How much $ was left over each month from day job when you started

Question

My wife and I want to get into real estate investing.  We also want to start a family.  I was looking at our budget and assuming we have a kid this year after all our bills, expenses, fun, daycare, everything we should be left with around $1,500-$2,500 each month (depending on raises and how quickly I get rid of my $400 student loan payment).  My goal is to start buying less expensive properties, where if they were ever vacant a few months in a row I can float the payment with my salary without having to worry..

I'm curious where I stand vs. other investors when they started out.  What was their monthly cashflow from their job after all expenses and how did that help with breaking into real estate investing.

I feel confident we're in a good place, and once we have a little more money squirreled away and those student loans are gone we should be able to purchase our first rental property.. Eeeek!.. I just want to make sure I'm not being unrealistic or blinded.  Unfortunately I don't yet have a real estate mentor, tho I'm working on that.

Michael Seeker · Answer

@Eric P. - I had significantly less than that available and very little in the way of cash when I first started (I also didn't have a family to worry about so I could be a lot more risky).

What you asked might not really provide you with helpful answers because it's all relative to where you live.  Your $1500-2500 extra cash each month would more than cover the mortgage payment on any one of my multifamily properties in KY, but that might not be the case where you're looking to invest.  Just as a $100K salary means something totally different to somebody in San Francisco as it does to somebody in Memphis, TN.

How much are you looking to spend on your first rental property and are you looking to start with single family or multifamily?

Eric P. · Answer

thanks for the advice!  I'm a pretty risk adverse person overall, but I know it takes some risk to get ahead so it's more about managing/limiting the risk as much as possible for me.  There was mention of reserves, I wouldn't even consider making a purchase without having a minimum of $10,000 extra put aside for when things go wrong and surprises pop up.  In all reality we probably won't be able to jump into this for another year unless I suddenly get a big bonus or something that helps quickly pay off my student loans and build a bigger reserve.  I'm just gathering as much information as possible right now.

Ryan Landis · Answer

@Eric P. Congrats on thinking about buying (but more importantly also congrats on wanting to start a family). It seems like you have a pretty strong understanding of things, but one thing I just quickly wanted to make sure you think about is your reserve account - just factor it in because things come up and from your description it does not sound like these are new construction homes you are thinking about purchasing.

Scott Trench · Answer

Hi @Eric P.

I definitely struggled to find some great mentors myself, however, and I think that my experience could perhaps be of value to you!

In case you are interested - I wrote about my experience finding mentors in this "Ultimate Guide to Finding Incredible Mentors" - I hope that it helps you with your search!

Eric P. · Answer

I'd be looking at a small cheap single family just to get my feet wet and learn the ins and outs.  We're located in South Jersey.  Normally NJ is very expensive, but if you're in a slightly "less desirable" area, not necessarily unsafe, just less desirable, deals can be had for $75k-$125k that need more surface work to look pretty rather than actual "WORK".

For example: Willingboro and Mt. Holly are both nice towns, I'd have no problem driving through them at night (maybe not the "bad parts") my wife and I actually frequently go to dinner in Mt. Holly and walk around a bit on the main street at night.  They have plenty of cute single family homes around $100k that don't really "NEED" work.  And rents seem to be $1000-$1500 (Willingboro actually really interests me, my grandparents lived there for many years, there are plenty of houses priced below $125k and rents all seem to be $1,500-$1,800 which would = a lot of cashflow).

I think this would be a great stepping stone to get my feet wet and its not far from where I live.

I figure a $80k mortgage with taxes will cost around $750 throw in another $200 for the extra surprise.  I should be able to float this place for $950 a month if I ever had to..  But I'm slightly risk adverse so I'd likely have 6 months of bills in a separate account for the home anyway.

Michael Boyer · Answer

welcome Eric, and good for you in being prudent, especially with a young family on the horizon..

As mentioned above, much will depend on your market and personal circumstances, but I think some of the forums, posts, or blogs delving  into reserves would be of great interest.

You may even catch some adopted formulas or commonly used amounts.

I would plan for that scenario when, Murphy's law, two appliances break, you need a new deck, and the place is vacant a month or even two (check your vacancy rate for example)..

Of course, much of your success may depend on your landlording skills (the quality of tenants, the potential damages, costs of turnarounds, your ability to secure good tenants promptly etc). So I would study up the blocking and tackling of landlording (I have a blog post on the classics of landlord lit, just four time tested book that should be free in the library or very low cost used).. Best of luck

How much $ was left over each month from day job when you started

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