Newbie looking to buy a rental propery

[Suresh Kannan]

Dear BP,

I started reading about REI, and there are so many ways to Invest in Real Estate, I listened to several of the podcasts, and people have succeeded in different ways of Investing, Multi home, Single home, Commercial etc.,

I want to get started and I feel I have to start somewhere and I will never be totally ready, so looking forward to veteran Investors for some advice and help.

I want to Invest in a Single Family Property in a good neighborhood near Sacramento, which I can rent it out to start off. I am willing to partner with seasoned Investor, I have set aside approximately ~40K to Invest. 

Please let me know, looking forward to getting my first Investment home.

Regards,

Suresh

[Wes Blackwell]

Hi @Suresh Kannan! Welcome to Bigger Pockets! You're in the right place!

Fundamentally, there are two types of real estate investing strategies for beginners:

1. Fix and Flip: This is where you find a property that is in need of some work, and you fix it up to sell for a profit.
2. Buy and Hold: This is where you purchase properties that will make you a nice positive cash flow every month, all the while appreciating in value and being paid off by your tenants.

Fix and Flip is a short term strategy that can make you a lot of quick profit, but is also much riskier as so many things can go wrong with the rehab or resell. Incorrectly estimate the after-repair-value of the property even just a little, and it can cost you tens of thousands.

Buy and Hold is a long term strategy that's more about wealth building. 30 years from now you'll have a property paid off by someone else that you can sell at any time, and until you do you get a nice rent check showing up every month to put towards retirement, invest in other properties, or simply just enjoy. Usually the worst thing that can happen is the occasional bad tenant, but there's a lot you can do to decrease the chances of that happening.

It will be tough to find a property for a low enough purchase price that you can rent for high enough to cover the mortgage payment. Most of the time you're going to be negative a few hundred bucks and have to come out of pocket every month just to meet the mortgage obligation. Go vacant for a month or two, and this becomes a serious problem. I would highly suggest you avoid this strategy for now. It may work in other markets, like those out of state, but for now there are much better deals to be had in the Sacramento area.

For example, you could always purchase what's called a "Multifamily" property that has multiple units for tenants to live in and rent from you. These are more commonly called a duplex, triplex, or fourplex. The benefit of this strategy is that you can have multiple renters in the property, and usually see enough monthly rent to cover the mortgage payment and even pocket a couple hundred dollars in cash every month. Overall, a much better investment opportunity that a single family residential home.

I'm currently working with several other clients who are pursuing the same investing strategy as you, and I've analyzed the current multifamily market here in the area enough to tell you there are cash-flow positive deals to be had whether you put 5% down and live in one of the units or put 20% down and rent it out completely.

For now, the best things to do would be:

1. Educate Yourself: Right here on Bigger Pockets is a great place to start. The creators of the site have created a extremely thorough and detailed guide on how to utilize a buy-and-hold strategy. You can buy it here on the site and it's easily worth 10-20x the price.
2. Build Your Team: As a real estate investor, you'll need to connect with local professionals who can help you achieve your goals. A mortgage lender can help you find the right loan product, a CPA can help you take the right deductions, and a real estate agent can help you find the right property. Network here on the forums at a local real estate investment groups and in no time you'll find the right people to help you reach your goals.
3. Learn the Local Market: Most important you'll need to work with a real estate agent who understands your goals and can provide you with expert analysis on the local market. You'll need to know what kind of properties are available for purchase, what kind of rents you can charge for those properties, and what neighborhoods are best for your long term goals. An experienced agent who's worked with other investors before and spends all day in the market analyzing properties will help you shortcut your path to success and find you the right property to purchase once you're ready to pull the trigger.

I know it's a lot to handle, and you may feel a little overwhelmed a some points, but just take it one day at a time and don't feel like you have to purchase any time soon. Don't rush this decision, as it could cost you thousands. 

Read the forums here, and ask any questions you have, and before you know it you'll feel confident and ready to buy your first investment property! Best of luck!