Starting out with rentals???

Question

I'm working with a partner and we have been actively involved in REI. Would it be a good idea to start out with purchasing rentals first, generating cash flow and holding them long term?

We plan to fund these by using hard money to purchase and our exit strategy is to refinance out into a mortgage. We have a lender in place that will basically fund us 100% plus rehab.

Chris Masons · Answer

Another suggestion, and this was how I did it was I used my day job to build up a bank roll to buy rentals. Yes it will take time, disipline and work but it will pay off.

I manage all my properties and work full time in the IT industry and some days it is absolutely bananas but the fact is  I have good steady W-2 income working synergetically with my passive positive cashflow IMO is a great thing. And allows me to aggressively save and fund t ax sheltered invesstment vehicles as my ultimate goal is to retire from full time employment in my 50s with my properties all paid off.

I plan on using this technique until I simply cannot do it any longer or grow tired of it at which point I will hire a PM.

You can do anything if you put your mind to it!

regards,
Chris

Aly W. · Answer

Chris is right on...my husband and I own 7, soon to be 9 rentals and I manage them myself. I own a photography business and my husband is a full time IT employee, i.e., regular job. I have a great contractor that does the repairs and shows the properties (most are out of state) but I handle the tenants and all accounting.

This is a fantastic time to buy and hold. Our properties are our retirement, plus cash flow for now. OPM!

Chris Masons · Answer

Hi Sanjiv,

I currently manage 4 investment multi families, and am under contract for my fifth investment hoping to close in 2 weeks.

I recently moved and bought a SF where I live now but prior to that I was owner occupying one of my multi families and my tenant was paying 80% of my mortgage which really enabled my to bank a nice chunk of change. Now that house is a full rental that basically pays for the whole mtg. on my single family house.

Having good tenants makes all the difference in the world. That is the single most important thing in my opinion.

We are in a great down cycle and with rates at historical lows now is a great time to get in and buy a nice 2, 3, or 4 family owner occupy it for awhile and bank some money and rinse and repeat.....

Having other people's money work for you is a great thing.

regards,
Chris

Account Closed · Answer

Chris, how many rental do you manage will holding a full time job?  I know what you mean about it getting bananas.  It does make sense,  use your energy while you have it.

Michael Lauther · Answer

I am a buy and hold investor but there is not one of my properties that I would not sell to another investor if it made sense. I am netting an average of 20% so even without selling I should have may cash investment back in 5 years. There are more properties that will cash flow like this than I have money to buy because I do not use leverage inside my self directed IRA.

Andrew Jones · Answer

Yes, I would have to agree with what others have said except I don't think having rentals is as passive as many are lead to believe. I hold rentals and speak with my PM regularly and make sure to stay on top of him. Not to mention the ongoing networking and research I do such as being on BP, talking with local investors, going to meetups, and conferences.  Also I couldn't really live off the income they produce so I need a day job.

Sorin T · Answer

Ditto to Chris, above me!

Account Closed · Answer

I favor have a mixture of flips to give your income a boost and to allow your business to grow faster.

J Scott · Answer

I don't want to speak for Rob, but I didn't get the feeling that his concern was *risk*.  If you buy right, a rental should have very little risk of losing money.

That said, making a career out of buying rentals is VERY cash intensive (as Rob said), and many new investors are impatient and want to jump-start their real estate careers by using too much leverage.  This *IS* risky.

Again, not speaking for Rob, but as he said, by investing cash into flipping (or some other more active business/investment) and then using the proceeds to buy rentals, you can build your rental portfolio much more quickly, and don't have the risk of over-leveraging or under-funding for reserves.

Jason Kosowan · Answer

Rob, that's an interesting perspective.  I've never considered that rentals could be considered more risky than flipping.

I sleep pretty well at night knowing that my rentals are there but I certainly would be very worried if I had to get into the fix&flip game.

To me, the comparison of F&F vs. B&H is like comparing apples-and-oranges.  F&F seems to me like a full-time job rather than an investment whereas B&H is more like what Arthur says, a side income stream that will grow over time.

Starting out with rentals???

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