Seeking Advice on my First Step into Real Estate

[Porfirio Ciaccio]

Hi All,

I'm Porfirio Ciaccio, 24 years old, and a recent college grad. Right now, I’m renting a studio on Miami Beach for $1,750 a month, and it hit me—what if I just bought the property I’m renting? At least part of the $2,000 or so I’d be spending would go towards myself. That thought led me down the real estate rabbit hole, and after stumbling on the BiggerPockets podcast, I’ve been hooked on the possibilities in real estate investment. It’s been about two months now, and I really want to get started.

The thing is, I don’t have a lot saved for a down payment ($15k) since I’ve only been working for about a year. Therefore, the only way I can get started now is through a homeowner loan that offers the 5% - 3.5% down payment option.

I like the idea of starting local since I know the Miami Beach area well, and buying a studio like the one I'm renting feels like a safe first step, so I've been looking at similar properties to what I currently rent online and running numbers. The problem is that it seems that it will be very difficult to generate even a neutral cash flow given the high HOA fees, taxes, and insurance in Florida.

With an estimated mortgage payment of $1,100, my total monthly expenses would be around $2,200 (approximately $700 for HOA fees and $400 for taxes and insurance). I also estimate that, after accounting for a 10% vacancy, I could rent the property for about $1,800 per month.

Even with that ($400) cash flow, I still feel like I’d be better off than where I am now, between the experience I’d gain, the equity I’d build, and the appreciation and tax benefits. The timing also seems favorable, with many motivated sellers in Florida.

I've read about strategies like house hacking but am not too enthusiastic about what it would take (also not very feasible given the current cash I have), also the ‘BRRR' method, though I wonder if it might be too ambitious for my first property. Or maybe not?

That’s why I’m reaching out to get your feedback. Given my situation, what would you recommend? Does my plan make sense, or should I consider spending a year saving for a larger down payment and a better property? Go outside Florida market? Ditch the Condos? My ultimate goal is to build a real estate portfolio that provides financial freedom, something I can manage passively on the side until it eventually surpasses my 9-to-5 income.

Thanks everyone!

[Nathan Gesner]

Quote from @Porfirio Ciaccio:

Put down the YouTube and pick up some books. I think you're missing some very basic education on real estate.

Miami Beach is expensive. I just did a search and the cheapest home I found was a 4bed/2bath for $900,000. Your monthly payment would be over $5,000 with taxes and insurance. You could live in one bedroom and rent out the other three for $1,250 a month. It wouldn't cover your mortgage, but you could add in your rent payment and then build equity.

Here's some information to get you started.

1. Start with BiggerPockets Ultimate Beginners Guide (free). It will familiarize you with the basic terminology and benefits. Then you can read a more in-depth book like The Book On Rental Property Investing by Brandon Turner or The Unofficial Guide to Real Estate Investing by Spencer Strauss.

2. Prioritize your financial stability. Eliminate debt, establish a budget, and save. Remember, the notion of amassing wealth without investing is a dangerous myth perpetuated by self-proclaimed experts. A prudent investor doesn't seek quick riches through shortcuts. To thrive in real estate investing, you must maintain a firm grip on your finances. Explore my personal favorites, Set For Life by Scott Trench or The Total Money Makeover by Dave Ramsey, for invaluable financial insights.

3. As you read these books, watch the BiggerPockets podcasts. This will clarify and reinforce what you are reading. You can hear real-world examples of how others have built their investment portfolio and (hopefully) learn to avoid their mistakes.

4. NETWORK!!! Get out of your comfort zone. Stop hanging out with your deadbeat buddies who spend all day drinking, talking sports, and otherwise wasting away. Go to BUILD YOUR TEAM at the top of the screen and look for local investors or meetups in your area. You can also find real estate investing groups through meetup.com, Facebook, or a Google search. Birds of a feather flock together!

5. Now, you need to figure out how to find deals and pay for them. Again, the BiggerPockets store has some books on this topic, or you can learn about it by watching podcasts, reading blogs, and interacting on the forum. A handy search bar in the upper right makes it easy to find previous discussions, blogs, podcasts, and other resources. BiggerPockets also has a calculator to analyze deals, and I highly recommend you start this as soon as possible, even if you are not ready to buy. If you consistently analyze properties, recognizing a good deal will be much easier when it shows up. Find Brandon's videos on YouTube for the "four square" method of analyzing homes and practice. It doesn't take long to learn how to spot a good deal.

6. Study the market. You can learn to do this independently or get a rockstar REALTOR to lead the way. I highly recommend a well-qualified REALTOR who works with investors and knows how to help you best.

7. Jump in! Far too many get stuck in the "paralysis by analysis" stage, thinking they just don't know enough to get started. You could read 100 books and still need to learn more because certain things must be learned through trial and error. You don't need to know everything to get started; you need a foundation to build on, and the rest will come through experience and then refining your education.

You can build a basic understanding of investing in 3-6 months. How long it takes to be financially ready is different for everyone. Once you're ready, create a goal (e.g., "I will buy at least one single-family home, duplex, triplex, or fourplex before the end of 2019") and then do it. Real estate investing is forgiving; the average person can still make money even with some big mistakes.