What strategy would you recommend to a newbie investor?

Question

Hi All!

I am hoping to move forward with my career as a real estate investor. I am a real estate agent, so I do have an understanding about the residential resale and rental markets, etc. However real estate investing it a totally new concept to me.

I’ve read a few books and done quite of bit of research but I can’t decide if the strategy/method of investing I am thinking of would best work with my current situation.

I do own a principle residence with a mortgage + heloc portion (currently have $30k in it with no balance) and minimal credit items on history and have over 800 score. If I were to refi, I could possibly get $100k in equity that I could use (based on some calculators I used).

I was thinking of possibly starting with Buy and Hold then build up some equity to get another one. I am thinking to purchase a property in the range of $500k.

I haven’t met with a mortgage broker yet to confirm whether I would be able to qualify on my own or would need a partner for the purchase.

Just looking to get some feedback to see if I am on the right track. Any suggestions would be greatly appreciated!

Many Thanks!

Account Closed · Answer

@Nicholas L.

I would actually strongly disagree with the underlined portion of that statement. ... or maybe I just need a rephrase possibly.

Don’t leverage ANY property to the max. Why? Because your first time running through the numbers you’re likely going to not assign nearly enough to cap-ex and your 5 year cashflow will be zero, if you’re lucky.  A quick search in recent posts here shows lots of folks who are in bad shape, over leveraged, zero clash flow, and now renters with $ difficulties and no evictions. Swimming naked essentially. Responsibly leverage your assets.

Acronyms sell books and monthly membership fees. Responsible leverage builds generational wealth. Don’t go BankRRRRupt from a simplified sales pitch that in many cases equates to the Instagram version of a business plan.

Nicholas L. · Answer

Account Closed not spending all of his cash in one deal.  For example, if he has access to $100K and could look out of his expensive market and find a property for $100K purchase price, say, and he puts $25K down, and then has cash for reserves and additional purchases, great!  Whatever he does, spending 100% of his cash in one deal and having no reserves and no money for future purchases can't be right.  That was my point - not so much about leverage.  But your point is well taken and I agree.

Devin Solberg · Answer

@Justin Hui

Hi Justin,

BiggerPockets is a great resource, but for a newbie Canadian investor, not the place to get the most info you need. Suggest you go down the rabbit hole on some Canadian REI content first to get a better idea. YouTube and Apple Podcasts have lots of Real Estate Investor Podcasts strictly Canadian. Some suggestions would be:

The Breathrough Real Estate Investing Podcast

The Well Off Podcast

Andrew Hines Real Estate Investing Podcast

Sarah Larbi Where Should I Invest / REITE Club.

These 4 helped get me on track. Still love BP, but need to dig in to the finer details in Canada.

Daniel Haberkost · Answer

Account Closed "Acronyms sell books and monthly membership fees. Responsible leverage builds generational wealth"

I couldn't' agree with that more.

@Justin Hui What's your long term goal? Why do you want to invest in real estate? Knowing what you're looking to accomplish makes it much easier to decide how to start.

Megan Broom · Answer

I would start with getting quotes from a loan officer for a cash out refi so you have a real expectation. I was looking into this as well (still am!) and the terms were not nearly what I had anticipated. PM me if you want more details! I am now leaning towards selling my condo as I am not going to be able to rent it anytime soon (also not confident it will cash flow well due to high HOA and taxes) and I would get much more from selling it than I would on a cash out refi.

Like others have mentioned, I would suggest diversifying your capital into as many properties as possible that will cash flow. You can use a small amount for your primary residence with a low downpayment loan and go for the house hacking method. If you keep your spending down, you can easily save quite a bit from your monthly rental income to keep buying more properties and increase your passive income while also increasing your net worth at the same time. This is my goal! :)

Julie Toh · Answer

@Justin Hui Welcome to BP. Sounds like you have been doing a lot of research and are ready to pull the trigger. What strategy you choose will depend on your 1 to 5 year plan for your new career in real estate investing. A buy and hold strategy is for the long term and you will be rewarded for your patience.

Ali Boone · Answer

You don't want to buy just any property. Meaning, you shouldn't decide what property to buy based on how much it costs. For a buy-and-hold, some things to think about:

- will it cash flow? The only $500k houses that would likely even have a chance of cash-flowing would be distressed or low-end properties in extremely expensive markets. Like LA or San Fran, $500k is considered extremely cheap for a property and will be in lower-end neighborhoods, so you'll have increased risk. (and it likely won't actually cash flow anyways, but it's the best chance in one of those markets). Or, a $500k house in the midwest or somewhere like Georgia will be nearly a mansion, and that high of quality of property isn't likely going to have a very high rentability factor because it's too nice... people in that arena will just buy.

- what's the rentability factor and what kind of tenants will it attract? See above.

- if you're not cash-flowing, how strong is the chance for appreciation? Because you'll be dependent on it, and appreciation isn't guaranteed.

So you want to look at different factors in a property...not the price. At least as far as deciding what to go after.

Account Closed · Answer

@Nicholas L. Yeah I kinda figured I may have misinterpreted the spirit of what you were saying there.

Dan Valicevic · Answer

Would it make sense for a Canadian to invest in the US? Is there obstacles or penalties to reaping rental cashflow and ultimate sale of the property?

What strategy would you recommend to a newbie investor?

Most Popular Reply