New Investor, but i live in a hot market. Where do I begin?

Question

Hi all, I'm a new investor trying to buy my first rental property. I live in Long Island, New York. I make 6 figures, my DTI < 10%, I have excellent credit, I've been pre-approved for a 650k loan, and have a nice chunk of change sitting in the bank. I've looked at a dozen homes and have been outbid on everything (4 offers total). The median price for a home is 525-550k, according to Realtor.com that is a 17% increase in the last year alone. Anyone have any advice for a new investor who lives in such an expensive market?

I've looked at lower end homes that are in 200k-300k price range, but they were horrible. They had asbestos shingles, propane gas for washer/dryer/stove, oil for heat with 50-year-old burner. With lumber costs as high as I've ever seen them, renovations on these seemed it would be 50% of the entire cost of the property itself.

As a New Yorker, reading stories of other BiggerPockets Investors buying houses for 100k to 150k and collecting 1200-1500 rents seems too good to be true. I'm hoping I can connect with fellow investors that can shed some light on how to invest in a hot market like NY or long-distance investing.

Thanks

As a New Yorker, reading stories of other BiggerPockets Investors buying houses for 100k to 150k and collecting 1200-1500 rents seems too good to be true. I'm hoping I can connect with fellow investors that can shed some light on how to invest in a hot market like NY or long-distance investing.

Thanks

Drew Sygit · Answer

Metro Detroit offers many options for meeting the 1% Rule and relatively high ROI.

The two most common mistakes we see investors make, over & over again, are:

1) Not understanding and running their own ROI numbers

2) Not having a clear understanding of the type of asset a property is

In our opinion, your best team member should be your Property Management Company (PMC). They have to deal with any property you buy every month until you sell or terminate them. Everyone else on your team will be transaction-based and not really involved after a purchase.

We're in the Metro Detroit area, so you may want to follow our blog here on BP, but at least read the following posts:

Follow our "Deep Dive" series we're doing about Metro Detroit cities and City of Detroit Neighborhoods: https://www.biggerpockets.com/...

How to “Screen a PMC Better than a Tenant”: https://www.biggerpockets.com/member-blogs/3094/91877-how-to-screen-a-pmc-better-than-a-tenant-part-1-services-and-processes

In our experience you will need to:

1) Learn to "Maintain to the Neighborhood", not your personal standards

2) Tenant-Proof everything you can

• Hard surface      flooring, not carpeting (too easy to trash)
• Same basic      paint for everything
• No garbage      disposals for them to break
• Only      spring-type doorstops also with plate on the wall
• Glue rubber      mats under sinks to prevent water damage
• Sheet      aluminum on walls around stovetops, for easy grease removal
• Towel racks      - screw 1x3 to wall studs, then screw rack to that
• Install      low-profile downspout ext, not aluminum that always disappear
• Plan on      cleaning gutters and leaves up in the fall as tenants won't
• Avoid garage      door openers

3) Have a great application screening process:

• Check credit      for evictions & convictions, utility collections
• Focus on      employment/income stability
• Require bank      or debit card statement - you'll be surprised what they spend their money      on!
• Make      surprise visit to their current home to see how they treat it - that's how      they'll treat yours!
• Deliberately      have a few challenges in your screening process - it will weed out      "entitlement mentality" problems

4) Allow payment plans, but create system to track when payments due, so they don't keep falling further behind

• You will      need to call them on due dates or they will fall further behind
• Be prepared      to give a strong NO when asked if you will change rent due dates to      "make it easier" for tenants to pay rent based upon their SSI or      paycheck dates. This shows total lack of budgeting and is a sign they will      only fall further behind with more excuses.

5) Have a defined eviction process, but allow 3-5 days of flexibility for inevitable slow-pays.

6) Find handymen that live in an area only 1 Class higher than your property. Sending a Class A handyman to a Class C or D property will waste your money. Send Class B to C and Class C to D. They will also get along better with the tenants.

Sean Toomey · Answer

Hello @Chrisovalantis Boutsikos

I feel your pain living on Long Island.  Even when you do find something here you have to sink a lot of your cash into a hold, while dealing with high taxes and laws that ultimately favor the tenant.  Out of state investing is a great way to put your cash to work.  State like PA and CT have some great multifamily options, that can be purchased for half the price of a NY property.

Feel free to reach out.  I would be happy to help out in any way I can.

Jonathan Dempsey · Answer

@Chrisovalantis Boutsikos

Philadelphia and the Poconos are both great options from NY.   Not too far, yet affordable.

There are plenty of great books on how to invest from a distance (and this distance is modest).

Ray Danishyar · Answer

@Chrisovalantis Boutsikos Hey Chris, Ray here from Long Island as well. I am an investor and work with wholesalers, the nice thing about your situation is you can take so many different routes. I don’t know if I would tie up my money in a rental with the housing market being this high and inflation around the corner. You might get non payers. Flipping might be better but the trick getting the property for below market value. Anyways, let me know if you got any other questions!

Stephen Brown · Answer

Hey Chrisovalantis. If you want to buy quality properties you don't have to pay that much for them. Look at the suburbs in midwest neighborhoods. Good schools keep high quality tenants in these areas and you can purchase a home for $120k that rents at $1350.

Danny Smith · Answer

Hi Chris (no offense but going to assume you go by Chris),

First of all, as much of an inevitable nightmare competing for SFRs can be right now, be thankful that the lower end homes you have been looking at are 2-300k instead of 6-800k like they are in Socal. It could be more expensive, lol.

With that said, there is always opportunities to buy great deals in real estate. I am sure you are familiar with this option, many of my CA buyers have had success doing variations of house hacks as of late. Even if you were to simply buy a duplex instead of SFR, you would be able to qualify for much more (due to the rental income) and these duplexes are often less competitive. Even if you were to do a "failed" house hack, where you rent out the other unit(s) and come out of pocket say $1000 per month, that is still much better than coming in with your current $3000-$3500 SFR payment. Even if you were losing money, you would be saving huge on your housing payment, while building equity and owning a much larger, appreciating asset with little down.

Again, I am guessing you are familiar with this option, but just wanted to share what has been working for my buyers here in a tough market. Good luck man!

Joanna Oswald · Answer

@Chrisovalantis Boutsikos check out niagara falls ny.  As a real estate agent in my home town i can confidently say you'd be shocked at the properties you can get. Even if you dont use me as an agent give me a ring and i can tell you more about it.

Jason Lehn · Answer

@Chrisovalantis Boutsikos yeah I had the same situation on Long Island. Just bought a house in West Islip and will be house hacking. Got out bid a lot and almost gave up. I want to expand to CT or PA like others have mentioned

Frank Procopio · Answer

@Chrisovalantis Boutsikos start looking in the Upstate NY markets.

New Investor, but i live in a hot market. Where do I begin?

Most Popular Reply