Is Transitioning Markets Feasible?

Question

I am looking to get some input on this topic as I have not seen much on it. So first off, I am a newbie but have been learning, reading and listening to podcasts for about a year now. I am currently in the process of escaping the 9-5 rat race and am looking for that sweet taste of "financial freedom" so many of you wonderful people get to experience. Coming from a modest Latino family, my family has never experienced anything but the 9-5 work life, but for me, I want to take charge of my life. I played D-I baseball and fortunately my school was paid for, I don't really have any debt, I have a solid job and have some reserves to invest in a smaller deal. I obviously want to house hack in my current market, but also may move back to my old home state in 4-6 years, as that is probably my long term home. I am currently residing in Asheville, NC and my home town is Minneapolis, Minnesota. I am torn between making some decisions on my goals, as I want to make my first investment before the end of this year but do you all believe I can start out in a market for a few years, get some working capital from this market and then eventually, with some knowledge and skill move into the next? Open to suggestions, tips and some realistic feedback! (First post, nervous to hit the send button!)

Eddie

Account Closed · Answer

@Eddie D Estrada, first of all, good for you for learning a new mindset and taking on goals fairly young that will dramatically impact your financial future. I definitely think you can get started in the market you're currently living in, Asheville (I'm actually trying to get some things going in that area too from my home state of CA), and then also take what you have built and learned to the place you'll move in a few years. Especially if you're talking about being in your current area for 4-6 years, then presumably you'll need somewhere to live. If that's the case, why not house hack a first investment. If you live in it for at least 2 of the next 5 years, then you're in a position where you could sell it avoiding capital gains or keep it as a rental, having already built systems in that area. Then, you can take your learning and re-formulate your strategy for Minnesota. During the next few years, you can also start laying groundwork for where you'll end up. Research different neighborhoods, start making connections, etc. At some point, you could fully shift your focus to investing in Minneapolis. You'd have a different learning curve to consider investing OOS, but it sounds like you may already have connections and some knowledge there.

Account Closed · Answer

Eddie, I am by no means an experienced investor. I got re-interested in real estate maybe two years ago, found BP about that time, and started digging in to learning and getting the nerve up to think I could actually invest. I gravitated to the idea of investing OOS early on since my area is pretty expensive. After coming close in a few areas, I bought a duplex in Grand Rapids in May 2019. It is performing well. I took a step back to figure out what the next, more strategic phase of investing will look like for me. Although I'm not a seasoned veteran, I stand by my thoughts above: There is no reason for you to put your REI journey on hold for years until you move back to MN.

As for me and Asheville area: My plans are still evolving. I originally was looking because I became intrigued by owning an STR in that area that my wife and I could potentially use every once and awhile. I have not abandoned that idea, but I have been making some neat connections which have me also considering attempting a flip.

I get your situation. it sounds like you're figuring out what your limitations are and how to work around those, possibly with a partner on a house hack.

Jake DiSabatino · Answer

Eddie,

You're definitely on the right track. I started in a similar position in Asheville 6 years ago.

I rented a very modest house for my first year with a roommate and then purchased a house hack (same roommate) in year 2 once I had the financial track record to qualify and enough for closing plus some reno budget. While house hacking, I performed a live-in value add by renovating the basement into an apartment. That finished square footage increased my home's value by around $150k and I was being paid to live there (~$400/month). I have done that process twice in 6 years and, had I been more focused, I could have done it 3 times. This was a VERY powerful strategy for me to get off the ground and I would encourage you to pursue something similar if you're up for the work. It sounds like you could probably pull off that strategy twice before you leave the Asheville market (1 yr renting, 2 yrs house hack #1, 2 yrs house hack #2).

I would also encourage you to look good and hard at the terms of any partnership where they are financing the deal for you. It may be great, but unfortunately there are lots of people who might set you up for failure. They might "help" you buy a house you can't actually afford or take all of the up-side potential for themselves. Trust but verify!

Final thought... Don't get started investing in anything until you have a strong financial foundation in place (emergency fund, automated savings, money tracking, good credit, etc.). Today's economic environment is no place to be over-leveraged and a painful setback at the start of your career could set you back a very long time.

Never forget that it's a marathon, not a sprint.

Jake

Jake DiSabatino · Answer

@Eddie D Estrada

Yes. I started with 5% down on a single family house and converted the basement into an apartment. I took a line of credit against my new equity so that I could access some of that cash at a low interest rate while also keeping my monthly payment down. I still hold that house and it cash flows around $1300/month.There is no need to start (or end) with a duplex though. It's still a house hack if you rent rooms or just split rent with a close friend. There are a million ways to make money house hacking including adding rooms, renovating spaces, or adding sq. ft. You should listen to the most recent BP podcast where they host @Todd Baldwin. That dude is CRUSHING the house hack model.

My point is that you need to have your own house in order before trying to get into investing. If you don't have any emergency savings it makes no sense to be investing. You should read Set for Life by @Scott Trench. If you have followed that process and you have your ducks in a row, then get started! If you don't have those things in order, jumping in too early on a shoe-string budget is very risky even with a partner.

Eddie D Estrada · Answer

Account Closed

Appreciate the feedback, sir! I appreciate the kind words. What are you looking to get into in this area? The reason I am in this area for that time frame, to be more specific, is because my girlfriend moved here for pharmacy school and she is in her second year. So we have some time that we will be here, but we are both from Minnesota where our family is located so that is why we want to move back. It is good to hear feedback from an experienced investor that it is fine to lay ground work in an area for a certain time frame because I did not want to wait years to start my real estate journey, but I also did not want to put myself in an unfavorable position. I believe my only problem purchasing a house hack is my current situation, I just graduated so I have only had a job income for a year and most of the lenders I have contacted have been put off by wanting that two year job period under my belt. So I have developed a relationship with a potential partner where they finance the deal and I house hack a duplex arrangement. For me, I am just trying to get the best possible situation for me to start out without selling myself short of any opportunity.  Thank you again!

Account Closed · Answer

@Nick Paquet, just sent you a message. Thanks for reaching out.

Eddie D Estrada · Answer

@Sean Poulos

Thank you! Fortunately I believe networking will be my strong suit as I am not really afraid of going out and meeting new people, as I am new to the area so I kind of have to anyways! Thank you for the advice about taking care of the legal side, as I believe that is something I will focus on when the time approaches and hopefully that process is something I can learn from as well. I would welcome connecting anytime. Let me know if there is anything I can do to help you in your research here! Eddie

Sean Poulos · Answer

Hello Eddie,

Welcome to the forums and taking those first steps on asking for advice. Getting involved in real estate can be daunting! I think the scariest part about it yet the most important, is networking and meeting new people. Now to comment on your inquiry, I would agree with Chad that house hacking is a great idea starting out. Since you may have found a partner, that's great news. Make sure all your legal documents are in order, and if it doesn't work out keep trying to find lenders that will work with you. Eventually you'll find someone. I myself will be looking to invest in Asheville. I'll be moving there next Spring, but plan to research the area and run some numbers. Good luck in your search, keep us posted and if you'd like to connect let me know.

Eddie D Estrada · Answer

Account Closed

Gotcha well having your first one under your belt is still a huge win in anyone's book! I am motivated to get a little more working capital to ensure I can get a deal but not putting myself into a hole just because of the situation I am in. I appreciate the insight about not having to wait, as your model of REI is something I am looking into given you are doing out of stuff deals. I think for the time being since I am in Asheville I will be focusing on this market, but like you said not shying away from getting a jump start on Minneapolis's market either. Let me know if there is ever anything I can do for you given I am in the area! Thank you, Chad!

Eddie D Estrada · Answer

@Jake DiSabatino

That is great. I would love to connect with you in the near future to possibly hear in more detail about your strategy and story, as it sounds like your route will be the route I will be taking! Thank you for the advice and have taken it into heavy consideration into my thoughts about moving forward!

Is Transitioning Markets Feasible?

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