Expanding my portfolio in the Boston and Providence Areas

[Eric Crockett]

Hey Folks,

First post on BP here. Probably a bit longer than usual...but I am an avid (not necessarily good) writer. I don't know exactly where I am going with this or what I expect to get from it, but let's see where we end up. I'm ultimately just looking for some sort of advice; or maybe even just a nod of approval that I am on the "right" track. I am looking to invest in the Boston and Providence greater metro areas and welcome any suggestions or comments. Also, if you think I may be able to help you in any way after reading my post, please reach out! I love to help and would love any opportunities to work on a deal!

First a little about myself. My name is Eric, and I am 32. I consider myself a bit more than a rookie when it comes to RE investing, but nothing more than a novice. I have my M.S. in Civil Engineering and work as a construction engineer. I spent 7 years working for the US Army Corps of Engineers, overseeing large scale military and civil works projects; and I currently work with the VA overseeing facilities operations and construction. I also had the opportunity to do a year overseas in Afghanistan as Deputy Director for DPW at Bagram. I have always had a passion with building construction and have tailored my career around it. I also have my RE license in Massachusetts (although I have let it expire within the last year and am currently taking my 12 CEUs). I was only active for about 3 months until it conflicted with my 9 to 5. I was also Title V inspector certified for some time but that has also lapsed. But enough about me, lets get to real estate talk.

I purchased my first home back in 2013 when I was just two years out of college. At that point in time I had just quite my job as a CAD drafter and only been with the Army Corps for about 4 months. I had almost no construction experience when I bought the house. When I started my home search, I wasn’t really sure what I was looking for. What I did know was that I wanted something that would make me some sort of profit down the road. So, I purchased my first home through foreclosure with the hopes of selling it short term (2-3 years). I put my entire life savings, about $15K at that point, into down-payment and closing costs with an added $2500 gift from my parents to cover the remainder of closing. It took forever and a day for the deal to close…and I was broke...but we got it done! For the next several years…I house hacked the hell out of that place. Friends…and friends of friends constantly moving in and out. It caused a lot of headaches and lost friendships…but it helped keep my expenses down so I could put all of my then meager salary into updating the property. I was generally able to cover 30-60% of my mortgage expenses at any given time with the people I had living with me.

Over then next 5 years or so, I poured a tremendous amount of sweat equity into the place. As my professional career progressed from a CAD drafter to a project engineer overseeing major construction projects, so did my willingness to take on more challenging projects. I’ll be honest…I barely knew the difference between a Philips and flathead when I started. Eventually though, through hard work and a few smashed thumbs, I was able to take an outdated house and turn it into a home almost entirely on my own. Sure, it took a long time, and probably too much money…but I learned a ton and was very proud of it. 

 All said and done I sold the home after 6 years and walked away with nearly $150k. Sure…if you take the time value of money and subtract all the expenses, mortgage etc…I may have only come out slightly ahead, if not in the red. But during that time in my life I had a propensity to spend. There is no way I would have ever saved or invested $150K in that time frame had I not invested in the property instead. 

Since then I have taken the money and invested in my first multi-family property where I currently reside as an owner occupier with my now wife. When we got it, I had no idea about any of the rules of thumb I know about now (70/50/2% etc), but I knew I wanted a place where my mortgage expenses would be completely covered by rental income.  Keep in mind I needed to convince her on moving from a newly updated ranch in a nice suburban town to a lower income area apartment building in the city. Given my location...it needed to be in one of these places so I could actually afford something and have money left over.  By the grace of god, I was able to find an immaculate 4 family that has been owner occupied since the 1960's. It was in great condition and priced accordingly. Luckily though, I was able to convince her to put an offer on it, and the place would still make us money and not break the bank. There were a lot of offers, but most were from bigger investors and all cash. I hated the idea...but my wife wrote the owners a letter. I  don't like to admit it, but I really think she struck a chord with the owners in that letter because my wife let them know we were getting married during the closing process and that we would continue to owner occupy the property and take great care of it. We shouldn’t have gotten the deal…but we did. Anyways, I will be honest… the rental income from the house itself did not justify the purchase price of $350K…but what sold it for me was the 13-car garage that came with the property I am also currently renting out as individual units. So while I went into this thing with only minor due-diligence on the numbers side of the house…I am actually just shy of the 2% rule while owner occupying the place and I still have room to grow. My garages are currently renting at about 80% of market rate!

Now that I am cash-flowing on my rental property and still have about $50K in the bank (and growing) I am looking to start expanding my investment portfolio. And this is where I get to a crossroads. I have set a long-term goal of 5 residential rental properties in 3-5 years…I just don't know which way I should go to get there. I am thinking I could find a new rental under the $250K range in the Boston or Providence Metropolitan areas right now (as long as the deal is right of course). At that price, it would allow me to make a 20% down payment on the property…but would liquidate almost all of my cash assets (I do have access to additional credit lines, home equity loans, IRA funds etc). I think it would put me in a bind for an extended period until I can save more or raise additional capital for #3 (which I have not done at all as an investor). On the other hand, I was thinking about possibly doing one or two short term flips and using the profit generated from that to invest in my next multi-family. While it would still liquidate my cash assets (and potentially require me to take out lines of credit/tap into my IRA) it would be for a shorter term with greater immediate return. I would then have the profit to invest in one property, and (hopefully) my initial investment of 50K back that could then be used for another.

What are some of your thoughts? If you were in my position what would you do? Are both viable options given current market climate and locations of interest? To be more specific I set up Attleboro, MA as my central location with a 45 minute-hour radius. What are some of the cons of each of these approaches that I may not be considering? I have target markets for rental properties, but what are some current hot markets for flips in the Massachusetts & Rhode Island Area? Also, would I even need to invest my entire cash savings to acquire a new property on my own given my current circumstances…whether it be a SFR flip or a Residential Multi… or am I over leveraging myself with 20% down? Would it be best to start looking for partners? Are there good enough deals in the area to make hard-money lending a viable option for me if I really think I can turn a project in 6 months? I know it's a lot of questions that are all over the place, but any thoughts or comments are greatly appreciated.

If you stuck through to the end, I really appreciate your time, and I look forward to meeting and networking with many of you in the near future!  I am by no means an expert in real estate, but I do have my feet wet. And most importantly I am a work horse and am willing to do whatever it takes to learn the business!