Advice for new investors - where to start and what to start with?

Question

Hi everyone!

I am new to this forum and my husband and I are a younger couple interested in building our real estate portfolio. We live in the Bay Area where prices are notoriously expensive. The question that I have is what is the best approach for getting started. My understanding has always been that the best properties are cash flow positive but I don't believe it is possible to be cash flow positive where we live. Given that fact, what is the best way to proceed? Any advice would be greatly appreciated!

Arlen Chou · Answer

@Sheeva R. what many people do not realize is that real estate investing is actually a business.  As such you really should start by creating a business plan.  A business plan will force you answer the questions of why, how much, how long, etc.  It does not have to be a 20 page power point but at least an outline for yourself.

Don't make the mistake that most people make and start looking for a market before you actually have a plan.  I am sure there are many, if not the majority of people here  on BP started without sitting down and formulating a plan.  In any other industry that would be sacrilegious, but for some reason in REI people think it is ok to just dive in.

As a business owner and somebody who has started several small companies in different states and countries, I highly recommend looking at what you are about to do with a larger business mindset.  Don't start a hobby... start a business.

In terms of an actual market, I have said it multiple times over multiple years, you will be very hard pressed to find a more economically diverse market in the US.  There is finance, bio-tech, software, hardware manufacturing, shipping, higher education, artificial intelligence, just to name a few of the industries that are based here.  Couple that crazy job growth and stability, with a real estate market that is artificially restricted through tough caps on building and NIMBYism equals a formula for a real estate market that, over a long buy and hold horizon,  "goes up and to the right."

Jennifer Slaughter · Answer

@Sheeva R. I want my investments to be in an area with a diverse job economy, population growth, jobs not based on tourism but in public and private sector, strong renting population and a reasonable point of purchase compared to what my tenant will be paying in rent.  A good place to start is by purchasing a property evaluator app and start analyzing available properties to develop criteria.  Get comfortable with the numbers. Read some of the books available on investing and start talking to people in the markets you are interested in.

I am far away from my best performing investments, as long as you have a great team you get get anything done remotely.

Jason Ong · Answer

I was in your situation last year. While I don't know what's your goal, here are some things that I did that helped me in my journey.

- Set up BP keyword alert for "bay area". Great way to learn from the bay area veterans.

- Go to as many RE meetups as possible. Every knowledge acquired is like an onion peel.

After awhile, you'll quickly arrive at a conclusion that'll work for your situation. All the best!

Ali Boone · Answer

Hi Sheeva. I live down in LA, and so same price/returns problems down here as in the Bay Area. I've always invested out-of-state and used turnkeys to do so. I'm happy to chat more if you want to message me anytime. But as far as finding markets, my favorite place to start is by talking to people who are already doing it...saves a lot of leg work! Once you start hearing about options of where you can invest, you can start learning more about the individual markets and what they offer and such.

Jennifer Slaughter · Answer

@Erik Peddle has a point, it is important to zero in on an area where your goals are feasible.  As far as what you should do, well you could do anything.  Figuring out what your "why" is is helpful when defining goals.  Why do you want to invest? How would you spend your time if you were financially independent? Questions like that will give your goals some purpose.  Once you identify your goals I think it is important to pick a strategy, build some traction and become an expert.

Ron Flatt · Answer

I have a different view point than many on here, but I live in an area that I can get positive cash flow.  I try to buy within a 35 mile radius, sometimes I venture as far as 50 miles.  That gives me to the edge of the DFW area and Waco TX markets also.

Your why is important, but if you cannot see your property, I would suggest continue your education by reading books, going through the Bigger Pocket Podcast, (I have been investing 20 years and I still learn.)  While doing that I would visit with people on Bigger Pockets and others.  See what they know etc.

My best friend, had another friend he told about me.  We talked over the next year and when I found a deal that I was short on, I gave him a call.  We made an agreement on the phone.  I made the offer to purchase the property, he came to town and we had a partnership agreement drawn up, with responsibilities and a termination date.  He wired the money to the title company at closing for the down payment, I signed all documents, including loan documents.  We put a little lipstick on the pig, rented it out for 1 year and put it back on the market.  He earned a good return and made some money, it was basically my time to find the deal and manage it.  It was a WIN WIN situation.

Do not do this with just anyone, you have to develop a relationship, you need references and you need to use an attorney to develop a good partnership agreement, and most importantly you need an exit strategy.  Example:  Between Bill and I, we had in the contract that I would cash him out at the end of two years if it was not sold, for all of his investment plus 12% annual return, (He was happy that he got almost twice that.)  The exit is important, you both may agree to amend and extend but the exit needs to be in place.  Hope that helps.

Erik Peddle · Answer

Pick a city where you can afford to do this.  Turn key remote options are also out there.  What are your REI goals?

Erik Peddle · Answer

@Sheeva R. Its not a silly question, just one that usually gets answered during the time you study and research REI.  What books have you read on these topics?  Which podcasts?  Who are you connecting with in person who is already in the business?  Knowledge brings clarity but like @Jennifer S. mentioned- your "Why" will inspire you to define these goals.  So why are you doing REI?

Sheeva R. · Answer

While this may seem like a silly question, but how does one exactly find the best city? How important is it to be close by ones investments? I think the key for us is finding cash flow positive rentals.

Advice for new investors - where to start and what to start with?

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