Cool thread, thanks for posting this!
My sentiments are a bit similar to other commentors, slow but assured progress is best especially in this interest rate environment. But guess what, rates WILL drop in the next few months/years and most markets will explode after that IMO.
If I had 25K I would look into B or B+ (specifically with schools above 5 greatschools rating, and moderate to low crime rate confirmed by heat map and frequenting businesses there) areas within 25 minutes driving distance from my home for a SFH.
I would go with either FHA or FHA 203K loan (3-5% down) have some money left over for cosmetic improvement (paint and little else haha) live in for a year and rent. If you do this correctly you should be able to build between 30-80K in equity and have at least $200/mo cashflow when rented to set aside for vacancies rehab, repeat every year until you get 10. This is a GRIND but that is the way forward in this environment IMO.
Why this works is simple: You slow ramp to give time to build alot of skills needed to scale at the end of the 10th year you SHOULD have at least $3M portfolio assuming 3% appreciation that is $90K you are adding to your net worth EVERY single year guaranteed! Then you restart this process with your spouse's credit lol.
This path is hard, but doable. You will have setbacks, and you will require some kind of team, but again the path is there.
I have a thread on here about my journey to $20M portfolio. That would mean in so so years networth would increase by $600K if my maths are correct lol. Staggering when you start to scale this.
I agree with the other comments that $25k isn't enough to invest in RE. Save your money, buy some index funds, reduce your expenses (e.g cut out any unnecessary expenses Netflix, going out, expensive purchases, find a cheaper apartment if your rent is high).
If you don't own a primary residence and really want to invest, I would do an FHA loan at 3.5% and do a live in flip or BRRRR. You should still have way more than $25k in emergency savings.
I wouldn't do syndications. I talked to three of them - $50k or $100k in. I asked myself if I was ok losing $100k if the syndication went under. I also don't have enough knowledge to vet who's a good operator. Do a search on BP about syndications to see the comments. If you put $25k in index funds/stocks at least you can liquidate quickly if you change your mind unlike a syndication.
Sorry I don't mean to be negative but it's long road with sometimes hard lessons to learn. I already put in $60k down payment on 2 cheap Class C properties Midwest (Indiana) in 2023 - if I had to do it over I wouldn't have bought them. The "cash flow on paper" in reality is -$300 to -$500 most months for one house (sold the other house). I'm unsure if the appreciation will outweigh my negative cash flow. The upside is I have large passive losses on my tax returns from all my rental expenses so I'm not paying that much taxes to the IRS.
I think that it's great that you're thinking about investing at young age.
Hello BP team,
How are you all? Hope all is well. I am looking to invest outside of California for the first time. I am looking to rent and hold (purchase a rental income property). Any recommendations for which cities and dates to look into as a starter? Would appreciate the insure.
Omg James. I'm laughing so hard at this hahaha. They seemed pretty quiet for a while.
Interestingly the Texas agents are quiet. In my circle of CA investor friends they invested in Texas (Dallas and Houston) but I think they bought closer to 2014. More recently San Antonio for apartment complexes - one of them asked me if I wanted to join in their deal, $75,000 in. I passed. I was scared of losing more money on OOS. I think it was structured as a syndication. Even with high property taxes they saw the potential with San Antonio. Maybe I should have went in?
I compared numbers with an AZ investor. His property taxes are half of mine and property is worth considerably more - his were roughly $2500 for $475,000 property. My Class A Indy property that I've owned since 2013 has high property taxes (17% increase for 2024) at $6249 for market value of $300,0000 - decent appreciation (doubled in value in 10 years) and great tenants but not sure how long I should hold onto it.
My own opinion if going OOS, is Nevada and Arizona, low property taxes. Not sure about AZ now, seems like their prices are declining a bit.
If you don't already own a primary residence, I would suggest house hacking. Are you already investing in California?
I invest in the Bay Area and Indianapolis metro area. If you absolutely can't invest locally (meaning a 2 to 3 hour drive), you'll need to do a lot of research and mitigate risk. I've posted about my experience many times. I'd recommend talking to local investors of your prospective cities to get positive and negative feedback, someone who isn't trying to sell you anything.
Do you mind sharing how much capital you have to invest in? Or your purchase price ranges? BRRRR or wanting to buy move-in ready?
My opinion is that Nevada (Reno or Vegas area) is a great market - kind of looking at that area myself, close enough for short flight or drive there. Property tax rates are low and great appreciation.
Caution: you said the magic words "I'm in California" so every out of state real estate agent and probably wholesaler on BP is going to contact you.
@Cloey Green there are so many different ways to think about and evaluate markets. The truth is that if you find the right deal, you can make pretty much any market work but if you are looking for consistent deal success that narrows your options down.
Some investors look for simple signs like the "Chick-Fil-A" test. Companies like CFA do much more in depth market analysis and research than I know I ever have done so some latch onto the back of those companies and look to invest in areas that these large companies are opening new/more stores in as a starting point.
There are tons of other metrics to consider such as rental rate, job demand, growth, path of progress, taxes, schools, crime, and on and on. If you have any specific go / no-go criteria, you can evaluate it on the web most likely.
I will say though that even in any market, there are sub-markets that you may either want to be in or want to stay away from. Once you get done to that level experience really helps, visiting the area or having someone that knows the area, really helps as well.
Great tools out there to evaluate the density of rentals, houses sold/for sale like Zillow and Redfin can give you a great perspective on these and help guide your decisions!
good luck out there!
I hadn't heard the Chik-Fil-A test but I did hear about investors looking at where Starbucks and Costcos are being built.
Those are really great points about in any market that there are sub markets to avoid and visiting the area or knowing someone in that local area helps. I learned a difficult lesson buying Class C "cash flow on paper" properties in Indianapolis metro area (and I knew that area and lived there before, just not down to a detailed level). And I'd add talk to local investors for positive and negative feedback, someone who is not trying to sell you anything.
To the OP, if you can house hack in your local area, that would reduce the risk of investing in a far away market.
I'd be tempted into doing an STR (maybe with a higher down payment to ensure cashflow, just run ROI numbers) or an apartment complex - I personally wouldn't mess w/ small stuff. Even developing a mobile home park, affordable townhomes or self storage.
A "miserable corporate job to no where" isn't all that bad - health insurance benefits, 401k matching, probably some sort of discount stock purchase plan, stability, lenders like it. Sounds like she has a good W2.
Netting 30k/month isn't a small feat - especially without putting in consistent work. You really need a business or a commercial asset in my opinion - contractor bays, oil change type centers -something that everyone uses. Think if one house grosses 1k/month, then it may net say $500/month (after maintenance/repairs, CapEx). You're asking for 30k month - that's 60 of those houses...in a few years. Not saying it's impossible, but that is a full fledged business. You really need an infrastructure to run something like that - systems, people...and you have to keep it going.
Also - if you invest that 500k in an S&P 500 tracker - you'll average 8%/year - 40k. Not too shabby for literally 0 work or thought.
I would also take a look at your expenses - 15k/month in Michigan? Is it really that HCOL of an area? 15k/month = 180k/year. FIRE would essentially be pulling 4% a year so she needs around 4.5mm. The two of you together at 30k/month = 9mm. I think you'll need some time to get to that number, honestly.
The other serious honest question you have to ask yourself (you're wanting in invest a lot of capital - and your sister's at that) - how successful have you been in RE? What do your yearly numbers look like? What's your overall ROI and cashflow? Have you been more or less successful than you predicted? Why?
I was shocked when I saw $15k a month FIRE in Michigan. I'm in the San Francisco Bay Area and my FIRE number isn't $15k a month (with kid costs it is but I wouldn't be retiring early/quitting W2 job with child costs).
I don't have much feedback on Michigan but I do agree with affordability with California and Florida and insurance costs, people may be moving to the Midwest.
I agree with previous comments about maybe considering commercial RE, some SFHs, not spending the $500k all at once, and maybe doing some lending. Buying 30 or 60 SFHs and doing BRRRRs on that many homes sounds like a huge headache to me.
I applaud OP on her real estate journey of 5 years with BRRRRs, flips and AirBnbs and doing well with those.
I need to clarify that $15k is not my FI number, it's an ideal goal I'd like to reach! FI is more like $7k, I've got a sweet little house and live a pretty simple life. RE prices up in NW MI are on par with Austin, where I just moved from, but are going up not down :). I am looking into small commercial this coming week, it might be a better path. Thanks for the thoughts!
Thanks for the clarification. $7k sounds more reasonable but I think setting 5 to 10 years for you and your sister to reach Financial Independence and quit W2 job (assuming you also have W2 job unless you own a business or are a real estate agent) is really challenging. I wouldn't set a timeline that short.
I did consider syndications and talked to three of them. On the surface, one sounded good - building apartment complexes in land constrained Ventura County (in Southern California) and I talked to the GP. I don't have enough knowledge to vet who's a good operator so I passed. My personal view is that I'd rather own my own property. Do a search on BP and see the numerous posts on syndications. I did buy some REITs.
I think if you've been successful with what you're doing, keep going while mitigating risk and don't make rushed decisions.
Have you ever appealed the property tax increases on your Dallas rental? If you can find comps that support a lower assessed value, it's worth trying to appeal. You may able to find someone local in Dallas who could help you.
I've also known investors who do rent by the room. You have 4 bedrooms so that seems like a good size home. I talked to Padsplit and they manage SFHs renting each room to different tenants - the total rent is more than renting it out to one household. The one negative is with multiple tenants in a house is potential for conflict among each other but could be reduced by screening all of them well.
Also Mid-Term Rentals to traveling professionals, people displaced for insurance reasons, or doing a renovation to their home and needing a place to live for 3 months or more are also possibilities. You would have to furnish the home and pay for WiFi/internet.
Are you self-managing or paying a property manager? If using a PM, what percent of the monthly rent are they getting?
I'd be tempted into doing an STR (maybe with a higher down payment to ensure cashflow, just run ROI numbers) or an apartment complex - I personally wouldn't mess w/ small stuff. Even developing a mobile home park, affordable townhomes or self storage.
A "miserable corporate job to no where" isn't all that bad - health insurance benefits, 401k matching, probably some sort of discount stock purchase plan, stability, lenders like it. Sounds like she has a good W2.
Netting 30k/month isn't a small feat - especially without putting in consistent work. You really need a business or a commercial asset in my opinion - contractor bays, oil change type centers -something that everyone uses. Think if one house grosses 1k/month, then it may net say $500/month (after maintenance/repairs, CapEx). You're asking for 30k month - that's 60 of those houses...in a few years. Not saying it's impossible, but that is a full fledged business. You really need an infrastructure to run something like that - systems, people...and you have to keep it going.
Also - if you invest that 500k in an S&P 500 tracker - you'll average 8%/year - 40k. Not too shabby for literally 0 work or thought.
I would also take a look at your expenses - 15k/month in Michigan? Is it really that HCOL of an area? 15k/month = 180k/year. FIRE would essentially be pulling 4% a year so she needs around 4.5mm. The two of you together at 30k/month = 9mm. I think you'll need some time to get to that number, honestly.
The other serious honest question you have to ask yourself (you're wanting in invest a lot of capital - and your sister's at that) - how successful have you been in RE? What do your yearly numbers look like? What's your overall ROI and cashflow? Have you been more or less successful than you predicted? Why?
I was shocked when I saw $15k a month FIRE in Michigan. I'm in the San Francisco Bay Area and my FIRE number isn't $15k a month (with kid costs it is but I wouldn't be retiring early/quitting W2 job with child costs).
I don't have much feedback on Michigan but I do agree with affordability with California and Florida and insurance costs, people may be moving to the Midwest.
I agree with previous comments about maybe considering commercial RE, some SFHs, not spending the $500k all at once, and maybe doing some lending. Buying 30 or 60 SFHs and doing BRRRRs on that many homes sounds like a huge headache to me.
I applaud OP on her real estate journey of 5 years with BRRRRs, flips and AirBnbs and doing well with those.
Property taxes and ins are outrageous. Taxes are $6100, ins is $2750. They get hail storms there.
No cap ex or anticipated cap ex.
Rent is slightly lower than market because I have long-term, excellent tenants.
The Dallas area is still growing, so selling is probably something I'd regret.
Been renting the house since 2011, when I bought it.
Your property is similar to mine in great Indianapolis suburb with good schools owned since 2013 - worth about $300,000 (possibly could get a little more if in a multiple offer situation), property tax $6249. My insurance is $966 so much less. I have a loan on mine (pulled out a cash out refi during COVID and used money to help pay for renovation to Bay Area rental). I've held onto it mostly because of the appreciation and great tenant.
My main goal with RE is using it as a store of wealth and passing it onto my kids. If my main goal was cash flow, I'd sell all my properties, except one and put the money into index funds/stocks - cash flow has been great the past 3 years. Or start a business which would require a lot more time than owning RE.
If it were me and Dallas is appreciating, I'd probably hold onto it since you've had it since 2011. Really depends on your goals and individual situation. Definitely don't sell it and buy cheap Class C in Texas or other state for "cash flow on paper" - I learned a painful lesson with those types of properties.
If I could up vote your post 100 times, I would. I didn't think to scale until I heard the social media gurus saying how many doors they have and "cash flowing enough to replace your W2 income." I have 3 appreciating properties (1 SFH in Bay Area, 1 MF Bay Area and 1 SFH Indianapolis great suburb with excellent schools). Two people suggested to me to sell the Bay Area SFH which has a lot of equity to buy an apartment building OOS or multiple SFHs/2 to 4 units in an inexpensive location (Midwest, parts of the South) to cash flow more.
I'm glad I didn't take that advice because that California SFH would be gone, which has a relatively low property tax base (max of 2% tax increase a year due to California's Proposition 13). And my property taxes and probably repair expenses would skyrocket owning multiple OOS properties or an apartment complex in an unknown market 2000 miles away.
After my experience of buying 2 Class C Indianapolis properties in 2023 "cash flow on paper" I saw the writing on the wall. I have been -$300 to -$500 most months owning on C#1 for 2 years. On a good month I net $71 a month (previously $176 a month before 17% increase in property tax). I hope this house eventually stabilizes. I sold C#2 while it was vacant. Many of my California investor friends believed the same things about CF OOS. Or I've seen a few of them pay cash or do 50% down payments, which of course they will "cash flow" (I'm not a fan or doing over 20% to 25% down). Not saying buying OOS is bad but I think bought the wrong properties, should have looked at the actual asset instead of projected numbers on a spreadsheet but I did feel that I did lots of due diligence by talking to local investors. Maybe I just have terrible luck.
I've seen a few people post that they don't hold the property long, 7 to 10 years and 1031 exchange to something better. If I were to sell off the Indiana Class A and C homes, the numbers don't look good with high prices and over 7% interest rates to 1031 to California or Nevada if I'm looking at buying an appreciating asset. Cash flow decreasing on Class A because I don't do large rent increases on my great tenant (maybe slightly under market rent) and large property tax increases.
My thought is to hold onto the Class A (and my CA properties) and pass it onto my kids and they can take the step up basis and sell them without the capital gains tax hit or if they want to continue renting them out. I'm investigating starting a business to cash flow but this would be a lot of work along with a W2 job.
I'm taking a break from buying and my previous approach of analyzing deals in inexpensive markets, looking at hundreds of properties on Zillow and running the numbers, which I spent hours each on each day and became really burned out. Buying RE is nothing like buying index funds or stocks - Google it for 15 minutes, click on buy shares. And the exit strategy with RE is much more difficult if you buy a property doesn't align with your goals.
I completely agree with getting reps in real life, walking properties, talking to contractors and investors. This is what I recommend to new investors who contact me asking if these numbers look good. I'm now figuring out how to maximize the return on current properties and add value, efficient ways to self manage, etc. I still attend local meet ups and talk to dozens of investors and am considering other strategies like Mid-Term Rentals or rent by the room. Taking a break from buying but not from learning and networking.
Becca,
Thank you for your thread, very nice to meet you. It sounds like you are in a nice spot where you have options moving forward with investing, (congrats). Just curious, when you mentioned other strategies, did you mean strategies such as Air B&B, guest homes, glamping, things of that nature? I have always imagined getting to the point where I could hold/ run a small community of mountain cabin rentals or a guest house, something along those lines.
Thanks,
Chad
Yes I meant AirBnb and Mid-term rentals, rent by the room, glamping (although I probably wouldn't go that route), buying commercial RE and running a business (for me that would be a lot of work with a W2 job and buying property locally or leasing out a space is expensive here). I know a few people involved in syndications and someone asked me if I wanted to participate and I passed. I would prefer to have control over my own property.
If I don't want the stress of RE I'm just going to buy index funds/stocks/bonds - much easier to liquidate than getting back my money in a syndication that's not doing well. I'd consider real estate debt funds and private lending but that's not on my immediate radar right now.
I think you have to find what your strengths are and what your risk tolerance is in different areas of RE and look at your entire financial picture.
Becca, the strong play in the Bay Area is value add. There's alot of neglected housing out there, gentrification. It's a tough road though, not at all passive.
That's what I did with my Bay Area rental, value add. In my circle I haven't seen anyone buy a property in the Bay Area and do a long term rental in a few years. I did talk to an agent who bought SFH in San Jose at a discount and is renting out by the room.
I'm seeing house hack, buy a primary and rent out the ADU on AirBnb or the ultimate house hack, owner lives in the tiny ADU and AirBnb both levels of the main house in San Francisco.
I went to two open homes (in. S.F. and East Bay suburb) recently where they did flips - these were experienced investors. One was a hoarder house.
I agree that there are lots of neglected properties that can be bought for a discount in the Bay Area but still relatively high (for me) but if other people can make it work, I applaud them.