New Member in Modesto, CA

[Morgan Bounds]

Hello BP Community,

My name is Morgan Bounds. My wife and I recently moved up to Modesto, CA from San Diego after separating from the Marine Corps. As we transitioned out of the military we both realized that real estate investing is going to be the key to our financial independence. After reading The Ultimate Beginners Guide to Real Estate Investing I came to bigger pockets to learn more about real estate investing.

My wife and I plan on purchasing our starter home in the next 6-8 months with the intent to eventually rent it out as one of our future rentals. With the knowledge and recommendations we receive from this community we plan to start investing in income properties in 2-3 years.

[Wes Blackwell]

Hi @Morgan Bounds! Welcome to Bigger Pockets! You've come to the right place!

A suggestion if I may... since you are already planning that this first housing purchase will be something that you will eventually rent out, I would highly suggest considering looking at a small multifamily for your first purchase. And here's why:

1. Modesto Housing Market Has Seen Most of It's Appreciation Already -- As you'll see in the chart posted below, the median home value for the area is roughly what it was back in late 2004, with the peak ultimately coming in early 2006. No one can say how high the peak will be this time, but you shouldn't be expecting another $100,000 in equity within the next year or two. If it happens, great... but don't plan on it. This means you'll be purchasing the property an objectively high price, as compared to having purchased it back in 2010. Higher price = bigger loan = higher mortgage payment = less cash flow when rented.
   
2. More Units = More Cash Flow -- I recently completed a thorough analysis of the multifamily properties available in the Sacramento area, and the only properties that passed the 1% Test (monthly gross rents close to 1% of purchase price) or had a Gross Rent Multiplier of 10 or below (time in years it would take for property's gross rents to pay for the purchase price of property) were all multifamily units, and more so 3-4 plexes.
3. Financing is the Same as Single Family Home -- there's no added loan requirements, and you can still qualify to purchase the property with FHA or VA loan if you so choose (thank you for your service by the way!) This means you could get in somewhere and experience cash flow or at least a significantly lowered mortgage payment (because the tenant on the other side is giving you $1,000 per month) which puts you way ahead of what you'd see with a single family home purchase.

My suggestion would be to work with a real estate agent who is experienced in working with investors and understands what you're trying to accomplish. They can do the math for you and show you were you'd end up 5 years down the line with a home and with a 4plex. I'll tell you right now though that there is a world of difference... 

You live in one unit, rent out the other ones and essentially have your mortgage paid for you, and you can save your income checks to destroy your other debt and prepare for your next investment. In 2 years, you can still sell the property and be exempt from capital gains. Or, you can move out into the next property and rent the unit you lived in, and now see positive cash flow every month.

Anyhoo, just some food for thought. At least take a look at the options so you're fully informed of what might be possible. That way you'll be armed with the critical information you'll need to make the best decision. I'd be happy to help so don't hesitate to reach out on my profile and connect with me or send me a message if you want some more information. Best of luck and hopefully you get into the academy soon!