What order should I go in putting together my first deal?

Question

Total newb here, looking for some feedback from seasoned investors. I'm looking to invest remotely in sfrs or small multi-family properties. I've been reading everything I can get my hands on about buying my first property, and I've settled on several steps I need to complete to pull it off. These include: find and analyze markets, analyze neighborhoods, analyze deals for cash flow, work with at least one real estate agent to find deals, get financing (I have enough for a down payment, planning on getting a mortgage for the rest), get a property manager, maybe find a contractor or handy person. So my question is: what order should I be aiming to do these steps in? For example, should I be interviewing property managers before I even purchase a property? Or should I just apply for financing, find a deal, then figure the rest out after? I know that this won't matter too much after I have an established team, but for now, I'll need to get everything in order in a relatively quick time period. Any advice welcome.

Michael Haas · Answer

@Emily C. how much are you paying in rent here in Seattle? If you live in Seattle you'll be paying for it either way, in either rent payments or mortgage payments, so I wouldn't write of House-hacking or the cost of our market so quickly!

In our experience, the biggest benefit to house-hacking is lower loan costs and lower down payments - for the same $40,000 down payment, you can buy a $600,000 house in Seattle (5% down) or a $145,000 house in the Midwest (25% down, pretty much a requirement when buying non-owner occupied properties). Your loan for the investment property in the Midwest will also be about 0.5% higher interest rate, as there is a rate discount associated with owner-occupied properties.

Here on BP we don't like "appreciation investors" but to be successful you need to target both cashflow and appreciation. The cashflow will fund your next deal and your lifestyle, the appreciation will push you to the next level, open up great financing options (like cash-out refi's and HELOCs), and ultimately make you "wealthy" not just "rich".

Since you're in Seattle too I'm happy to chat more or grab a coffee anytime, good luck on the journey!

Joseph Gisler · Answer

Hi Emily!

I am a newbie too but have a good suggestion that has helped me begin to analyze deals. I created an Excel spreadsheet and began analyzing each zip code of my city for neighborhood, age of house, condition, square footage, rooms, baths, exterior building materials, slab vs. crawl space, garage, basement, etc. and then compared it to asking price, selling price, and time on the market.

I have been doing so for about 7 months and have analyzed over 260 homes in my area that have been sold. I have started determining what sells a house in the area but more importantly what I want in a home. When I started this journey, I wanted a fixer upper that I was going to live in but over the course of doing this, I have learned a lot about my area but also that I don't want a fixer upper, even though I am super handy. I want something move in ready that can begin cash flowing immediately, I also have started noticing small opportunities other may miss like additional entrances, rooms that can be converted into additional bedrooms.

This excel sheet has been a tremendous help these past 7 months and I think could be very valuable to you, you won't learn it all, I still have a lot of questions that won't be answered by this sheet but it has by far been the most valuable thing I have done towards my goal of buying my first house this year.

I hope this helps!!

Nicholas L. · Answer

@Emily C.  I agree with @Brian Gerlach - it's not so much about automatically finding off market deals, it's about the local connections and local knowledge.  David Greene says that it's perfectly possible to invest "remotely" on the same terms as it is locally.  Is that true?  Sure.  But I still think it's better for a beginner to start locally.

You asked if you should apply for financing - yes, absolutely, especially if you've never applied for a loan before.  Applying for financing is free (except that you'll likely have a hard inquiry on your credit report.)  Do you own a primary or are you renting?

You can also find an agent and start looking at properties.  Also free.

Alex Olson · Answer

I recommend buying something that has tenants in it and is near turn key. Maybe something that needs $5k per unit in upgrades but has everything else going for it. Also, still to a great established area of town. You won't make as much money but will learn a ton and...you will still have someone else pay your mortgage and it will appreciate. Hope that helps.

Dave Skow · Answer

@Emily C.    get formally preapproved ... without a solid acceptable financing plan - the rest isn't possible

Emily C. · Answer

Thanks for the tip @Alex Olson, I'll take a look at KC. Unfortunately for me, most of my circle live on the two coasts, so I don't have an in to more affordable markets (yet). I do have a close connection to a realtor here in Seattle who has sent me a couple options, but nothing that I like the odds on. My perspective on investing remotely is that I will probably not do it optimally the first time, but I will gradually learn what I need to know from the practice to get better. I'm willing to take a calculated risk to get the educational value of "learn by doing" for the type of investing I want to focus on even though starting locally would probably be safer training wheels.

Alex Olson · Answer

@Emily C. Do you have friends or close family in any midwestern market? Do or have you traveled to a midwestern city? I would start there. A place like KC cash flows well but deals are hard to fine. Pick a multifamily property on zillow in KC, run the numbers based on zillow rent comps and taxes that the property shows it costs. Once you have done that a few times and you think you are closer reach out to myself and I can point you in the right direction if you would like. Hope that helps!

Brian G. · Answer

@Emily C. the main benefit of buying local is it’s usually the market that you know the best and local knowledge is key to success. You likely have some local connections of people you already trust (or they know people). There’s also the logistics factor, it’s easier to check on things locally, you can self manage to begin and learn more, etc. I personally invest OOS so I’m not against it entirely but house hacking is a much safer option if you can pull it off locally.

Emily C. · Answer

@Nicholas L. @Brian Gerlach The market I live in (Seattle metro) is quite pricey and I believe it would be hard cash flow here. Even the surrounding area is pretty expensive, which is why I'm looking at remote opportunities. Is the benefit of investing nearby mostly being able to drive by and find listings that aren't online?

Brian G. · Answer

@Emily C. why not start by *house hacking* in your local market? Some have likened that strategy to investing with training wheels, ie it’s extremely low risk and a great place to begin. Some have even built portfolios with this one strategy.

What order should I go in putting together my first deal?

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