Advice for a noob investor

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Advice for a noob investor

Cory Manoogian
Member since 2021 · 9 posts · 1 vote

Hey everyone,

I'm looking to buy my first rental investment property in Dallas, TX (and surrounding suburbs) and I am in the process of identifying the property and doing research with lenders. My partner (and gf) is a property manager for a single investor with 100+ houses and I believe she has a pretty good handle on identifying good properties and being able to estimate how much a repair cost would run. I have a cash flow model that I use and am confident in my ability to appropriately forecast future cash flow. I have to rely on my partner for the repair cost estimates and I have included contingency costs in effort to remain conservative. 

I recently bought a house for my primary residence and have learned that my job and credit score are both a non-issue for banks. I have $25k in cash that's just sitting around and am looking to invest it. I understand that I don't have a lot of cash, and as such I am limited to buying properties that are likely under $100k due to the 20% required downpayment that is often required to get a loan.

So now that I've set up the background, here are my questions: Is $25k enough to acquire a good investment property, when considering downpayment and likely repair cost, or do I need to save up more money? In your opinion, if I buy a property, is it likely that I'll be overpaying for the property given the rapidly increasing home values?

I'm interested in receiving your advice. 

Thanks,

Cory

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Bruce Lynn
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
5y

I think the toughest feat for you will be finding the right property for less than $100K in the Dallas area.

Are there any properties you could buy turnkey from your wife's employer.   Would they like to see a younger couple get started on the path to success?   Maybe someone like that could also owner finance a property for you with less down?

If that can't work, can you stay in your current house a year, and then move to a new primary residence so you can finance as owner/occupied?   That can save your cash reserves for reserves and rehab.

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  • Collin Bryston Adams
    Rental Property Investor · Dallas, TX (dallas texas) · Member since 2020 · 83 posts · 54 votes
    5y

    Id stay very focused on making sure when it is all said and done you have at least 20% equity, dont lose focus on that. What you might need to do is find a BRRRR and put forced appreciation into it. If you have HELOC or can do a 2nd mortage on your residence (depending on your situation) and use that to fund the rehab. Or if you have a buddy or family member with a little more cash who is willing to loan you with interest. This IMO is a BRRRR lined up for you to do to see the best results.

    1Reply
  • Bruce Lynn
    Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
    5y

    I think the toughest feat for you will be finding the right property for less than $100K in the Dallas area.

    Are there any properties you could buy turnkey from your wife's employer.   Would they like to see a younger couple get started on the path to success?   Maybe someone like that could also owner finance a property for you with less down?

    If that can't work, can you stay in your current house a year, and then move to a new primary residence so you can finance as owner/occupied?   That can save your cash reserves for reserves and rehab.

    2Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    5y

    @Cory Manoogian consider house hacking. It’s a great place to start imo. Good luck!

    0Reply
  • Jonathan Oh
    Investor · Las Vegas, NV · Member since 2019 · 499 posts · 259 votes
    5y

    According to Zillow, the median home value in the DFW metro is around $270k. So targeting properties under $100k, is going to be pretty tough. And you're probably going to getting into lower grade neighborhoods at that price range. Not sure what your primary residence situation is, but house hacking can be another great alternative. Live in it for a year and move back in or some other property. Hope this helps!

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  • Paul Gomez
    New to Real Estate · Dallas, TX · Member since 2020 · 33 posts · 13 votes
    5y

    To answer your questions, $25k is not enough to but a rental property in this market. I've been looking. You're either going very far outside of the main city or to south Dallas, which won't really get you much rent at least enough to cash flow a good amount. BRRRR as someone mentioned above would be risky, but a better bet because you could use hard money to buy and rehab.

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  • Cory Manoogian
    OP
    Member since 2021 · 9 posts · 1 vote
    5y
    Originally posted by @Bruce Lynn:

    I think the toughest feat for you will be finding the right property for less than $100K in the Dallas area.

    Are there any properties you could buy turnkey from your wife's employer.   Would they like to see a younger couple get started on the path to success?   Maybe someone like that could also owner finance a property for you with less down?

    If that can't work, can you stay in your current house a year, and then move to a new primary residence so you can finance as owner/occupied?   That can save your cash reserves for reserves and rehab.

    Bruce, that is a great idea. I have asked my partner to make contact with her employer to see if I can pay for a turnkey investment. I think they would like to see a younger couple succeed, but the employer is also extremely prideful of his houses and may not want to let any of them go. Worth an ask though!

    I don't quite understand your second advise. I can stay in my current house for a year and would be open to moving to a new primary residence, but could you explain the benefit of that just a little more, please?

    Thanks,

    Cory

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  • Cory Manoogian
    OP
    Member since 2021 · 9 posts · 1 vote
    5y
    Originally posted by @Paul Gomez:

    To answer your questions, $25k is not enough to but a rental property in this market. I've been looking. You're either going very far outside of the main city or to south Dallas, which won't really get you much rent at least enough to cash flow a good amount. BRRRR as someone mentioned above would be risky, but a better bet because you could use hard money to buy and rehab.

    Paul, you're correct, I've been looking primarily in South Dallas. In my CF models, I've found worst case scenarios to be negative and best case scenarios to cash flow around $200-$300. Perhaps better to start somewhere then nowhere? Or would it be better to to save more money, and if so how much money should I save up, what home value range should I be targeting, and where would such a home be located within Dallas?

    Also, why would BRRRR be risky for me?

    Sorry for all the questions.

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  • Cory Manoogian
    OP
    Member since 2021 · 9 posts · 1 vote
    5y

    Thank you all for your advice so far. After reading your comments, I have a few more questions:

    I've been weary of hard money lenders as their interest rates destroy a properties cash flow, at least that's what my CF models illustrate. Any opinions on hard money lenders from you all?

    Second, I have already lived in my house for one year and some of you suggested moving, which I am open to. But I bought a house in an area that is undergoing gentrification and the house value has demanded a mortgage of $2300 for a 3 bed, 2 bath, 2 car garage, 2022 square feet property. The house is in the Royal Chapel Estates. Can I rent my property for that much? This may be a hard question to answer, but thought I'd ask anyways.

    Thanks again for the advice!

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  • Dan BeaulieuPro Member
    Lender · Knoxville, Tennessee (TN) · Member since 2016 · 431 posts · 672 votes
    5y

    I've been weary of hard money lenders as their interest rates destroy a properties cash flow, at least that's what my CF models illustrate. Any opinions on hard money lenders from you all?

    First of all, congrats on having the right Girlfriend. Marry her immediately. Having the right spouse onboard is an amazing partnership that will take you very far in life. 

    Secondly, you'd never run cash flow numbers with hard money. Hard money is only for purchasing great deals quickly, and rehabbing properties to sell or refinance out. Sounds like you are bankable for a conventional loan on the refinance, so why not BRRRR? I think somebody mentioned BRRRR is risky, but to me, risk is having less money in the future than you would otherwise have if you put 20% down and grew very very slowly that way. THAT is the risk. Also, when people say BRRRR is risky, they have probably never done one before. I've personally done 18 of them, never had any issue.

    Pro Tip: Get a property manager with in house turn crews to do the rehab for you (should be a light cosmetic rehab) and then manage it for you and you shouldn't have annoying contractor issues. There are plenty of good PMs doing this. 

    This is going to be the best strategy for you with 25K in reserves. You'll qualify for hard money if you can find a great deal and a good HM lender willing to fund up to 100% of the deal. They Exist. 

    I recommend doing 2 things: 

    1. Read David Greene's book on BRRRR

    2. Keep saving while you do everything possible to find a great deal you can buy for less than 75% of ARV all in. 70% is best though.

    Good Luck!

    1Reply
  • Paul Gomez
    New to Real Estate · Dallas, TX · Member since 2020 · 33 posts · 13 votes
    5y

    @Cory Manoogian

    I'll answer what I can from a newbie perspective as well. These are just my opinions and much more experienced investors can mitigate the risk much better based on practical knowledge.

    1. If your South Dallas numbers don't work, well than that tells you everything you need to know. Not a lot of desire to be in those locations coupled with not the best schools and more crime leads to you should just avoid it unless you know how to work that area.

    2. BRRRR is risky because you've never done it before and you don't have a lot of capital for unexpected costs in rehab, hard money fees, unexpected repairs, etc...

    3. Hard money fees will put you in the red if you don't acquire a house with a good price AND the ARV isn't high with respect to your rehab budget. You'll end up leaving money in the deal and you don't have that much capital to begin with.
    4. If your house has appreciated, perhaps you could put a HELOC but if your down payment was low plus little appreciation, it may not be worth it.

    5. Your mortgage seems high, which I assume because it was your first house so you put a little less down (5-15%?). Again, if your house is appreciated maybe you could pull some money out of it with a refi. Closing cost may end up being a was for the money you're able to pull out BUT if will give you more capital to use on a rental. 

     In general, maybe go to more meetups and talk to people . Only by conversing will you know what your target it. There is no perfect target, everyone's situation is different. So be open minded and soak up all you can. That's the phase I am in.

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  • Cory Manoogian
    OP
    Member since 2021 · 9 posts · 1 vote
    5y

    @Dan Beaulieu, my girlfriend loved your comment, lol. I talked to one a few months back and got turned off to going that route - definitely didn't offer anywhere close to fund 100% of the deal. I'll definitely call more than one HM lender this time.

    Thanks for the tips!

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