Young investor: seeking expert opinion/advice

[Stan T.]

Working abroad with a high-paying job in the oilfield. Stashing significant capital. Looking to invest near Kansas City area. - the catch? - after we close the Great Deal, operation needs to be pretty much 100% hands-off while I'm overseas.

My pockets are willingly deep - meaning I can make a substantial initial payment AND don't require cash flow (for my survival). I'm looking for growth, growth, growth, and investment cash-flow ;)

Just need an action plan:
1st Step: Qualify for financing to see exactly where I stand, and determine the kind of leverage (if any) I would be willing to put into a deal.


What do you think? - thoughts, opinions, advice all appreciated.

[Chris Music]

Stan, if you are looking for a hands-off investment you might want to consider a turnkey operation. They will sell you a move in ready property and handle the management. I am not sure what the cash flow is like in KC but if you aren't planning on doing much in the way of handling daily operations you might want to research which markets have the best returns. Good luck.

[Ali Boone]

I only buy turnkeys as well and Chris is right, it's probably the best way to be hands off unless you want to invest the time into forming your own teams upfront and then letting them handle everything. That can take a while though.

Financing-wise, do you qualify for a US mortgage? That's your cheapest bet. You'll still be looking at 20% down though and I think rates right now are right at about 5%. Not bad at all. I know of some 50% down private financing options if you can't get a mortgage but the terms are a lot more expensive.

Why KC?

[Marco Santarelli]

Hi @Stan T.,

Welcome to BiggerPockets!

The Midwest (including Kansas City and Indianpolis) is a good choice if you're looking for cash-flow. These markets offer low priced properties relative to the rental income (the R/V ratio) generating very good cash-flow and above average rates of return.

We have several oversea investors buying in those markets specifically for the cash-flow and high rates of return.

Of course, with any market, there are great, good, and poor neighborhoods, so due diligence is very important. Don't get stuck looking at a specific property without considering the bigger picture. Take a top-down approach as I mention in my 10 Rules of Successful Real Estate Investing.

Regarding your comment about "growth, growth, growth" -- if you're looking for appreciation potential then you will not find much of it in these markets. They are "flat" markets, unlike the cyclical ("bubble") markets you find in the coastal U.S., or hotter markets in Texas. If you want some of each, then consider a more "balanced" market.

ACTION PLAN: Start by speaking with a good mortgage broker/banker to see what you might qualify for. This will help you refine your investment plan, and you'll know how far your investment capital will go for you. Of course there are a couple of private mortgage lenders, but their rates and terms are poor.

Then you can decide on specific markets, neighborhoods, and properties.

Feel free to post any other questions you have.

Continued success!

[Stan T.]

@Marco Santarelli
@Ali Boone
@Chris Music

KC is my hometown :)

Basically it is the most sensible place for me to get my feet wet. There are some up-and-coming yet classic neighborhoods on the MO side where property is CHEAP and returns are GOOD. My family is there as well, and I will return to visit a few to several times a year.

Any tips on looking for a “good” broker/banker for attaining a mortgage? A good friend’s father is seasoned in RE in Minneapolis, so I’ll pick his brain along with my employer’s credit union. In your experience, do use big banks, local brokers, or just shop around until you find the BEST deal rates. Right now, I’m simply looking to get sized up, and see HOW MUCH I can qualify for, and at WHAT RATES.

ps – Marco, I liked your article, especially “10. Leverage Your Investment Capital.…As long as you have positive cash-flow and your tenants are paying off your mortgage for you, it would be foolish not to borrow as much as possible to buy more income property.” This is profoundly powerful, but I wonder: Suppose you have the Ability to pay-off a property Quickly, would you still rather take-on a much larger and longer-term debt for a few hundred extra dollars per month?..

Thanks for the replies.

[Marco Santarelli]

@Stan T.,

If I correctly understand your question, "would you still rather take-on a much larger and longer-term debt for a few hundred extra dollars per month?"

I would take any extra cash on hand and buy more income-producing property as opposed to paying down the mortgage on your existing property. I would accumulate as much property as possible, especially with interest rates as cheap as they are, with the cash you have, and let your tenant continue to pay off your mortgages.

Continued success!

[Ali Boone]

Makes sense about KC as your pick!

My answer to your p.s. question would be in total agreement with Marco. Use that money to buy more properties rather than pay down your current debt. But that is getting into the famous debate that will never go away- pay all cash or leverage. I for one am a total leverage-as-much-as-possible advocate.

[Chris L.]

Hi Stan,

I recommend that you start by screening and interviewing property management companies. Many would say start looking at houses. My philosophy is there are plenty of houses but not many competent and quality property management companies.

Your property management company is going to be your most important asset in this process.

Good Luck

Chris

[Steven J.]

@Stan T. Its exciting to know what it is your after. I'd set some more specific goals and keep yourself honest to those goals until you achieve them. As for "growth, growth, growth," if you're talking about appreciation I think most investors will say don't let that be your only deciding factor. There is the possibility of properties not increasing in value or even worse.

Although I'm sure @Marco Santarelli is dead on about those flat markets I would advise you to give a look into Fargo, ND and Moorhead, MN. It's not coastal bubble city but its a midwest area that is growing. They are sister cities on the border and because of the oil fields in ND the cities are expanding quite rapidly but they are not only reliant on oil fields either. People can't find contractors because they are so busy doing spec homes. Things are popping up all over. If you'd like more information I'd be glad to discuss it. PM me is you like.

[Stan T.]

Thanks for all the input.

Actually, when I say I'm looking for growth, what I mean is cash-flow and Equity Build-up. Sure, your tenant can pay off your mortgage DEBT. But, given the same Great Deal, with a more aggressively structured loan-scheme (and perhaps a little more down) you can substantially decrease your overall interest-debt, pay-off your property faster, and the difference in your rate of equity build-up is staggering. Isn't that what we're after anyways??

In other news, I've gotten some positive responses from a few lending institutions, and a couple loan applications to fill-out. Also have my sights on a few property management companies that I will continue to network with. Outlook seems promising.

I'll be interested to hear any responses..

[William Robison]

@Stan T.

Welcome to the BP. It appears that you have found a solid start to an investment plan. I agree that Kansas City is a great market to consider, but Im biased.

Leveraging your investment intelligently can be a wise model as long as you have a cash reserve to cover ongoing repair issues.

Given your comments and potential lack of time in the local area, have you given consideration to larger multi-family project? This would help centralize operations and family oversight while you are away from the area. A 1-4 family property is a standard residential mortgage, likely what you have considered. 4+ units requires a commercial loan, but the overall cash outlay could be managable since you are dealing with fewer transactions to build up a stronger cash flow.

I like your idea of keeping cash flow modest and achieving a more rapid paydown of the debt. Working with a good CPA can also guide you to some intelligent investment strategies as well.

Again, welcome.

[Jeff Greenberg]

One of the difficulties with RE is that it is difficult to have it "100% hands-off" Yes you can hirer professional PMs and buy turnkey properties, but they are still not hands free. Now the good part is, there are areas of RE investing that can be hands free and still grow your money. There are several threads that discuss ways to be a passive investor.

https://www.biggerpockets.com/forums/12/topics/99328-whats-the-smartest-way-to-invest-in-real-estate-if-you-do-have-money?page=1

One option is also investing as a passive investor in a syndicated deal. it goes with out saying that you should investigate the sponsor and do you own due diligence on the sponsor and property.

Full disclosure we do sponsor private placement purchases of apartments with equity partners as passive investors.