Buying my first rental... have I missed the days of investments?

Question

I have the numbers ready to share and I'm just trying to collect as much information on if this the right time to make my first REI. It will cash flow but not at the rate I originally hoped for.

I have an RV that I rent out add follow the 1% rule. This just doesn't seem to work in the RE world anymore and my single momma, single income self is worries I'm putting too may of my eggs into one basket.

Any words of wisdom would be greatly appreciated!

Eliott Elias · Answer

Real estate is a long game. You WILL be wealthy if you buy 10 properties in your lifetime. It's just a matter of time before you reep those rewards. Your blood line in 200 years will thank you

Nathan Grabau · Answer

So I was thinking about this earlier, how much worse cash on cash returns have broadly gotten for traditional LTR's. It is really hard to get a 1% rule property now a days. Christian Bachelder's recent time on BP when he said he is going for a 15% (so would be a 1.25% rule) for short term rentals means that hitting 1% on a long term rental will be virtually impossible. That being said, our CoC returns are never really going to make us rich in real estate, its the other benefits such as depreciation, rent and prop value appreciation, and loan paydown that, when included in your rate of return, really create the long term opportunity.

Chris John · Answer

@Tenley Sage Houghton

I think you've gotten three really good answers so far and I think they all hit on something slightly different, which is awesome.  I'm not trying to be negative, but during times like these, I go dormant, but mutual funds, and wait.  Real estate investing is a side hustle for me, so I'm not willing to work as hard as what @Steve Vaughan suggests, even though I believe there is money there.

Markets go back and forth and I feel like the "easier" money for the short to mid term will be in equities.  Plus, it'll allow me to stay liquid for when an opportunity presents itself.  I feel like times like these are for the 'pros' and I know I'm not one.

Best wishes in whatever you decide!

Steve Vaughan · Answer

Investments are case by case and always have been.

I haven't looked at  MLS listed houses really in 5 years. Too much competition, too many mouths need fed.

You may have 'missed the boat' on easy 1% MLS deals, but there are lots of high grass tired houses and plexes out there that need problems solved.  Drive for dollars and talk to garage sale hosts.

Conner Olsen · Answer

The 1% rule was made popular when property prices were lower, 2010-2014. CoC return and cash flow are better metrics to look at.

Chris John · Answer

@Tenley Sage Houghton

That's a great question and a great point.  It would definitely be a consideration that I'd want to run the numbers on if I were you (and it sounds like you are, so kudos).  Also, what type of borrowing you might be planning would be important too.  For instance, the last time I made a purchase, I had to put 25% down and got slightly worse rates because it was my 9th and 10th loans.  However, my buddy bought his first investment property (doubles as a vacation home) and he only had to put 10% down and got better rates.  Obviously, his perspective and my perspective on the same property would be totally different.

In the end, if your are happy with the $400/mo cash flow as compared to what you are having to put down, then I'd go with it.  Everyone has their own metrics.  I don't really think about the 1% rule and instead I like to divide my expected yearly cash flow (once the property has been turned) by the total amount of cash I'll have to put in (down payment, rehab costs, etc.).  If my expected yearly cash flow is 15% or more of my outlay, I proceed.  I've found that it provides enough margin to pay for the stuff that eventually comes up and I don't have to come out of pocket for stuff.  As @Nathan Grabau points out, we've made our money in real estate in other ways besides the cash flow.  The cash flow just greases the wheels for us and usually gives us a little extra too.

My metrics probably wouldn't be enough for real pros, but I was finding these things off of MLS and not putting a lot of effort into things, so it worked for me...

Wale Lawal · Answer

@Tenley Sage Houghton

We all started from somewhere and you know yourself better than anyone else. Do some research and clearly define what you want and the best path or strategies that can get you there.

Real estate investing is a long game, so keep learning and growing.

You'll need good contacts in the area to make your investment plan successful. That doesn't only mean a real estate agent. You may need a property manager, a maintenance worker, and a contractor before long.

All the best!

John Mathew · Answer

Hi Tenley Sage! Do remember that real estate is a long-term investment,  you can hold it for several years as you wait for it to appreciate. Maybe you can also try to leverage your funds. Leverage in real estate . In this case, you’ll take out loans from banks, mortgage lenders or credit unions and pay them back over time. This allows you to add to your real estate holdings without spending the full amount of money you’d need to buy them on your own. Leveraged investing will build equity and economies of scale. You could sell the property, get your down payment back as well as the amount you've earned in equity. You might refinance the property at the lower principal amount, reducing monthly payments and increasing cash flow. :) Best wishes on your endeavor!

Eliott Elias · Answer

No sir, deals are everywhere. You just have to find them

Buying my first rental... have I missed the days of investments?

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