Newbie/Finding deals in today's market

Buying & Selling Real Estate
4yFollow

Newbie/Finding deals in today's market

Rich Ruggiero
Member since 2022 · 3 posts · 1 vote

Hello,

I'm new to the investment property game. I'm just so sick and tired of sitting in my home office every day, staring at my computer screen, sitting on Zoom calls, and so I've been listening to more and more BiggerPockets podcasts on REI and other inspirational videos on financial freedom. My wife and I do very well financially, but for me, my paycheck is just not worth the stress and depression I feel sitting in that office every day. She is, and will always be, the bread winner so we're in a good spot where I can take a chance on doing something different, whether it's REI or buying an existing business.

So I've been doing hours of research every day for the past couple months on REI. I look at homes it seems like all day long on the MLS. I feel like I know as much as I possibly can without having any real world experience and I'm ready to dive in.

The problem is, I have no idea how anybody can find any deals. I look at all these multifamily buildings and MHP's all across the country.  And when I'm trying to calculate potential cash flow, the debt service accounts for about 80-90% of the gross operating income, and that's BEFORE a 50% expense ratio. It makes no sense to me. (I'm accounting for a 25% down payment). I also see so many properties bought in the last year for like half of what it is being listed for today.

Even where listings have been on market for 100+ days, the price comes down a little, MAYBE, and still it makes no sense to me how anybody makes money, unless you're paying cash for these properties. I was getting very excited about the idea of getting into REI, with my wife and I having solid W2 income to protect ourselves at the beginning of this journey, and having a large chunk of equity on our primary residence to use towards a down payment or two. It's become very discouraging after all the learning and research I've done.

Is this what people are noticing in today's market? How is anybody new to the game finding any deals? Should I look to get into STR's?

Thanks

Rich

1Reply
9 views

Most Popular Reply

Matthew Irish-JonesBusiness Member
Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
4y
Quote from @Rich Ruggiero:

Hello,

I'm new to the investment property game. I'm just so sick and tired of sitting in my home office every day, staring at my computer screen, sitting on Zoom calls, and so I've been listening to more and more BiggerPockets podcasts on REI and other inspirational videos on financial freedom. My wife and I do very well financially, but for me, my paycheck is just not worth the stress and depression I feel sitting in that office every day. She is, and will always be, the bread winner so we're in a good spot where I can take a chance on doing something different, whether it's REI or buying an existing business.

So I've been doing hours of research every day for the past couple months on REI. I look at homes it seems like all day long on the MLS. I feel like I know as much as I possibly can without having any real world experience and I'm ready to dive in.

The problem is, I have no idea how anybody can find any deals. I look at all these multifamily buildings and MHP's all across the country.  And when I'm trying to calculate potential cash flow, the debt service accounts for about 80-90% of the gross operating income, and that's BEFORE a 50% expense ratio. It makes no sense to me. (I'm accounting for a 25% down payment). I also see so many properties bought in the last year for like half of what it is being listed for today.

Even where listings have been on market for 100+ days, the price comes down a little, MAYBE, and still it makes no sense to me how anybody makes money, unless you're paying cash for these properties. I was getting very excited about the idea of getting into REI, with my wife and I having solid W2 income to protect ourselves at the beginning of this journey, and having a large chunk of equity on our primary residence to use towards a down payment or two. It's become very discouraging after all the learning and research I've done.

Is this what people are noticing in today's market? How is anybody new to the game finding any deals? Should I look to get into STR's?

Thanks

Rich


 Define what a deal is and what you mean by making money.  People look at RE all the time as an escape.  Its not an escape, its investing, and a lot of hard work if you want to build business systems around the investing and be able to scale.

Real Estate is not an answer to you being unhappy at work, just like stocks are not an answer to you being unhappy at work.  Most new investors explain to me how they are going to replace their 100K salary with RE investing and they are going to retire on the beach.  When I explain to them they can expect as a general rule of thumb 6% cash on cash returns they become even more discouraged.  

For simple math divide replacing your 100K salary by 6% you need over 1.5 million of cash invested to live off of Real Estate.  You also need to keep your W-2 income to be able to continue to invest.  The deals are out there and can be found, but they are not going to make you less board at work.   I was in the same position as you over 10 years ago and decided to go full time into Real Estate.  I am running a property management company that focuses on investors.  We sell investment properties, manage rentals, and do renovations.  I get off market deals and own over 50 doors, I still cannot live off of my rental properties and still work full time running the company.

Very few investors that I know live off of passive income, that is the cold hard truth.  Find a job that is engaging and use Real Estate to build long term wealth, not to find happiness. 

That is my two cents. 

Irish Jones Realty4.947 Reviews
View Page
10Reply
See this reply in the discussion

14 Replies

Jump to latestLatest
  • Kimothy Bynum
    Real Estate Agent · Detroit · Member since 2020 · 127 posts · 63 votes
    4y

    It all depends on the market. I'm here in the Detroit area and the numbers are really good. I mean your first one may not be the best deal but at least you got started. I wouldn't sit around waiting for a deal to come up. You might wait forever just pull the trigger make sure it cash flow 100 to 200 per door and I would be good with it.

    2Reply
  • Alicia MarksPro Member
    Fort Worth, TX · Member since 2020 · 1k+ posts · 2k+ votes
    4y

    Don't look for the deal of a century, get a deal that gets you started. It's about the momentum. I know that it's hard to find things that cashflow well between rates and higher prices, but it's a long game.

    [email protected]Podcast Guest on Show #204
    4Reply
  • Michael Dumler
    Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
    4y

    @Rich Ruggiero, if you're analyzing deals "all across the country", you're wasting your time, as a newer investor this is never advised. I would first suggest researching and looking for opportunities in your local market. Start connecting with other investors in your area and decipher what is working for them. If you happen to be in a market where the price-to-rent ratio doesn't make sense at all, such as folks who live in NY and California, then I suggest reading David Greene's book on Long-Distance Real Estate Investing. That book at the very least will give you a foundation on out-of-state investing. Furthermore, your last question is somewhat on track and what you need to be focusing on. With current market conditions, investors are forced to get creative in their strategies. If you're still running the numbers on a deal as a traditional rental then more likely than not you're going to see negative cash flow as you've experienced. Here are some investment strategies to think about and look into that may be more suitable dependent on location: house-hack, STRs (whether this is Airbnb, vacation rentals, traveling nurses, etc.), rent by the room, traditional LTRs in "up and coming areas", BRRRR deals (usually need to be sourced off-market), turnkey companies, etc. I agree with others, your first deal does not need to be a home run, you just need to get on base. Hope this helps!

    5Reply
  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    4y

    I have noticed those properties selling 100% higher then a year or two ago they tend to be in cheaper historically depressed markets. Avoid those. Look at class A/B of major cities and you will not see those sudden spikes as much and the properties with higher rents will work a lot better from out of state. For example in Chicago a 3 unit for $450k that rents for $4000 often works much better then a $140k building in Indiana that rents for $1400 after you factor in cap/ex, etc. Also focus more on 4 units, these tend to cashflow after all the maint/capex, etc. 

    One big thing I have seen newbies do wrong is use a % for cap/ex as thats how the BP calculator does it. This is incorrect. Instead estimate a cost per unit for cap/ex and use that. For example a $500k 3 flat that rents $4500 can use $300 for cap/ex/maintaince and on a $200k 3 flat that rents $2500 also use $300 for cap/ex/maintainance that is the correct way. 

    1Reply
  • Joseph BeilkeBusiness Member
    Real Estate Agent · Palm Coast, FL · Member since 2018 · 363 posts · 243 votes
    4y

    @Rich Ruggiero

    I am working with two investors currently that are basically in the same boat. Higher earners that have come to the realization that staring at a computer is not where they want to be forever or they see getting fazed out in the coming years and want to take the todays earnings and make it work for them in the future. One is looking STR's and the other is moving on duplexes. I'm going to send you a DM and if you want to hear more give me a call.

    240-676-4927
    Enkore Real Estate & Property Management4.836 Reviews
    WebsiteView Page
    1Reply
  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    4y

    If you're looking at multifamily on loopnet in major markets across the US then you're going to have a hard time finding anything that cash flows, especially with interest rates being higher than they've been in years.

    The best way to find a cash flowing multifamily deal is to find something where you can add value. Adding value to a multi family deal is as simple as either

    1. Increasing the rent

     or

    2. Decreasing the expenses

    The issue is that there are thousands of other investors just like you who are looking for the same thing. Just realize now that the hardest part in this business is finding the deal. Once you do find a deal, everything else is like following a recipe. Stay patient, pick a submarket, start networking. A deal will come.

    0Reply
  • Matthew Irish-JonesBusiness Member
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    4y
    Quote from @Rich Ruggiero:

    Hello,

    I'm new to the investment property game. I'm just so sick and tired of sitting in my home office every day, staring at my computer screen, sitting on Zoom calls, and so I've been listening to more and more BiggerPockets podcasts on REI and other inspirational videos on financial freedom. My wife and I do very well financially, but for me, my paycheck is just not worth the stress and depression I feel sitting in that office every day. She is, and will always be, the bread winner so we're in a good spot where I can take a chance on doing something different, whether it's REI or buying an existing business.

    So I've been doing hours of research every day for the past couple months on REI. I look at homes it seems like all day long on the MLS. I feel like I know as much as I possibly can without having any real world experience and I'm ready to dive in.

    The problem is, I have no idea how anybody can find any deals. I look at all these multifamily buildings and MHP's all across the country.  And when I'm trying to calculate potential cash flow, the debt service accounts for about 80-90% of the gross operating income, and that's BEFORE a 50% expense ratio. It makes no sense to me. (I'm accounting for a 25% down payment). I also see so many properties bought in the last year for like half of what it is being listed for today.

    Even where listings have been on market for 100+ days, the price comes down a little, MAYBE, and still it makes no sense to me how anybody makes money, unless you're paying cash for these properties. I was getting very excited about the idea of getting into REI, with my wife and I having solid W2 income to protect ourselves at the beginning of this journey, and having a large chunk of equity on our primary residence to use towards a down payment or two. It's become very discouraging after all the learning and research I've done.

    Is this what people are noticing in today's market? How is anybody new to the game finding any deals? Should I look to get into STR's?

    Thanks

    Rich


     Define what a deal is and what you mean by making money.  People look at RE all the time as an escape.  Its not an escape, its investing, and a lot of hard work if you want to build business systems around the investing and be able to scale.

    Real Estate is not an answer to you being unhappy at work, just like stocks are not an answer to you being unhappy at work.  Most new investors explain to me how they are going to replace their 100K salary with RE investing and they are going to retire on the beach.  When I explain to them they can expect as a general rule of thumb 6% cash on cash returns they become even more discouraged.  

    For simple math divide replacing your 100K salary by 6% you need over 1.5 million of cash invested to live off of Real Estate.  You also need to keep your W-2 income to be able to continue to invest.  The deals are out there and can be found, but they are not going to make you less board at work.   I was in the same position as you over 10 years ago and decided to go full time into Real Estate.  I am running a property management company that focuses on investors.  We sell investment properties, manage rentals, and do renovations.  I get off market deals and own over 50 doors, I still cannot live off of my rental properties and still work full time running the company.

    Very few investors that I know live off of passive income, that is the cold hard truth.  Find a job that is engaging and use Real Estate to build long term wealth, not to find happiness. 

    That is my two cents. 

    Irish Jones Realty4.947 Reviews
    View Page
    10Reply
  • Travis Oneill
    Member since 2020 · 26 posts · 6 votes
    4y

    @Matthew Irish-Jones wow I also thought I would be able to replace my job with some Rentals but looks like it would be harder than I thought. Great insight thanks.

    0Reply
  • Yazan Alhalalmeh
    Member since 2021 · 4 posts · 6 votes
    4y
    Quote from @Matthew Irish-Jones:
    Quote from @Rich Ruggiero:

    Hello,

    I'm new to the investment property game. I'm just so sick and tired of sitting in my home office every day, staring at my computer screen, sitting on Zoom calls, and so I've been listening to more and more BiggerPockets podcasts on REI and other inspirational videos on financial freedom. My wife and I do very well financially, but for me, my paycheck is just not worth the stress and depression I feel sitting in that office every day. She is, and will always be, the bread winner so we're in a good spot where I can take a chance on doing something different, whether it's REI or buying an existing business.

    So I've been doing hours of research every day for the past couple months on REI. I look at homes it seems like all day long on the MLS. I feel like I know as much as I possibly can without having any real world experience and I'm ready to dive in.

    The problem is, I have no idea how anybody can find any deals. I look at all these multifamily buildings and MHP's all across the country.  And when I'm trying to calculate potential cash flow, the debt service accounts for about 80-90% of the gross operating income, and that's BEFORE a 50% expense ratio. It makes no sense to me. (I'm accounting for a 25% down payment). I also see so many properties bought in the last year for like half of what it is being listed for today.

    Even where listings have been on market for 100+ days, the price comes down a little, MAYBE, and still it makes no sense to me how anybody makes money, unless you're paying cash for these properties. I was getting very excited about the idea of getting into REI, with my wife and I having solid W2 income to protect ourselves at the beginning of this journey, and having a large chunk of equity on our primary residence to use towards a down payment or two. It's become very discouraging after all the learning and research I've done.

    Is this what people are noticing in today's market? How is anybody new to the game finding any deals? Should I look to get into STR's?

    Thanks

    Rich


     Define what a deal is and what you mean by making money.  People look at RE all the time as an escape.  Its not an escape, its investing, and a lot of hard work if you want to build business systems around the investing and be able to scale.

    Real Estate is not an answer to you being unhappy at work, just like stocks are not an answer to you being unhappy at work.  Most new investors explain to me how they are going to replace their 100K salary with RE investing and they are going to retire on the beach.  When I explain to them they can expect as a general rule of thumb 6% cash on cash returns they become even more discouraged.  

    For simple math divide replacing your 100K salary by 6% you need over 1.5 million of cash invested to live off of Real Estate.  You also need to keep your W-2 income to be able to continue to invest.  The deals are out there and can be found, but they are not going to make you less board at work.   I was in the same position as you over 10 years ago and decided to go full time into Real Estate.  I am running a property management company that focuses on investors.  We sell investment properties, manage rentals, and do renovations.  I get off market deals and own over 50 doors, I still cannot live off of my rental properties and still work full time running the company.

    Very few investors that I know live off of passive income, that is the cold hard truth.  Find a job that is engaging and use Real Estate to build long term wealth, not to find happiness. 

    That is my two cents. 

    Great perspective Matthew. Thanks for sharing
    1Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    4y

    @Rich Ruggierowhere are you located?

    @Matthew Irish-Jones 100 votes for your post.  Spot on and what more people need to hear.

    0Reply
  • Matthew Irish-JonesBusiness Member
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    4y
    Quote from @Travis Oneill:

    @Matthew Irish-Jones wow I also thought I would be able to replace my job with some Rentals but looks like it would be harder than I thought. Great insight thanks.


     If it was easy to sit on the beach and collect passive income every member on BP would be there with you.  Its hard to make money in this world.  Its even harder to accumulate enough assets that make money for you while you don't work. 

    Acquiring enough knowledge to be able to acquire enough assets that produce enough income for you to get your time back... take's a lot of time, effort and hard work.   And you will make some mistakes along the way that will cost you time and money.

    Better off to get you mindset right first.

    Irish Jones Realty4.947 Reviews
    View Page
    0Reply
  • Randall Weatherall
    Real Estate Agent · Memphis, TN · Member since 2019 · 261 posts · 253 votes
    4y

    Invest locally and remember that standing still won't win you the race.  I can name a LOT of people I spoke with that held out for a homerun pre-covid and here they are now still waiting when they could have doubled their portfolio's value if they'd just done the damn thing lol

    1Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    4y
    Quote from @Rich Ruggiero:

    Hello,

    I'm new to the investment property game. I'm just so sick and tired of sitting in my home office every day, staring at my computer screen, sitting on Zoom calls, and so I've been listening to more and more BiggerPockets podcasts on REI and other inspirational videos on financial freedom. My wife and I do very well financially, but for me, my paycheck is just not worth the stress and depression I feel sitting in that office every day. She is, and will always be, the bread winner so we're in a good spot where I can take a chance on doing something different, whether it's REI or buying an existing business.

    So I've been doing hours of research every day for the past couple months on REI. I look at homes it seems like all day long on the MLS. I feel like I know as much as I possibly can without having any real world experience and I'm ready to dive in.

    The problem is, I have no idea how anybody can find any deals. I look at all these multifamily buildings and MHP's all across the country.  And when I'm trying to calculate potential cash flow, the debt service accounts for about 80-90% of the gross operating income, and that's BEFORE a 50% expense ratio. It makes no sense to me. (I'm accounting for a 25% down payment). I also see so many properties bought in the last year for like half of what it is being listed for today.

    Even where listings have been on market for 100+ days, the price comes down a little, MAYBE, and still it makes no sense to me how anybody makes money, unless you're paying cash for these properties. I was getting very excited about the idea of getting into REI, with my wife and I having solid W2 income to protect ourselves at the beginning of this journey, and having a large chunk of equity on our primary residence to use towards a down payment or two. It's become very discouraging after all the learning and research I've done.

    Is this what people are noticing in today's market? How is anybody new to the game finding any deals? Should I look to get into STR's?

    Thanks

    Rich

     Prices are up yes, but so are rents.

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    4y

    @Rich Ruggiero I don't know what markets you're looking in, or what asset class your focused on, but you're debt service should not be that big of a percentage of your gross income. You'll never be able to make money with that. In the more affordable Midwest markets that we operate in, debt service is about 50-55% of gross income. Keep in mind that when you invest in an economically healthy market where you can raise rents regularly, that percentage will go down over the years when you use fixed rate financing. 

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free