Best ways to start out for a beginner real estate investor (24F)?

[Bailey Keefer]

Hi everyone, I am 24F and I have been saving up to start investing in real estate. I live in Central/South Jersey and I have been trying to decide whether it's best to try to start locally or go long distance. My long term goal is to be able to have 50 units by the time I am 40. I see this being more realistic in a cheaper market. I have been thinking places in the midwest (St Louis, Kansas City, Detroit, Cleveland) and Southeast (Atlanta, Orlando) area.

My biggest concern right now is to be able to grow and add cash-flowing properties relatively quickly. I am seeing that the biggest tradeoff on high cash-flowing properties is that they tend to be in "not nice" neighborhoods that can attract bad tenants and have higher maintenance costs. I am also seeing that most homes under 100k tend to be older (1950s - ish).

I have the opportunity to buy/fix up my uncles home to turn that into a rental property. It just sucks that NJ taxes are so high. Buy this home for around $180k, needs around $20k rehab, would then be valued at around $230k, rents for around $2k/mo. I feel like this is a good opportunity and is right in my town, but I am hesitant to get started with property that is that "expensive" instead of being able to buy 2 cheaper SFH (or even duplexes) somewhere else.

So I guess I have a list of questions.

1. 1. Is my mindset of prioritizing cash flow correct, considering my goal of adding units relatively quickly to my portfolio?
2. 2. Is focusing on $50-80k properties just too cheap? Do you think I'll wind up shooting myself in the foot in bad neighborhoods?
3. 3. How old of a home is just too risky? I'm trying to focus on 1980+ to minimize big repairs/issues but most of those homes are at least $150k and don't seem to be cash flowing with a 20% down conventional mortgage.
4. 4. Does any particular market come to mind for this type of criteria? (SFH under $100k, cash flowing at least $200/mo, newer builds 1980+, not in a very bad neighborhood). I understand that there are going to be good deals everywhere, but my biggest thing is trying to have each unit be relatively cheap. This is not really possible in NJ.
5. 5. Based on my criteria in 4, what do you think is able to have the most wiggle room while still moving towards my goal? Does anyone have experience with C- type neighborhoods or focusing on older homes, and can you talk on the risk of this or if it's worth it?

[Shannon Robnett]

First of all your line of thinking (to question everything to find real answers) is awesome and will help you so much in your future.  All you questions are valid and really warrant addressing before you jump into something huge like a RE decision.  I was your age once and am now have twice as many revolutions around the sun as you so I will simply give you my opinion with the hope it helps you make good informed decisions for your life and situation.

First of all in order to get from 24 years old and no units to 39 years old and 50 is a very reasonable goal, but it needs to be quantified properly.  And in order to grow you are going to need appreciation starting out more than cash flow.  And what I mean is that if you are buying cash flow in the not nicer areas, they do not tend to appreciate very well.  A market that is selling today at a Cap 8 will likely stay a Cap 8 for the "not nice" reasons you see currently.  They also tend to not have things like job growth, landlord freindly taxes and a few other things. 

Besides getting a 10% return with little or no upside can really make the path to 50 feel like a marathon.  If you are looking at the math buying a $100k house with 10% down will show a great cash on cash return but in 5 years with 1% appreciation will barely cover sales costs.  How ever a 7 Cap in a 4% annual appreciation market will return far greater returns in the same time period over all.  Plus you will likely feel substantially more financially stable in a market that is growing jobs, reducing taxes and fighting rising crime with your ability to get tenants.

I would say that your idea about staying in the 80's for age is a really good idea as they are less likely to have major issues and can just need cosmetic stuff to put them back in rental order.

That being said out of area stuff is hard to learn on because of the distance.  It will also be harder to be hands on and truly be a part of the learning curve.  So there is a ton of value in starting in your back yard and hooking up with fellow investors in your region that are facing similar trials and tribulation on the investor journey.  and with where interest rates are at sometimes in appreciating markets its hard to get things to cash flow so you will need to find that balance of cash flow and appreciation.