! ISO real estate investor's willing to share some knowledge !

[Jordan Crowley]

Hello BP, 

 My name is Jordan, I am a 21 year old from the Bristol County area interested in purchasing my first rental property this year. I have always had an interest in real estate and I feel that I am in a great spot in life to take that next step. I currently have a very good full time job and I am in the process of obtaining my real estate license as well. Anyone looking to share some advice on a first time rental or even just basic information in regards to investments for beginners would be great!

Thank you in advance.

[Randall Alan]

@Jordan Crowley

Hi Jordan,

Congrats on your interest at such a young age.  If I had started at 21 - versus 48 - I can only imagine the differences in my life!

Your question is really broad...  so going to go with some really broad answers.  For rentals:  

1.  Figure out what is a good deal (for you).  For me starting out it was "I need to make at least $300/month after principle, interest, taxes, insurance, and a $100 maintenance reserve).  My approach to make my money stretch was to look for the cheapest property that would rent for the most.  If you picture a chart with purchase price versus rental income on the axis, where the two lines cross is the sweet spot. If you run numbers on a number of houses for where you want to invest that chart will tell you what you should buy to optimize the money you spend.  This worked out to be C class homes for us.  Frequently homes built in the 1950's and 1960's.  We were buying them about 25% under what nicer homes would sell for on a per square foot basis. Most needed less than $5,000 to be a good rental... like replacing worn out carpet, some paint, etc.

2. Know that leveraging your money (financing your property) is far better than buying a property outright as far as return on investment goes.

3. You don't need a real estate license to sell your own property on MLS (you can pay about $150 to a company and they will list it for you). There isn't a huge advantage to having a license as to cost savings on properties. But there are other advantages to having the license - so not saying don't get it... just that it isn't totally necessary. But if it is what you want to do for a living in the meantime, go for it!

4. Both real estate and money are expensive right now.  Not sure when it will get better (but the answer is when interest rates and real estate markets both settle down to be in line with each other again).  Point being - it isn't a really great time to be jumping in, so finding good deals is really hard right now. 

5.  Know that cash flow is important, but you will make more money with appreciation.  We got into real estate in 2018.  From 2018-2022 appreciation was AWESOME!  We are buy and hold investors... but made quite a few moves given the high appreciation environment.  We sold our least favorite properties... ones that had high turn over, ones that we knew were iffy but had great numbers, but after more experience figured out they were to much of a pain in the butt!  We could have used the proceeds to buy more properties - but we were pretty happy with the size of our portfolio that we were self managing (around 40 units)... so we went for the equity play and began paying off our other existing mortgages with the proceeds.  We went from 19 loans... down to 7 as of today.  Some of those moves were cash out refinances where we extracted appreciation and paid off other notes.  About 4 of them were straight sales where we decided to ditch the property.  One was a refinance where we paid off 5 residential loans with higher interest rates with a 4% commercial loan.  Through all of that we did not lose any cash flow selling 4 properties (The savings in paying off other higher interest notes made up for the loss of revenue from the sales)  We LITERALLY gained several million dollars in  appreciation over the past couple of years.  That is multiple times over what we paid for the real estate in our own funds.  Those times are long gone now... but knowing that appreciation is a key factor to your future wealth will help you keep an eye out for it as you go forward. 

6.  Due what the markets tell you to do.  From at least 2018-2021 the markets were screaming "Buy Cheap", because the cash flows and rents made sense. Right now with the Fed stepping on the brakes with high interest rates the market is saying "now is not the best time to be buying". The markets are out of sync.  Sellers still think their properties are worth gold, but the interest rates won't support buying those houses for investment purposes (all your money that should be profit is going to interest).  So we are pretty much idling right now. We have moved our cash into high yield savings accounts that are paying in the mid 4% range.  1 year CDs are paying 5% at some banks... and these numbers will probably continue to go up if the Fed keeps raising rates.  Fighting what the market wants would take finding a diamond in the rough in the marketplace.

7. Know where to look... which is way wider than the MLS. We have bought a lot of properties off of MLS... but we have bought properties from wholesalers, off of craigslist, at in person auctions, at online foreclosure auctions. We have been at closings on properties and asked "Do you have any others you want to sell? - and more than once we bought another property from the same seller without them ever listing it. We had a wholesaler try to buy one of our properties to resell it. The deal never went through - but they called us several weeks later and said, "Hey, we've got a property we want to move fast, are you interested?" That property now cash flows $800 / month. We bought a property because my wife's mother's hairdresser told someone that we bought properties - that property cash flows over $900 / month... so spreading around the fact that you are a buyer is definitely beneficial. The broader point being - know that houses can come your way from a lot of different directions and to always be looking.

8.  Be sure to realize that property taxes reset after you buy a property to the taxable value that you paid for the property - not the taxes the seller currently pays.  In today's up market this can be a substantial change in taxes.  When you buy a property, the title company will use the current taxes... just know that will only last for one year, and you will get a letter in the mail from your county tax assessor that says, "Here is your new valuation on your property.  If you calculated you were going to cash flow $300 on a property, and your taxes then go up $2,400/year... your cash flow just dropped to $100/month.  Now your decent deal just went to sort of a crappy deal.  

9.  Redfin is one of the few search engines that lets you sort real estate by dollars per square foot.  I found this to be extremely helpful in looking for deals.  Condition of the property is obviously another factor that plays into that value... but it let me see what the cheaper properties were based on a metric that directly correlated to the value of a property.

My suggestion would be to continue to learn in the short term, watch for the markets to improve, and don't buy something that doesn't make sense.  I see a lot of posts that say, "Hey, it cash flows $65 dollars a month... it's a great deal!"  My response would be:  It's not!  

So there are a few tidbits for you.

All the best!

Randy