Newbie with 100k available in SD looking at Indy / Grand Rapids

[Ray Lai]

Greetings everyone,

TL;DR Newbie from San Diego with 50k liquid, 50k potential 401k loan saved up looking for a cap rate 10%+ property in Indianopolis/Grand Rapids. Looking for a turn-key to start out. Do not want to invest in SD due to horrible numbers.

I'm Ray and I'm a newbie from San Diego but grew up in the Midwest (which is where I'd like to invest); I've joined and attended my first meeting last night at our local REIC which was fantastic – Kathy Fettke was here (she rocks!). I want to focus on cash-flow and not speculate, so I'm avoiding my home market because the numbers don't make sense (unless you want a low cap rate class D property in this California frenzy). I've read a lot of books, posts, and listened to a large number of the BP podcasts and regularly speak with my mentors. I'm currently trying to figure out my first step – cheap SFH with cap rate of 10% in the Midwest, or going big with a commercial 16+ unit Grand Cardone style.

I'm an honest person. I squandered my cash in the stock market (to the tune of 250k…) but I've stopped gambling in stocks, and now have a bit built up in my war chest for real estate investing and money from my 401k available for investing. I currently have 50k liquid available in cash and another 50k potential 401k (TSP) loan so I have about 100 liquid. I don't want to touch the remaining stocks I have, they serve as a reminder of never gambling and I'm leaving those there as an emergency fund if I truly have to liquidate and take all the losses.

I learned from stock investing that I'm not risk averse enough; I will be conservative and prudent with real estate investing. I have already started my business plan, formed a mastermind group, and gotten a lot of friends/family interested. I plan on showing them a successful track record with 4 of my own cash-flowing properties first before accepting outside funds. I come from a business background and have a personal network that has cash available for investing.

I started drafting my business plan and I’m going to purchase my first 10 units with my own funds; first 6 should be easy with only 20% down, I like that the rule changed for only 25% on the last 4 for Fannie and Freddie. I have a decent salary with no debt and will focus on cash flow for out of state properties, my personal cash flow is about $2300 a month – I can increase it if I cut out things (travel or stop maxing my 401k's 18k yearly contribution cap. I'm particularly interested in Indianapolis or Grand Rapids, and I’m currently working on building a team there so I can invest remotely for cash flow in "C" areas. I'm considering a turn-key just to get my feet wet because I don’t like sitting on cash and not having it work.

I’m really interested in commercial units 16+ units but believe I need to buy some smaller units to provide a track record so that I can tap into my personal network that has the funds available to partner with for the bigger deals that truly excite me. They have bigger pockets of cash saved up due to going to a good b-school and going into more lucrative fields than myself.

I have a BBA from the University of Michigan's Ross School of Business, and a Masters in Engineering Systems from the Naval Postgraduate School. I'm a program manager by profession. I have 7 years of PM experience, and 3 years of experience prior to that as a Enterprise Resource Planning (ERP) Consultant focused on supply chain and financial module implementations for corporate enterprises. I like systems and efficiency.

I write my goals down in the morning and before bed and reflect everyday on how to get closer to achieving my goals. I find many of the podcasts here very helpful, and my two BP heros are Sharad Mehta and Grant Cardone.

What I struggle with now is that I learned all this great information from BP by my local market is in a bubble and I want to avoid it but I don’t know how to apply the techniques to build an out-of-state system. It’s hard not being able to physically visit properties or people. I know Sharad does it with technology but he built his systems in place before moving to California from IL.

Am I forced to pay retail with turn-keys as a starting investor if I’m looking in lower cost, non-bubble areas?

I follow macro trends and noticed that in the last few months, the Bay Area, Manhattan, Vancouver and other high price areas are starting to soften significantly but there are still deals to be had in other parts of the country.

Favorite Podcasts:

BP Podcast 155: From Zero to 200+ Deals in Five Years with Sharad Mehta

BP Podcast 108: Building a $350 Million Real Estate Empire Using the 10X Rule with Grant Cardone

[Kathy Fettke]

Hi @Ray Lai, Thanks for the shout out!

You definitely don't have to pay retail for turnkey properties. Unfortunately, it's getting a little harder to get equity in Indianapolis, but it is possible. 

The best markets in our network for getting double digit cash flow AND equity are in Pittsburgh and Cleveland. These are still my two favorite markets still. Although, our new team in Tampa is pretty insanely good - their properties come with built in equity because they buy from probate and then turn 2-beds into 3 beds. 

We are just vetting 4 new teams - one in Detroit, and we think that will be a homerun too.

Anyway, there are some companies that offer "semi-turnkey" or BRRR (Buy, renovate, rent, repeat...) and you can get more equity at purchase. Most of our investors want totally turnkey and don't want to do a thing - they are 100% passive because they have demanding jobs and lives that don't allow them to spend much time on their investments (for now, until they build enough cash flow to quit their jobs!)

Let me know if you'd like a one-on-one strategy session to come up with a plan for building back some of those losses. (Trust me, I've been there!)