Am I Wrong To Hold Out For The Right First Property?

Question

Hey everyone,

First off, I'm a newbie to BiggerPockets after just finishing Brandon Turner's Investment Property book so thank you for taking the time to check out my first post!

My question is - I live in the Nashville area (moved here 3 months ago for work) and I'm loving the area so I want to get a 2-4 unit property and house hack/live in one of the units. Options are very limited here in Nashville for 3+ unit properties from what I've seen on MLS (I've already got a realtor) the last 45 days or so. There are a lot of duplexes but those won't allow me to be cash flow positive (I'll be doing FHA for the first property). So, here's the big question....

Do I

Option 1 - go with a duplex in a good part of town and let the tenant pay most of the mortgage so I can live super cheap and use the extra income to save up for the next property in a year. These are available fairly often so it would be easy to get into one now.

Option 2 - look 45-60min out of town to find 3-4 unit properties that may not rent as easily due to the location but would be cash flow positive

Option 3 - wait and just keep looking in Nashville? I'm renting a house now and my lease isn't up until Dec so I have time. The clause to get out of my lease is a month's rent plus ad fees and 30 days' notice so no problem there. This comes down to, how important is getting started vs finding the elusive "perfect first property"?

Steve Morris · Answer

Wow, sounds like a girl looking for a marriage partner :)

I'd say pick the BEST (NOT PERFECT) fit that gives you the best cash-cash return to get started.

You're never going to find a perfect deal, but you want the odds for success in your favor.  Use it as a learning vehicle.

Michael Dobbins · Answer

Thank you for your reply, Katrina! That is great advice and I appreciate your input. This year is definitely the year I get my first rental investment property!

Luka Milicevic · Answer

@Michael Dobbins

If it was me....I'd do option 1.

BTW, what you said in option 2 that things might not rent as well...that's downright wrong. Davidson county just had a 34% property tax hike. That means rental investors are charging more to offset costs. Guess where there wasn't a 34% hike? Every surrounding county....and guess where everyone is now moving to in order to not pay stupid high rent....YEP surrounding areas.

FHA loans are also going to make buying a bit tough. You are getting multiple offers on properties on day one. Supply is painfully low right now. You and your agent need to come up with ways to make your offers more appealing to offset the fact that you are doing FHA.

In my opinion, I wouldn't wait to buy. If I was you I would make sure to be putting in at least one offer a day maybe two. Be consistent.

This is just the opinion of one person though.

Katrina Razavi · Answer

Welcome @Michael Dobbins! Agree w/ others' comments, the one piece of advice I'll add is that sometimes it's better to just get started even if it's not "perfect" to start building momentum. Otherwise you may end up waiting for an unnecessarily long time. For me, buying our current home was sort of like that. We looked for months, then realized the perfect property doesn't exist. We finally picked one and went for it and got over the fear of purchasing (and learned many lessons along the way) that we wouldn't have learned if we just kept renting.

Sit down and run the #'s to determine how much money you can "afford" to lose and use that as a baseline to help guide your options. I'm not sure what your financial goals are, but I'd pick #1 b/c a) it cash flows when you leave b) desirable location where both property values and rents will likely appreciate faster. Good luck!

Corey Meyer · Answer

Greetings Michael,

My advice to you is yes.  It takes a lot of resources to do the first deal; you have to save money, build credit, look good to lenders, etc.  If you loose patience and by a "bad deal" for your first one, there is a chance you may not be able to re-coop your loses and your real estate endeavors may be set back a good deal.

Many investors on here can take a larger risk on deals because of their volume, if a couple of their deals don't pencil, it isn't as important because they have enough "good deals" to float their ship.

You need to be sure your first deal floats and doesn't sink.  Don't fear risk but be certain with your numbers and your gut on that first property.

Corey

Russell Brazil · Answer

Adjust expectations for what is realistic in your market or you will never get started.

Michael Dobbins · Answer

Ken - thank you for your reply! I think I’m leaning toward Option 1, I just need to do it and peel the bandaid off.

Luke - I appreciate the tough love. I didn’t even think that FHA wouldn’t be as attractive of an offer. I also heard about the 34% tax increase, which will be good for surrounding areas like you said. Thank you again for your reply. Option 1 is the way to go.

Ken Naim · Answer

@Michael Dobbins i would recommend option one, get your foot in the door, save money on your housing, and build equity. Get experience being a landlord and live closer to work in a better area. When you are ready you can do the 4 unit farther away.

A good plan/deal today is better than the perfect plan/deal tomorrow.

Michael Dobbins · Answer

Haha yeah it does sound kind of like that.

That's good advice, thank you!

Michael Dobbins · Answer

Corey -- Thank you for your reply. I appreciate your wisdom. I’ve luckily got a good job that will allow me to not have cash flow positive on my first property and be absolutely fine OR should I shoot for cash flow positive only? Tell me more about what you consider a “good deal”.

Jill -- Thank you for your reply. I’ve been leaning duplex since they’re more plentiful but I wasn’t sure if it’s worth it to wait. I work from home which is nice so I can live anywhere essentially but I was thinking for my first to make it in a good part of town I actually want to live in PLUS it’ll be an area that won’t be vacant often and values will continue to rise.

To understand what you’re saying, if I moved out, I need to make sure it’s cash flow positive with BOTH units rented? Yes, that makes total sense. With me in one of them, obviously it won’t be cash flow positive but I can leave for super cheap and save and save for a 20% on the next property or refinance after 12 months and roll into another FHA.

Theresa — thank you for your reply. Haha I appreciate the unicorn reference. It does seem like a long-shot to find a cash flow positive duplex for my first property.

Charles — thank you for your reply. That does make sense that there are a lot of commuters to the city. I’m okay living 45mins or so from town, but if I’m leaving the comfort of the city, I want to make sure it’s cash flow positive. Thank you for the investor meeting info, I’ll look into that!

Am I Wrong To Hold Out For The Right First Property?

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