Getting Started: Use Agents or Wholesaler?

Question

I'm a new investor from Pasadena looking to invest in Southern California (right now I have my eye on Los Angeles and Riverside).  To get started, I see myself getting my feet wet with self-managing small multi-families with the possibility of living in one of the units.  At this point, I could afford a conventional loan on a single property.

From everything I hear (podcats, books), full-time investors are doing most of their deals off-market.  However, for a newbie, how should I get started?  In my mind, there are two big barriers to doing off-market:

1) At low volume, there isn't justification for me to do my own marketing.  Nor would I be able to pay all-cash.

2) Lack of ability to pay all-cash on a property would prevent me from purchasing from a wholesaler.

So, does this mean that in order to get started I should be working with an agent going through MLS or as a first-time purchase is it feasible to still work with a wholesaler to get an off-market deal.  Would that require utilizing a hard money lender?

I'll caveat all of this by saying that I am well aware that it is a seller's market, and Idon't plan on buying while prices are high.  Some great data sources I used were redfin's data center blog, google's public population estimates for cities, and talking with other investors.  I'm trying to do my research so that when there is opportunity I'm ready to go.

Kiersten Vance · Answer

Hi @David Eiges. Sounds like a good plan to me. I bought my first units in Loma Linda (San Bernardino County). They were definitely tired old units that I have improved the value of by remodeling and upgrading.

To get started, I would suggest asking an agent to send you emails with your specific criteria in the areas you want to look at. Maybe 3-4 units, max price 600k, keywords "investors" "fixer" ect. That way you get daily emails to your inbox that you can just browse over every day. This helps to get you used to values and prices. Sometimes you can see the same unit come on the market and then get sold again a few months later for a higher price. Its free easy education. I have seen good deals come on the MLS so it is possible to find something there as well. You can also keep an eye on an interesting listing. If it stays on the market for a while, the prices tend to drop and the seller may be willing to accept a low ball offer. Don't rule out MLS for sure!

If you don't have money for direct mail (which can be very pricey up front), maybe try your own version of marketing. Facebook, friends/family, BP marketplace, craigslist. You could find deals in any of those places for free. Good luck!

Ciprian L. · Answer

That is what I did 2 years ago with a duplex in Burbank. I'm looking for another deal to continue the strategy.

Good luck!

David Eiges · Answer

Thanks for the reply.  Yes, I'm currently renting.  Looking for properties that have good rent/value ratio but can go up to $600k.  I talked to a lender a few years ago to get an idea of what I can afford, and need to reach out to one again to get a more definitive number based on my current financials.

Right now I see myself doing BRRR, so I think equity/price of the home are going to be important factors for me in order to fulfill that last "R".  I understand that rates are historically low, but I'd rather have a higher monthly payment than sacrifice equity by paying a higher amount for a property.

Ciprian L. · Answer

@David Eiges

Are you renting right now? What is your price range? What is your long term plan?

I would talk to a lender first to see how much you can afford for a multi unit property.

You don't want to buy while prices are high, high comparative to what? I'm sure 20-30 years ago people where thinking the prices were high.

If you plan to buy and sell in 3-5 years, I would not buy, but if you plan to keep them for 20-30 years I'm sure the values will be much higher by then.

It's a seller market and deals are hard to find but not impossible.

The price is not the only variable in the investing world, there are the terms also, how much will your monthly payments  be if you buy a property for $700k at 4% or $500k at 7%?