I know nothing - investing in rentals with cash?
Member since 2024 · 11 posts · 0 votes
I know nothing - investing in rentals with cash?
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Ben McMahonPro Member
Investor · San Diego CA · Member since 2014 · 341 posts · 139 votesMichael,
You have really come to the right place for this. Bigger Pockets has the answer to every question you could ever dream up. I have been investing in real estate since 2009 and I still use it to fill in the gaps of my understanding. There are a lot of ways to do it, and it's worth spending a little time on learning especially since it's a huge investment.
I have 2 thoughts for you since you are starting from scratch.
1) find someone you trust that is currently doing what you want to do and flush it out with them.
2)You should know pretty quick whether real estate is your flavor or it isn't. IF not, don't waste any time and find another road to riches. If it is your flavor, don't waste any time and get after it!!! It's a fun ride.
28 Replies
- Real Estate Agent · Bellevue · Member since 2019 · 80 posts · 71 votes2y
Hi Michael and welcome!
If you're comfortable letting your cash sit in the property then you're just looking for something you can purchase in an area with decently high rents. You'd still get the tax benefits from owning the rental except for the interest payments you'd be making on a loan.
If you want to start with buying a property outright then scale you could look into a HELOC to use the equity you have in the first house to buy the second. The rate on something like this would be a bit higher than a conventional 30 year mortgage but you'd have the benefit of potentially paying it off faster.
Investors using a conventional loan have to put a minimum of 25% down on a property. I'd recommend working with a lender to see what the best balance is for you. You're probably going to want to put a higher amount down on a property that doesn't need work so that the rents cover the entire mortgage payment and then some. You can either keep the extra cash flow piled away for any future expenses or prepay the loan so you jump ahead in your amortization schedule.
Hope that helps and good luck growing your portfolio!
- Real Estate Broker · TX · Member since 2008 · 50 posts · 22 votes2y
Quote from @Michael Cheng:
Hi!
I literally stumbled upon the BiggerPockets YouTube channel today and am interested in learning more. Currently pretty much all my money is invested in the stock market.1. If I'm able to buy a home to rent out with cash, how important is it to find a great deal? If I just bought a home that's reasonably priced, maybe with something like "needs TLC" in the description, could that be profitable as a rental home, with the idea that homes typically appreciate, and I wouldn't have a mortgage? I don't know how to find great deals, and I have a full time job and family that limits the amount of time I have to do rehab.
2. If #1 is a possible thing to try, any suggestions on how a strategy like this would be scalable? I heard something about taking out a loan against the value of a home appraisal and using that to purchase more properties?
Again, COMPLETE newbie here. This is literally day #1 of me even learning about anything related to real estate investing.
Thanks :).
Hey Michael, welcome. This is a great place to learn and get different opinions. There are always going to be different approaches to this. Personally, I recommend you find a few local investors and get friendly with them. Go through their numbers, drive by a few of their properties/rehabs, and start getting a feel for this business. You might love it, but you also might not.
I remember helping people 10 years ago buying investment properties that were upset that 2013 pricing was so much higher than 2012 pricing. Fast forward to now and they look like geniuses and it doesn't matter. That doesn't mean the appreciation will happen again, but I'd be more focused on the right location/property... in combination with your expectations for cash-flow with regards to interest rates, taxes, and insurance. Not to mention, in Houston you'll want to keep an eye on property taxes, MUDs, and prior flooding. - Real Estate Agent · Houston, TX · Member since 2016 · 63 posts · 27 votes2y
Hi Michael, what you're describing is similar to the BRRRR method in which you find a fixer upper deal, buy it with preferably private or hard money, rehab it, rent it out and refinance it. During the refi step, the bank will appraise the newly renovated home based on its new value. If done right, you can get a check during the refi portion! I gave triplex here in Houston that I BRRRR'd. I'd be more than happy to share more details on it with you.
- Member since 2024 · 11 posts · 0 votes2y
Thanks for the info! I’ve already talked to a realtor who I’m learning more from also!
- 2yBen McMahonPro MemberInvestor · San Diego CA · Member since 2014 · 341 posts · 139 votes
Michael,
You have really come to the right place for this. Bigger Pockets has the answer to every question you could ever dream up. I have been investing in real estate since 2009 and I still use it to fill in the gaps of my understanding. There are a lot of ways to do it, and it's worth spending a little time on learning especially since it's a huge investment.
I have 2 thoughts for you since you are starting from scratch.
1) find someone you trust that is currently doing what you want to do and flush it out with them.
2)You should know pretty quick whether real estate is your flavor or it isn't. IF not, don't waste any time and find another road to riches. If it is your flavor, don't waste any time and get after it!!! It's a fun ride.
- 2yHolly BrownBusiness MemberReal Estate Agent · Houston, TX · Member since 2019 · 190 posts · 137 votes
Hi Michael,
First off, welcome! I see you are Houston based. I just sent you a direct message with some information regarding our monthly investor meetups. There are so many different strategies to RE investing and sometimes just getting around a group of people and listening to what they are working on can be a great starting point.
There are so many great resources on this site. Just try to take it slowly and know the initial overwhelm is pretty normal : )
- Member since 2024 · 11 posts · 0 votes2y
Thanks! A realtor called me and answered a bunch of questions, so that really helped.
- Rental Property Investor · Gwinn, MI · Member since 2016 · 174 posts · 103 votes2y
Welcome Michael!
BiggerPockets is definitely a great place to learn from. You've got some great advice from others in this post already, so one thing I'll add is to make sure you are analyzing deals, running the numbers, and just practicing these things so that you start getting comfortable with understanding what does and does not make a good deal. You can start by looking at any property on Zillow, Redfin, Realtor.com, etc. and run the numbers for that property, whether you actually have any interest in it or not. This will help you pounce on the right deal for you when it appears.
Another great resource that I've used so far is the books that Brandon Turner wrote. I've read the Book on Rental Property Investing, No and Low Money Down, and Managing Rental Properties. They're all great at breaking everything into smaller bite size pieces and I go back to them frequently.
- 2yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Quote from @Michael Cheng:
Thanks for the info! I’ve already talked to a realtor who I’m learning more from also!
Lol. be very careful. You can generally trust the info you get on here a lot more... :-)
- 2yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
2 things cross my mind when you mention buying all cash...
1) You become more attractive to lawsuits when lawyers discover you have so much equity
2) You lose any write-offs associated with that payment....do the math on that one...
Just my $0.02
- Member since 2024 · 11 posts · 0 votes2y
Quote from @Bruce Woodruff:
Quote from @Michael Cheng:
Thanks for the info! I’ve already talked to a realtor who I’m learning more from also!
Lol. be very careful. You can generally trust the info you get on here a lot more... :-)
I found the realtor from BiggerPockets, and he seems to have a solid reputation. I’ll be careful though, thanks :).
- Member since 2024 · 11 posts · 0 votes2y
Quote from @Michael Paling:
Welcome Michael!
BiggerPockets is definitely a great place to learn from. You've got some great advice from others in this post already, so one thing I'll add is to make sure you are analyzing deals, running the numbers, and just practicing these things so that you start getting comfortable with understanding what does and does not make a good deal. You can start by looking at any property on Zillow, Redfin, Realtor.com, etc. and run the numbers for that property, whether you actually have any interest in it or not. This will help you pounce on the right deal for you when it appears.
Another great resource that I've used so far is the books that Brandon Turner wrote. I've read the Book on Rental Property Investing, No and Low Money Down, and Managing Rental Properties. They're all great at breaking everything into smaller bite size pieces and I go back to them frequently.
Since I have no experience analyzing properties, I think I’ll let the realtor I talked to give me suggestions that I can then look into more myself. I’m thinking good realtors should be able to find good deals better than I can myself, especially since I’m so new?
- Member since 2024 · 11 posts · 0 votes2y
Quote from @Bruce Woodruff:
2 things cross my mind when you mention buying all cash...
1) You become more attractive to lawsuits when lawyers discover you have so much equity
2) You lose any write-offs associated with that payment....do the math on that one...
Just my $0.02
1) Is that really a thing? Do lawyers look for things like this and look for lawsuits?
2) I’m new so I don’t have any context for understanding the math. If you could explain more, great. If not, no worries :).
- 2yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Quote from @Michael Cheng:
Quote from @Bruce Woodruff:
2 things cross my mind when you mention buying all cash...
1) You become more attractive to lawsuits when lawyers discover you have so much equity
2) You lose any write-offs associated with that payment....do the math on that one...
Just my $0.02
1) Is that really a thing? Do lawyers look for things like this and look for lawsuits?
2) I’m new so I don’t have any context for understanding the math. If you could explain more, great. If not, no worries :).
1) Yes
2) Ask your CPA to analyze a deal for you so you can see how it works. Sometimes people need write-offs, sometimes not so much.
- Member since 2024 · 11 posts · 0 votes2y
Quote from @Bruce Woodruff:
Quote from @Michael Cheng:
Quote from @Bruce Woodruff:
2 things cross my mind when you mention buying all cash...
1) You become more attractive to lawsuits when lawyers discover you have so much equity
2) You lose any write-offs associated with that payment....do the math on that one...
Just my $0.02
1) Is that really a thing? Do lawyers look for things like this and look for lawsuits?
2) I’m new so I don’t have any context for understanding the math. If you could explain more, great. If not, no worries :).
1) Yes
2) Ask your CPA to analyze a deal for you so you can see how it works. Sometimes people need write-offs, sometimes not so much.
Thanks good to know!
- Rental Property Investor · Gwinn, MI · Member since 2016 · 174 posts · 103 votes2yI agree with Bruce about being careful with Realtors. Since you found yours on BP, you’re probably better off than other people, but it’s still not a replacement for you understanding the numbers and learning what does and doesn’t make a good deal. I still suggest practicing analyzing deals that you don’t plan to buy.
Quote from @Michael Cheng:
Quote from @Michael Paling:
Welcome Michael!
BiggerPockets is definitely a great place to learn from. You've got some great advice from others in this post already, so one thing I'll add is to make sure you are analyzing deals, running the numbers, and just practicing these things so that you start getting comfortable with understanding what does and does not make a good deal. You can start by looking at any property on Zillow, Redfin, Realtor.com, etc. and run the numbers for that property, whether you actually have any interest in it or not. This will help you pounce on the right deal for you when it appears.
Another great resource that I've used so far is the books that Brandon Turner wrote. I've read the Book on Rental Property Investing, No and Low Money Down, and Managing Rental Properties. They're all great at breaking everything into smaller bite size pieces and I go back to them frequently.
Since I have no experience analyzing properties, I think I’ll let the realtor I talked to give me suggestions that I can then look into more myself. I’m thinking good realtors should be able to find good deals better than I can myself, especially since I’m so new?
- Member since 2024 · 11 posts · 0 votes2y
Quote from @Michael Paling:
I agree with Bruce about being careful with Realtors. Since you found yours on BP, you’re probably better off than other people, but it’s still not a replacement for you understanding the numbers and learning what does and doesn’t make a good deal. I still suggest practicing analyzing deals that you don’t plan to buy.Quote from @Michael Cheng:
Quote from @Michael Paling:
Welcome Michael!
BiggerPockets is definitely a great place to learn from. You've got some great advice from others in this post already, so one thing I'll add is to make sure you are analyzing deals, running the numbers, and just practicing these things so that you start getting comfortable with understanding what does and does not make a good deal. You can start by looking at any property on Zillow, Redfin, Realtor.com, etc. and run the numbers for that property, whether you actually have any interest in it or not. This will help you pounce on the right deal for you when it appears.
Another great resource that I've used so far is the books that Brandon Turner wrote. I've read the Book on Rental Property Investing, No and Low Money Down, and Managing Rental Properties. They're all great at breaking everything into smaller bite size pieces and I go back to them frequently.
Since I have no experience analyzing properties, I think I’ll let the realtor I talked to give me suggestions that I can then look into more myself. I’m thinking good realtors should be able to find good deals better than I can myself, especially since I’m so new?
Thanks I’ll keep that in mind!
- 2yShiloh LundahlPro MemberRental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
@Michael Cheng First off, good for you in jumping into the forums and creating a post right from the start. That is a great way to start learning.
Secondly, if you don’t know what you are doing in real estate, it is kind of like gambling and your returns will likely be low or you may even lose money.
One of the biggest benefits that the content that BiggerPockets has to offer is it teaches people how to identify good deals or properties where equity can be created in a relatively quick timeframe. Without that know how, you will have to wait years and years for a property to appreciate to gain the same amount of equity that can be created within a few months if you know how to do it.
Now I know that you have a job and a family and your time to learn and execute on real estate may be limited, that’s fine. What I would suggest is for you to invest some time now to get more time in the long run
Attend a real estate meetup group or 2 every month. Meet with other investors at those meetups. Get to know them over time and see the deals they are doing and the returns they are getting. After you have built trust with them, see about partnering up with someone You feel like you can trust and whose personality fits yours. Protect your investment with the proper legal paper work such as deeds of trust, promissory notes, operating agreements or partnership agreements, etc. Also, start out with a small about compared to what you have available. Don’t throw the majority of your cash into your first or second deal. Become involved in a few deals for a year or so, and then try a deal on your own.
Good luck to you. Also, you may want to include what your location is on your profile. It will be more helpful to network with other investors.
- Real Estate Agent · Charlottesville, VA · Member since 2015 · 4 posts · 3 votes2y
@Michael Cheng be sure the Realtor you're working with is investor friendly. Meaning they know investing, how it works, and can guide you through the processes. Not all Realtors know about investing. Look for Investor Agents. Those that know how to work with investors and are investors themselves.
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
the market is pretty unforgiving right now. prices are high, rates are high, demand is high, contractors are booked up. so based on what you posted, which is all i know about you, would i recommend that you buy a random property all in cash, just so you have a rental? no i would not.
what you posted is basically BRRRR, and it's difficult to do if you're busy (also: it's difficult to do if you're NOT busy! It's a tough strategy!)
another thing about BRRRRs right now is that, if they're done correctly, and you get all your cash out, you won't cash flow when it's rented. so it's mostly an EQUITY strategy right now, and not a cash flow strategy. (i'm sure there are markets where there are exceptions but this is what the change in rates has done.)
i'm sorry i don't have better news for you. but feel free to post more about your situation and goals if you want.
so i agree with @Shiloh Lundahl that investing time in relationships might be your best bet at this time.
hope this helps
- 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Michael Cheng:
Hi!
I literally stumbled upon the BiggerPockets YouTube channel today and am interested in learning more. Currently pretty much all my money is invested in the stock market.1. If I'm able to buy a home to rent out with cash, how important is it to find a great deal? If I just bought a home that's reasonably priced, maybe with something like "needs TLC" in the description, could that be profitable as a rental home, with the idea that homes typically appreciate, and I wouldn't have a mortgage? I don't know how to find great deals, and I have a full time job and family that limits the amount of time I have to do rehab.
2. If #1 is a possible thing to try, any suggestions on how a strategy like this would be scalable? I heard something about taking out a loan against the value of a home appraisal and using that to purchase more properties?
Again, COMPLETE newbie here. This is literally day #1 of me even learning about anything related to real estate investing.
Thanks :).
1. Very important to still find a deal; just cause you're paying with cash doesn't mean it should not be a good deal. Would you buy Apple at $300/share if the market is going in the mid 180s/share? You may need to tap in that value later in life, and if so you lose more when you pay more. Now buying reasonably priced is fair, my recommendation if you're equipped with cash is buying great locations at fair prices. Then yes, adding some value. Upgrading the kitchens/bathroom is basic, or even hvac/water heater/floors, or shoot even just re-doing flooring & windows does all the difference. You want to find a fair house in a great location that's discounted due to say old capex items, or dirty carpet, or an outdated kitchen.
2. Eh, this is all risk tolerance. I hesitate to suggest that method and would be a bit more amicable with you being less leveraged on less positions(quantity of houses) in favorable locations(high quality areas). So in your example being in Houston, this would be like rather than being fully paid off with a Garden Oaks investment house, you're putting 60% down on two heights houses + $15-20k of reno in each. In others, they would go buy 6-8 3rd ward or 5th ward houses and say they are "scaling". To me, personally, two heights houses>>>>>>>> 1 paid off garden oaks>>>> seven 3rd ward houses. You just have to view risk tolerance; and in my opinion with todays world and how it's going, quality over quantity, more cash on hand.
3) I'll add a third, as for tax advantages and legal issues arising with fully paid off. Bruce is technically correct. What you do is keep the operations ands assets separate. And in your case, if you go all cash, the lending separate. So a Lending LLC(your LLC) will give a mortgage to your title holding LLC. So it'll always look levered. The Lending LLC can also invest in notes, etc., and truly operate the way it wants to but it's a way to buy cash and not just have an LLC at full risk exposure.
4) And now a 4th, I'd be careful working with agents. To be honest, Houston is full of bozos. They'll take you to that third or fifth ward example. You know Houston, I assume? Get a good lawyer, pay him to monitor your communications and work with listing agents directly so you're not making rookie mistakes(they'll charge a flat fee or like 1-2 hours so nothing egregious). 99% of "investor" friendly agents are not that, they're ****. Houston is like that, too. And then find a quality PM company, and get their guidance on rental market and trends. They will acquire your business so they're happy to help. So a PM company and a lawyer should suffice, the listing agent can do both transactions and it'll increase the likelihood of the deal going through. Always let the listing agent know they're representing you, so they have to act in an appropriate manner also.
But before any of this, think about if you really want to invest in physical real estate. This is physical--not passive, not paper, not anywhere as easy as it seems-- it's truly managing a hard asset.
- Developer · Houston TX · Member since 2018 · 423 posts · 400 votes2y
Welcome to BP. First, don't tell agents or anyone you are looking to buy all cash. The sharks start coming out of hiding. Just because someone is a Real Estate agent doesn't mean they will work have your best interest.
Just like anything new, if you are just getting into RE I would advise you to listen to Podcasts, read some recommended books listed on this site, and search both for sale and for rent to learn what areas of town you want or feel comfortable investing in. Spend the next 1-3 months just educating yourself before signing a Buyer representation agreement and get comfortable speaking the real estate lingo. If you put in the work then you will take it seriously. These agents are helpful until the closing is done and they get paid. You want to build your team and once you have a team then go and buy.
I have paid off properties and I'm not worried about lawyers. I always advise those who have assets to have a good lawyer and a great insurance broker. Insurance policies that cater to your situation will help you and protect your assets.
Best of luck
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