Greetings from a cyclist in Orange County, California !

[Adam W.]

hi! 

I am a 40 year old cyclist in southern california (who pays the bills by working as a physician), married with 4 kids. Believe it or not, I am even more ignorant of finances and investing than your average physician, so perhaps that gives you a sense of where I'm starting from. 

I am about 6 years out of my medical training, have half of my home paid off, and am thinking of getting into real estate investing. 

To give you a sense of how committed I am learning this well and doing it right, I vowed to not surf the web for the 40 days except to read about real estate investing, and I took the day off from work today to "kick off" my real estate education, so here I sit with my 2nd cup off coffee, a clean sheet of paper with some scribbled reflections of what I'm looking to get out of real estate investing and the key questions I have. 

I look forward to benefiting from the collective knowledge, wisdom, and hard-learned lessons of the members of this forum. 

There is a lot on this forum (and on the web), so if you can point me to any particular resources/webpages, I'd appreciate it. Some key questions right now, and bear with me:

- how do I calculate the costs of purchasing, and owning, a rental property (e.g. SFR or duplex to quadplex)?

- how do I estimate how much rent I can bring in on a given property?

- how do I calculate whether a property will have positive cash flow?

- is it a good idea for my first rental property to be within driving distance (e.g. 2 hours) of where I live? 

- how to determine what areas are "up and coming" and will appreciate over the next 5-10 years?

- how do I figure out the best real estate investing strategy for me, i.e. am I buy and hold investor, am someone looking to maintain high-cash flow vs. paying down the mortgage investor,etc. 

- say I have 200K on hand to invesst and am looking in Riverside/San Bernandino where real estate is less expensive than Orange County, and would like to start with a small property to get my feet wet:   do I use most of the 200K and finance the least amount possible or do finance as much of it as possible and hold onto my cash as much as possible? If both are reasonable approaches, how do I figure out what is best for me? 

Thank you for pointing me in the right direction!

Sincerely, 

Adam b

[Mindy Jensen]

Hi @Adam W. from a (age redacted) cyclist in Colorado!

I have a friend who writes a blog about finance, who also happens to be a physician. Check out  http://www.physicianonfire.com/

Not surfing for the next 40 days?!?

Let's see if we can get you some answers. 

1. Your market determines how much it will cost to purchase a rental property. With 4 kids, I'm guessing a house-hack isn't an option for a multifamily property. That means you're looking at 20-25% down payment. Your personal credit score and ability to repay comes into play with a residential loan, which you can use to finance properties up to 4 units. 5+ is automatically a commercial loan, where the lender takes the property's history into play a lot more.

2. Rent is determined by the local market. Craigslist is a great place to see what other properties are renting for, although we're still in the slow part of the year where rents may be reduced in order to fill vacancies.

3. Positive cash flow - calculate how much rent you will be receiving, vs how much it costs to simply own the property (mortgage, taxes, HOA, etc.). Throw in a percentage for vacancy (I like 8%) and Make sure to account for CapEx (Capital Expenditures like a new roof, furnace, AC, etc). (There's more to it than this, but a quick way to vet possible deals.)

4. I prefer to invest in my own backyard, but you live in California, and that market is higher priced. Although my market is gaining... If you're looking at buy and hold, know that California is very tenant-friendly.

5. Trying to guess the market is tough, although if you look at the path of progress you can get a good idea of the direction of the improvements.

6. This comes from you. Do you feel comfortable taking on mortgage after mortgage or would you feel better if your mortgages were paid off? In this era of ridiculously low interest rates, I'm a leverage to the hilt kind of girl.

7. Your lender is most likely going to want to see 6 months of reserves in a bank account at closing, so I'd side with keeping some cash on hand for unexpected expenses.

I hope this helps?