Seeking advice and recommendations to buy first investment RE

[Stan Constant]

Howdy,

I have zero experience as real estate investor, but I want to learn!

I stumbled on BiggerPockets Podcast while I was watching some other RE informational videos. The show is very well put together, so informative and captivating. I got hooked! I started watching the show about 2 weeks ago, and I have already watched over 30 episodes. Great show!

I live in New England region with my wife and 2 children. My wife and I are passionate about our professional career and not looking to quitting anytime soon. Not too long ago, we heard from a friend about a young doctor, about 34 years old, who died in a hit and run while he was out jogging. That's a terrible thing to happen to anyone! He left behind three children and a wife. That heartbroken story had me thinking: what if that was me? If I were gone and my salary is no longer part of the equation, how screwed would my family be? How badly would it impact them? That's when we both started to think of other ways to better plan for the future. That story has become our key motivation to change and improve on the way we've been doing things.

Below is our current financial situation:

Our residential home: Back in 2017 we bought a foreclosure single family house, which is located in a high-end neighborhood for $312K and currently its worth $550K. I found the house through some MLS; though, our realtor did not want us to buy the house, my gut instinct told to go for it. We ended up paying the house within years—rookie's mistake!—because the mindset was let's finish paying it so that we don't have any debt and can save. The property is almost doubled in value.

Stock market: Back in summer of 2020, we invested in the stock market in index fund through a Van Guard investment advisor. Everything is now tanking for various reason, which I am sure you are more aware than I am. That investment was meant for long term, which means the current decline of the stock market is not of any concern at the moment. However, taking that money out to invest in real estate, we'd be at a loss.

Cryptocurrency: In Fall of 2016, I started mining and trading cryptocurrencies. I am aware of the volatility of cryptocurrency, but I've never invested anything in crypto that I wasn’t comfortable to lose, although not happy, but so far, no loss. So far, my mistake has been not pulling money out when the crypto is high to invest elsewhere and expand to diversify our investment. I've already seen the opportunities we've missed out on by letting our crypto gain just sitting there. It's somewhat maddening and depressing when you think about it. Lesson learned for sure!

Saving: We currently have $30K in saving and with our incoming income, we can have around $50K saving by end of this year.

Within the next year, we are hoping to move closer to family thus buying another house. Based on what we have done so far, we are good in saving but not so great with taking money out and reinvesting. We are hoping to figure out what should be our next steps, so below are my questions:

Options for investment:

1. Sell our current single-family home and buy investment property and a single family for ourselves

2. Rent our current single-family home and take out equity from his current house to invest in multifamily homes.

3. Stay in our current house a little longer and use our saved money to purchase investment property

4. Take out money from other investment to purchase investment property

5. Would you recommend we buy multiple multi-family properties or single one with 20+ units?

6. Both crypto and stock have taken a massive hit, should we suck it up and pull some out to invest as well?

7. The market is cooling off right now, is it best to keep on saving to increase our buying power for when things start going on "sale"?

8. New England, as a region, is our area of focus for real estate investment would it be best to start in our home state first and then expand to other state, or grab good opportunity regardless which states it is located in?

Thanks in advance for your advice and recommendations!

Best,

Stan C.

[Scott Trench]

@Stan Constant great questions, welcome to BP, and glad you are excited about REI! Thanks for sharing so much detail - that allows us to be as helpful as possible.

A couple of thoughts: 

1) You are killing it. Paid off home? Money in the bank? Saving $20K every six months? Congrats. It's a matter of when, not if, you will become wealthy. 

2) I'd bias towards selling the primary house when you move. The tax code allows us to exclude hundreds of thousands of dollars in capital gains on a primary residence every few years. This is a huge advantage that evaporates a few years after you move out. In all but extraordinary circumstances, this is a great option. It will give you a clean slate to think about designing your future portfolio. 

3) Prior to making that decision, think about where you want to be in 3, 5, or 7 years. What does the perfect portfolio look like? Suppose it is a $1M portfolio. Where do you want that wealth? Do you want $1M in stocks in your 401(k) or Roth? (clearly not per your post, but it's important to frame things). Do you want a $50K in cash and $950K in paid off properties, with no worries and a modest, but reliable stream of passive income? Do you want $950K in equity and $3M in debt financing against a $4M portfolio? There are long-term wealth opportunities associated with that portfolio, but that portfolio likely won't give you time freedom until many years go by. 

4) Then, back into that future state portfolio. What are the effective moves you can make today to make that future state a reality. Know that you will have the $50K by the end of the year, plus several hundred thousand more in your home that you can use to make big moves to start designing that portfolio. 

5) You can't time the market, but you are wise to be wary of it. Investors who made money by levering up and buying, buying, buying over the last 10 years will face reality at some point. The next 10 years won't be like the last 10. Doesn't mean we shouldn't invest in real estate. Doesn't mean you can't lever up and buy a few properties, but you should acknowedge downside scenarios, and make rational calls that move you incrementally towards your perfect end state portfolio. 

6) The single most effective tactical move you can make to accelerate wealth creation is going to be "House-Hacking" or a "Live-in-Flip". These strategies provide you with access to great debt finance, unparralleled control and access to your investment, training wheels for rehab and management, and will teach your kids how to build wealth. I'd consider them as attractive first options. 

7) Your local market is likely the best market. While you can invest out of state, I believe that most investors not in San Francisco, New York, and Los Angeles are likely to do well in their local markets (and even those markets can be good if you have the means to invest in them and a strong thesis). 

8) I don't like crypto - I don't see how it can produce cash flow, and how it is anything other than currency speculation. Others disagree strongly. Your call. 

9) I'm not touching my stock investments. They are long-term, and this kind of market volatility is what I signed up for. Just the way I plan to handle my real estate investments.

10) You state that you are worried about your family if you were to pass away. This is what life insurance is for. Consider a term life insurance policy - these are cheap, and can can be decreased over time as you move toward financial freedom, and eliminated altogether afterwards (you don't need life insurance when you have passive income that comfortably exceeds your family's standard of living, because the passive income provides for them).  

Hope this helps, and welcome to BP!