the property will appreciate significantly so I want to hold onto it.

      I've decided I want to invest in Pittsburgh- it's my hometown so I know the area, visit regularly, and the numbers look good for both cashflow and appreciation. I have a demanding job so will not be able to put a ton of time/effort into my investment and I will definitely need to hire a PM.

      My ultimate goal is CF...the dream is to generate enough CF to "retire" early. For me, that would be ~$10k/month. So I need to get started :)

      I've narrowed down to four strategies for my first investment:

      1. Buy and hold SFH in B-ish area- I think this would ease me into REI- there would be high likelihood for good tenants and having less doors starting out feels less intimidating. I'm willing to pay for cosmetic rehab as part of my total investment, but not significant reno (seems difficult to manage from across the country).

      2. Buy and hold MFH (2-4 units) in C-ish area- This is appealing because more doors= more CF opportunity, but as mentioned above, starting out in MFH feels intimidating.

      3. Lease option SFH- Lease options are very appealing to me, since once you get the tenant in, they take care of all maintenance. Plus it can really benefit the tenants by giving them a chance to own a home when they might have trouble otherwise. However, I'm not sure how I would find rent-to-own tenants remotely or if there are businesses that offer this service for OOS investors.

      4. Turnkey- Appealing but probably would generate the least CF and the least learning for future deals.

      If you were in my shoes, what would you do? Thanks in advance!

         Investing in your home town is very smart do kudos to you on that! Great job!

        0Reply
      • Justin Elliott
        Investor · Minneapolis, MN · Member since 2016 · 145 posts · 108 votes
        6y

        @Sarah Szuhay

        Hi Sarah

        One thing to think about is how will you get into your second deal, third deal etc. You will need to either raise money or get really good at the BRRR method. That's why I like the B or C class Multifamily so you can add value to create returns that keep the call rolling. Out of state rehabs are challenging so boots on the ground in Pittsburgh will be key. I didn't partner on my first two deals and I regret that. Having partnered up now I can tell you it's great to have help and different perspectives on things. I would start by attending virtual Pittsburgh meet ups. I also think partnering makes you think bigger and you'll try to acquire larger properties that produce more cash flow.

        Good luck!

        PS I’m from Cleveland so I can’t recommend Pittsburgh officially because of their football team but I’m told it’s a lovely town :)

        0Reply
      • Anthony Dadlani
        Investor · New York City, NY · Member since 2013 · 1k+ posts · 269 votes
        6y

        Agree with @Justin Elliott

        BRRR method would be the right long term strategy. Sprinkle in a few fix and flips so you have an income and more capital to build your long term portfolio. You should also network for some capital partners to help you get to a point where you have enough to do your own deals in the future.

        Best of luck in all your endeavors.   

        0Reply
      • Steven Ko
        Sunnyvale, CA · Member since 2018 · 191 posts · 178 votes
        6y

        @Sarah Szuhay rather than define your strategy (which is good), you should define your market. Choosing brrrr in pgh area isn’t niche enough. If you are going to leverage family/friends to help, you don’t want them to have to drive over many Bridges and tunnels just to get to the place every time. I’ve meet a few people here and we all do some variation of brrrr but we all have our own submarket we invest in/near pgh. Pick a neighborhood or township. Once you define your market, you can concentrate your deal searching to that area. And once you find that deal, you’ll be ready to move on it because you’ve studied that area and know with more certainty it will be a base hit.

        I myself recently moved from the SF Bay Area simply because I had no money. You only have 30k. You want to buy and hold “B class” rentals. You want 10k in cash flow. As someone else mentioned, what is your plan for the second place? You’ll probably end up using all 30k + have a mortgages so you can get into that B neighborhood. Will you be working and saving up more? How long will it take you to save up another ~30k for your next house?

        I just went under contract for 2 houses in wilkinsburg for 65k. It’s a “D” neighborhood but imo, I believe it’s moving up a little to borderline C. I just moved here and all I hear are bad things about wilkinsburg. But for me, it checked my boxes, close by (<15 min) and cheap.

        0Reply
      • Sarah Szuhay
        OP
        New to Real Estate · Portland, OR · Member since 2018 · 15 posts · 11 votes
        6y

        Thanks all for the fantastic feedback! It gives me a lot to think about. My biggest takeaway is- how will I fund my 2nd, 3rd, and beyond properties? I need to do some more research on that and make sure I have a plan before I buy my first property.

        I may reach out to some of you directly with follow up questions. Thank you again!!

        1Reply
      • Max FeinbergPro Member
        Real Estate Agent · Pittsburgh, PA · Member since 2017 · 151 posts · 70 votes
        6y

        Hey Sarah! A couple of quick thoughts:

        While I generally agree with you that SFH are less intimidating than starting in multifamily, your goal of cash flow and being in B areas lends itself to duplexes and maybe triplexes instead. The numbers to make SFH homes cash flow in B areas around town are just going to be tough to achieve...the rents may not match up with the costs.

        You could consider BRRR but that is becoming tougher as lending institutions tighten up on accessing equity nowadays. My advice would be to start looking at multi family in C areas where you could move a little quicker and still achieve cash flow.

        I'm happy to chat and answer any questions you may have!

        1Reply
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