Starting out in Houston, TX - advice?

Question

Hi all,

I live in Houston. My wife and I just bought our first house (small midtown townhouse) for ourselves (closing in late January), and I'm planning on buying some rental properties later this year. We have a good chunk of change saved (~250K after down payment on our first house) and we make a bit over $200K combined from our day jobs.

I'm thinking that a multi-plex in third ward may be the way to go for our first rental, maybe with 10% down. I've seen a couple of tri-plexes at $200-$250K where the three units combined would rent out for $2500 - $3000, especially in the U of H area. I've run the numbers a bit on building a multiplex new, and it doesn't seem to work out very well. Other than that, not sure how to start. Advice? Thanks.

Nathan Gesner · Answer

James, your question is pretty generic so I'm not sure where you're at regarding market analysis or what constitutes cash flow. Let me give you my generic advise and see if there's anything of value for you:

1. Start with BiggerPockets Ultimate Beginners Guide (free). It will familiarize you with the basic terminology and benefits. Then you can read a more in-depth book like The Book On Rental Property Investing by @Brandon Turneror The Unofficial Guide to Real Estate Investing by Spencer Strauss.

2. Get your finances in order. Get rid of debt, build a budget, and save. The idea that you can build wealth without putting any money into it is a recipe for disaster and the sales pitch of gurus trying to steal your money. A wise investor will not try to get rich quick with shortcuts. If you can't keep control your finances, you are highly unlikely to succeed in real estate investing. Check out my personal favorite, Set For Life by @Scott Trench , or The Total Money Makeover by Dave Ramsey.

3. As you read these books, watch the biggerpockets podcasts. This will help clarify and reinforce what you are reading. You can hear real-world examples of how others have built their investment portfolio and (hopefully) learn to avoid their mistakes.

4. Now you need to figure out how to find deals and pay for them. Again, the BiggerPockets store has some books for this or you can learn by watching podcasts, reading blogs, and interacting on the forum. There is a handy search bar in the upper right that makes it easy to find previous discussions, blogs, podcasts, and other resources. Biggerpockets also has a calculator you can use to analyze deals and I highly recommend you start this as soon as possible, even if you are not ready to buy. If you consistently analyze properties, it will be much easier to recognize a good deal when it shows up.

5. Jump in! Far too many get stuck in the "paralysis by analysis" stage, thinking they just don't know enough to get started. The truth is, you could read 100 books and still not know enough because certain things need to be learned through trial-and-error. You don't need to know everything to get started; you just need a foundation to build on and the rest will come through experience and then refining your education.

You can build a basic understanding of investing in 3-6 months. How long it takes to be financially ready is different for everyone. Once you're ready, create a goal (e.g. "I will buy at least one single-family home, duplex, triplex, or fourplex before the end of 2019") and then do it. Real estate investing is a pretty forgiving world and the average person can still make money even with some pretty big mistakes.

Wale Lawal · Answer

@James Farrior Congratulations and I will celebrate with you once you close on your primary residence.

You are definitely on the right track. You have done what several "wannabe" investors don't do.

Yes, the small multi-family (duplex, triplex, fourplex) space is quite competitive right now due to low inventory and low-interest rates.

I currently have a fourplex for my investor client under contract in the Fifth Ward and the number looks great.

The U of H area is experiencing a lot of growth and investors have realized this, hence the competition.

Let's connect and see how I can help.

Goodluck.