I have $55k to invest, Newbie needs help!

[Alex Hogle]

I’m selling my home in Texas and will be making roughly $55-60k. I want to begin investing down here in Tampa/ St. Pete and don’t know where to start. Should I begin flipping houses to build capital? I’m afraid to start too small end up with no real return. I’ve met and heard a lot about new western in my area. Some good, a lot bad. I’m interested in networking with some locals here in Tampa and st Pete! Give me some pointers and tips would be much appreciated! Thank you

[Jeremy Z.]

@Alex Hogle I would say flipping is pretty much a full time job. It takes time managing contractors, especially when you are learning. You could hire a general to manage the rehab, but that is an additional cost that can make it harder to find deals that work.

If you don't intend to work full time at it, I would consider buying a cosmetic fixer and holding. As for buying and holding, it's all a numbers game. Determine what kind of financing you can get (how much down?, what rate?, etc) as that will all impact your numbers. Factor in ALL your monthly operating costs - PITI, maintenance, CapEx, vacancy, utilities (if the renter won't be paying), property management (if you won't be managing yourself), etc. CapEx is probably the trickiest one - how old is the roof, furnace, AC, water heater, and other big ticket items. Get out your spreadsheets! Those are the details most newbie investors overlook. Account for them, as they can be the difference between cash-flowing $200 month and losing $200 month. After you factor all the costs, if there is money left over you might have something worth pursuing.

Search the forums here for the 1% rule and the 50% rule. You still need to do a full analysis, but those rules can be good weed-out tools when you are evaluating listings. And both of those rules need to be adapted for your specific market and strategy. For instance, the 50% rule includes property management so if you plan on self-managing you may be able to get by with 40%.

Think about how much you want to leverage. Be careful of leveraging your money to the hilt and having rents that barely cover your costs. Rents CAN go down in a given market for a while. Make sure your monthly numbers have some cushion. Have some reserve funds for unexpected costs and vacancy.

Having said all that, my first home purchase didn't meet those rules or criteria and I still made money on appreciation and more importantly the equity from the loan pay-down. You can't really bank on appreciation but you CAN bank on the loan pay-down (assuming you get a 30-year fixed or similar). I feel like that equity gets ignored too often around here. I mention this because you will come across investors here who only preach cash flow and then you find out they only deal in $30K to $50K properties in markets that don't see much appreciation. You might be OK with less cash flow if your renter is helping you pay off a $150K property in a market that could also appreciate in value.

If you guys have been around here a while than you probably have read about BRRRR. Basically buy-and-hold but with a rehab and refinance aspect to it get your original cash back out. That's probably the ticket you are looking for.

@Shane Thompson Same goes for you!