Play it safe in the begining?

Question

I'm not sure if this is the correct place for this question, but here it is anways.

So i'm very new to real estate. I've been gaining a silent education the last few months on BiggerPockets and other sites/books. I do own a townhouse as my primary residence and my wife and I are looking to purchase rental townhomes in popular neighborhoods near us.

The issue I face is, my appiate for risk is pretty high and I want 1% rule, 50% rule properties. My wife on the other hand shops for CDs. When we discuss real estate, we both like the same neighberhood that is wildly popular, low low vacancy rate (we used to live there, these houses are like hotcakes), but they only have a 12-15% cash on cash return (after mortgage, insurance, taxes, 10% vacancy, 10% maintenance, 10% capex).

So my question is: should we wait for a better deal in an area we can both agree on, or since the properties do cash flow, purchase the safer, lower risk properties now and start learning the ropes, get known by the local real estate industy (pay the dues so the speak), etc?

I want to jump in as soon as possible, but the ADHD side of me wants a higher return at the same time.

Any guidance or advice or personal stories are greatly apperciated. Thanks!

Chris Adams · Answer

For a couple new to REI I think it is important your first property be one you both agree on. Being a new landlord will have a certain amount of stress, there is no need to add the stress a buying a property you and your wife don't agree on.

I nice property in a high demand area is a great way to start as long as it cash flows properly. Your tenant pool will be larger, allowing you a better chance to get great tenants.

It is typical to have a lower return on a property in a high demand area since the risk of investing in this type of area is generally lower. This results in a more secure investment long term.

At the same time you have to make sure the property is still returning enough cash flow to properly support itself.

If you want to post the numbers we would be happy to review them for you.

Bryan L. · Answer

@Cory Melick - The way to get higher returns in that nice neighborhood that both of you like is to find a fixer and get a good deal on it. If you do this right and then refinance it, both your monthly payment will be lower and your out-of-pocket investment.

Alan Russell · Answer

My wife is not thrilled with my decision to move into REI, so as someone in a similar situation....I think (for me) it is important that I not only have her onboard for the excursion but it is extremely important that the first few go very well. For this reason I have made the decision that for at least the first couple of investments I will focus less on how much the ROI is and more on making sure there is a ROI. This obviously means I cant be as aggressive as I think I need to be however in order to bring her to the dark side, it is important to show her that we can actually make money doing this.

Kerry Smith · Answer

@Cory Melick Welcome to the site, and to REI! That's great you and your wife and working at this together. I agree that it is important for you BOTH to agree on every property you acquire, otherwise it is not much a business partnership is it? Patience is critical here for you. If you are starting to feel antsy, take a step back, take a good long look at your Criteria (SFR/MFR, Location, Size, Cash Flow etc). Your Criteria will tell you when you've found a a deal! The numbers do not lie! If you want 18%+ returns, then THAT is your Criteria, do not waiver from that and settle for something that does not suit your needs. Please post your numbers on the deal analysis forum so we can take a look! Good luck!

Play it safe in the begining?

Play it safe in the begining?

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