All Forum Posts by: Brittany Bauhaus

Thank you all so much for responding! A little more about my situation. My partner has children, and she can't leave Santa Barbara until they turn 18. That's not for another 8 years. So, I can TRY to save and buy something here in SB before then, and later sell and buy in Ventura. But that's seems close to impossible. Everything here is SO expensive. And I haven't run all the numbers yet, but I think renting in SB will save me more money in the long run than buying property. It sounds like the general consensus is to simply save, save, save until it's time for me to buy.

I did think of another option for buying in SB: Purchasing a foreclosure or off-market property for a deal and renovating it. I'll have to look into this further, as I'm not sure how to go about this yet. Thoughts?

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Originally posted by @Sandra B.:

Transaction costs in both your strategies will eat you alive. The time horizon sounds long but is actually short. No one knows where the market will be in 3 years or 8 years. It could double, it could tank. You're trying to fast track equity/savings by letting others pay down your debt. The best way to do this through real estate on a relatively short time horizon is to go for a 15 year mortgage. If you put 20% down on a 300,000 property, assuming a 3% interest rate and 4% annual appreciation (which is simply throwing a dart but based on historical appreciation rates), in 8 years you will sell for $410,000. Subtract 6% for transaction costs and $125,000 for the remaining mortgage debt, that leaves you with $260,000 in equity on your $60,000 down payment + call it another 10k in closing costs. That's close to a 17% annual return. Not bad.

BUT, again, these are a lot of assumptions. Can you actually break even on a unit with a 15 year mortgage, association fees, and maintenance? (Yes, its a condo, but water heaters still break, assessments are real, etc.) Can you carry the unit if there is a vacancy? Will you have the money to fix it if a tenant trashes the place? Also, you truly do not know where the market will be. If there is no appreciation whatsoever and you sell for $300,000, you still walk away from closing with $156,000, but that 4.7% annual return doesn't look nearly as appealing for the amount of work and risk. And there is always the possibility, as many learned a decade ago, that you could have to sell for less than you bought it for.

Look at Mr. Money Mustache, Dough Roller, Money for the Rest of Us. Take a hard look at your spending habits. Create a savings goal, enact painful budget cuts, and if you still cant hit the number you need 8 years after these calculations, then maybe real estate is worth the calculated risk.

Thanks Sandra. By your calculations, the final annual return still sounds way higher than if I used mutual funds or a money market account to save. The condo complex I'm looking to invest in has historically performed very well for investors and provided some sort of monthly cash flow. But, my understanding is that, most importantly, I'd have built up home equity with this purchase and will be in a better spot financially to purchase a home for myself, once I'm ready. Is that correct, or do you suggest something different?

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Originally posted by @Brent Coombs:

@Brittany Bauhaus, welcome to BP. You've come to the right place to ask these questions. You might need to brace yourself for some (more) hard-hitting responses suggesting reality checks.

My own advice is: please do NOT rely on turnkey providers to get you closer to your future goals, for the simple reason that ALL the cream will already have been taken out of any profit, by you buying properties off THEM!

My guess is that your "forever home" will NOT be any easier to buy in 8 years than just saving EVERY extra dollar you can in the meantime. That is, UNLESS you can find under-priced BARGAIN/S, every time!

I reckon 3-5 years is too short a time frame to GUARANTEE continued appreciation that gets you cash flow AND a profit on sale, after taking all expenses into account - if you're paying market value, in an already hot market. My 2c...

Thanks Brent. I was considering turnkey properties because they're lower maintenance on the landlord's part, as I'd live in another state and have a prop mgmt company handle the prop. I currently do not have any home equity and so I'd gain that equity by starting with an investment rental. Doesn't that make more sense than hoping I save up enough of a down payment on my own in 8 years? Suggestions welcome!

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Originally posted by @Andrew Johnson:

Brittany Bauhaus There are some really dicey assumptions in your plan. You pay $300K for a condo to own for 3 years. When you sell you have to make it "sale ready", there's vacancy, and you pay realtors and closing costs. So let's say that costs you $30K. You'll make 36 mortgage payments during that time and since it's towards the start of a loan cycle, less goes to principal pay-down. Maybe an average of $325 per month for those 3 years goes to principal in a $240K loan @ 5%. $325 * 36 payments = $11,700. So future selling costs are $30K but tenants have paid down less than $12K. You probably aren't cash-flowing $500 per month to break even ($500 * 36 = $18K profit + $12K principal pay-down = $30K = selling costs). Even if you get appreciation you can't capture it as the hypothetical $500K condo has appreciated at the same rate. Not to mention that interest rates will likely be higher in 3 years.

Thanks Andrew. What if I can sell the condo while the tenant is living in it? I'm not planning on the condo appreciating THAT much, but my goal is to gain some equity here to eventually put it toward a home I can live in. Do you suggest any other plans of attack?

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Hi all, I'm new to the BiggerPockets community.

I've been researching real estate investing for a little while now, and I feel ready to take the plunge. I'd like to explain my particular situation: I'm not here to make big money. I'm fairly certain that makes me an outlier in this community, but please hear me out: I currently live in Santa Barbara, CA. Everything is way too expensive here and it's not my favorite town, but I have to live (and rent) here for the next 8 years. My end goal is to buy a home in Ventura, CA (my favorite place on earth) with an ADU on the property. I currently can't afford to purchase such a property, so I need to work up to that point. My girlfriend has land in Costa Rica, so we'll eventually split our time between Ventura and CR. I'd like to rent out the ADU consistently, and also the main house when we're out of the country. Of course, eventually it'd be nice to live off some passive income via real estate investments, but I actually love my job and am not concerned with needing to quit or put all my eggs into the RE investment basket right now. But my definite short(ish) term goal is to buy this home within 8 years. Now, my respective investment scenarios:

1. I can purchase a roughly $300k condo in Ventura or Oxnard as an investment property and rent out the condo for a fairly small ROI. Keep in mind, my main goal isn't to purchase numerous properties right now. The plan would be to sell this condo in 3 years, buy a new one, rent it out for a higher rate, sell in 5 years, buy a forever home w/ADU.

2. I can purchase 2 homes in Ohio or Alabama for roughly $100k each, rent each of those out for a small ROI, sell in 3 years, buy a multi-unit property, sell in 5 years, buy a forever home w/ADU.

*Number 1 seems more appealing to me, as I'll be the private landlord (and can save on costs there), and I know those cities so I feel comfortable choosing the right property.

*Number 2 seems like it will possibly bring in more cashflow (once all the numbers have been sufficiently crunched), but again making huge amounts of cash isn't my immediate goal. I also don't feel as comfortable purchasing a property I've never seen, even though it's turnkey. I'm researching turnkey properties all over the US via realwealthnetwork.com and am now focusing on Ohio and Alabama.

I want to make sure I'm building up the most equity in the shortest amount of time. I have $40k-$60k ready to invest. I want to make sure I've covered all my bases and choose the path that's the surer route to reaching my goal.

Any/all advice is welcome, and thank you for your time!

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All Forum Posts by: Brittany Bauhaus

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