I only invest in small towns. I've got properties in (2) towns currently that are around 10k people in each town. They are both 45 minutes - 1 hour outside of the closest city. They also both have declining population over the past 10 years. Huge red flags, right? What I've learned is that population, job growth, and proximity to large cities are surface level indicators but don't always tell the whole story.
These small towns are a niche market like investing in STR or trailer parks. I've learned a lot over my time investing in small towns and have found some great opportunities but just like any other niche market you better learn what you're dealing with or you'll get burnt.
The biggest "hole" in your strategy is thinking that starting in real estate will retire your wife. You've been sold by podcasts/books/vlogs that real estate can make you rich over night and it's passive. It's just not the reality.
I don't know your wife's income so it's hard to know what you need to replace in order to let her retire but if you think you'll get her retired in the next year or 2....you will have a 99% chance of being let down.
Becoming financially free, or not needing a 2 income household comes down to 2 simple factors. Income and expenses, money in and money out. Say you both make $5,000/month for a total income of $10,000/month. You also have expenses that are $10,000/month, you have $0 left to invest, donate, enjoy (not good). You can find ways to make more money, or find expenses to cut if you want to make your goal come to fruition.
If you make $5,000 more per month, you can retire your wife. If you cut expenses down by $5,000/month, you can retire your wife. Or you can meet in the middle and increase income by $2,500 and decrease spending by $2,500.
Investing in real estate will not increase your income in the short term. Think 10+ years before you really see the fruits of your labor. Anyone telling you different is probably trying to sell you something.
If you don't have your expenses as low as possible and don't have much cash on hand that's what you need to focus on.
@Corey Conklin thanks for the follow up on this and the confirmation it's workin. I agree that some of these smaller towns have great buys and strong rents. question for ya... Do you use traditional financing or do you us DSCR loans? thx
@Casey Graham I have used traditional lending for my properties. My wife and I have good W2 jobs currently so we get better terms with traditional lending in comparison to DSCR lending.
This is almost an exact match to how I'm investing.
This strategy isn't talked about on BP forums as it goes against what many investors believe when it comes to good markets. I am convinced that these markets are the hidden gold mine in RE investing today.
I had the same question when it came to my exit strategy. Will someone buy the entire portfolio when I want to exit? Who knows, but what I do know is that they will be cash flow cows when I decide to exit so that helps mitigate that risk. Another thing I'm doing which is against the grain is only investing in SFH. It gives me another exit strategy by having the option to sell off individual properties to retail buyers if needed. I am also a huge believer that with massive affordability issues in cities people will start to migrate to smaller towns that they can afford. (I'm already seeing this in the towns I am currently invested)
I know this hasn't really answered your question but I've been doing this for almost 5 years and it's working out well for me. (I've also seen some older investors in my area do really well with a similar strategy).
My advice would be to keep leaning in on this strategy and let the other investors battle over investing in Cleveland and Detroit.
I’ve been on a journey for about eight years now, moving from a negative net worth to a modest level of wealth, with goals to keep growing indefinitely. Honestly, I don’t think my happiness or sense of contentment has measurably changed during this time. I’m just as stressed as ever (just ask my wife). While I’m more financially stable, that hasn’t translated into feeling more secure—I simply take bigger risks now.
That said, I’m incredibly proud of what I’ve accomplished. It’s the same sense of pride I felt climbing the ranks as a Marine pilot. My wife and I spend a lot of time together, we take vacations regularly, and I prioritize my health by working out 3–4 days a week and getting 7–8 hours of sleep most nights. I’m as healthy as ever, and I make sure the journey doesn’t come at the expense of my well-being or relationships.
If ultra-wealth is the goal, I think the true joy lies in looking back and appreciating the progress we’ve made along the way. That’s what drives me.
Is it worth it? Not sure, i guess check in with me in another 8 years :) But I do know I wouldn’t be happier doing anything else.
Stress is a function of a decision not being kept whole or answered. The reason you're stressed is you have decisions looming, and you're not making or haven't made them. This does not apply to physical stress, obviously.
And life is always about the journey, not the final destination. I've said this before and I'll say it again differently-- everyone wants to hold up the trophy, not very many want to put in the hours.
And the "why" part. If you need to qualify why you're doing something, you probably need to disqualify yourself. If you need to ask yourself why to those things, you never understood those things never need to be explained internally and externally. It should not need validation.
Stress can also come from something out of your control. Many times I've made decisions or came up with plans that need other people to pull through in order to get the tasks accomplished. I've tried to get better at not getting stressed out about things that aren't in my control but when my tasks don't just affect me and my family but others and their families, I tend to get stressed out. Going from the mindset that you are self made and can do everything yourself without the help of anyone and realizing that no one is self made and it took the help of many others to get where you are is a crucial step to growing as a person.
As far as 'why' goes I couldn't disagree more with your statement. 'why' helps define the purpose and to understand what you're doing. Whether you are going through tough times and need the 'validation' to stay on track or if you aren't getting the results that you desire it's important to go back to 'why'. 'why' provides clarity in a world full of distractions.
Now do I believe that many people don't have a 'why' and just go around doing things without intent or purpose just because they saw someone else do it or that's what they were told to do? 100%, but that's a different discussion.
I think another question you need to consider is “why do you want to be wealthy?”
Some people like to have freedom to do what they want, some like to buy fancy cars, some don’t want to have to work for someone else, some want to prove they can go from nothing to something, some are just competitive. There are numerous reasons why people want to be wealthy.
I think your “why” is an important factor to consider when asking was building your wealth worth it.
I wouldn’t call myself “wealthy” by comparison standards, but I’ve made a lot of progress on net worth over the last 5 years. It’s taken a lot of work, and a lot of lessons learned. It hasn’t been easy, that’s for sure.
I’ve sacrificed a lot of time with my family, my overall physical fitness has diminished as I no longer work out 6 days a week, and my social life is pretty much nonexistent.
So, trust me, I’ve had multiple times that I’ve asked, “why am I doing this?” At times it seemed logical to just cash in what I had built or scale back and take away the stress but then I remember my “why”.
Having a strong “why” and purpose to what I’m doing keeps everything into perspective. My “why” makes the pursuit of wealth worth the sacrifice.
I use credit cards, write checks, and pay in cash.
Each situation can dictate the payment type.
Is it for a guy who works on the side? probably going to be cash.
Is it a plumber that did a repair on one of your rentals? You'll either need to write and mail a check or call and pay with a card if they are set up for that.
Is it for a contractor who is doing a renovation that will be 30k? Probably going to be a check.
Smart contractors are starting to understand that convenience matters to customers and being able to take different methods of payment can help them collect their money. At the same time if you as the customer are rigid in your payment abilities, it may decrease the amount of contractors that you'll be able to have do your work.
@Zach Howard Using OPM isn't a bad strategy when it comes to real estate. The problem is thinking when you are starting out that you should use 100% OPM.
Don't use this money for down payments, and don't use it to be 100% leveraged. As others have said you WILL fail. There are other ways to use OPM and not be as risky about it.
What you should do is leverage this money at 80% LTV and put 20% of your own money into the deals. That gives you a great advantage to the lending investors are getting here in the states with the much lower interest rates.
As others suggested you could also lend this money out for 10-12% and make your money that way and not put yourself on risk on the asset. The problem there is you only have 200k and there are a lot of local lenders that offer similar same terms, so why would anyone chose someone outside of the states? If you go this route you better find a way to set yourself apart. That means you'll probably have to take on riskier borrowers or agree to riskier terms.
My advice - If you don't have boots on the ground here in the states (that you can rely on), or someone you know you can trust to borrow this money then I wouldn't risk it. Make those connections first.
I know you want to take advantage of a great opportunity in your lending terms but that's only a piece of the pie when it comes to success in real estate.
I'm curious as to why you suggest putting down 20% of my own money. Somehow I think it's better to hold onto my own money and keep that dry powder on the sidelines waiting to get into the game if there are some emergency expenditures (haha, very likely with the kinds of deals I'm thinking about in class C neighborhoods). I can't wrap my head around your ideas, but I would really love for you to educate me on your thought process. And why 20-80, is that some magical ratio, or perhaps it's backed up by some sort of statistical analysis?
I'm still really not sure what to do, so thank you very much for your contribution to this thread, I hope you'll say more. I'm still in reconnaissance mode... so need to collect as much information and knowledge as possible before deciding what to do.
20-80 is more of a rule of thumb and not a "magical" ratio. If you have a good understanding of your market, asset class, risk profile, etc. this ratio can change accordingly. One thing I can assure you, there isn't an asset class in the world that would have me comfortable at 100% leverage.
Your money on the sidelines is great in principal but in reality it will be put to work covering the net loss on the properties you buy as you will be overleveraged and won't be able to cover your operating expenses with the rent. So really to have a higher chance at success you should have both money to put in the deal to lower your leverage AND money on the sideline to cover those potential cap ex projects.
As you seem to be aware, class C is risky. Having no experience is risky. Not being in the country you want to invest is risky. 100% leverage is risky.
Lowering your leverage point is one of the easier ways to decrease your risk and therefore increase your odds at success. If you had 20 years of experience, great connections in the US, and knew your market in and out then I would say you could probably leverage at a higher rate and could probably manage that risk because you have substantially decreased all of the other risks.
You should really study what happened in the US during the 80's when overleverage on real estate put a lot of people in a bad spot. This is what got Dave Ramsey in trouble years ago and that's why he preaches financial advice the way he does.
Back to the original topic. I'm thinking about getting a 200k personal loan - I'll use my salary to repay equal monthly payments for the next 5 years. As long as I don't lose my job and don't have any major financial surprises, repaying this loan is not a problem. Another way to think of this is that the repayment of this loan has nothing to do with what I use the 200k for. Having said that, I'd like to put the 200k to work, otherwise what is the point of borrowing the money in the first place?
I think then that if you were me you would use the 200k to purchase something outright in cash, and not use the 200k for down payments on 1 or multiple properties - fair?
Obsession isn't a bad thing in this case as long as you don't make poor decisions just to "get in the game"
It sounds like your motive to get in real estate is a good one if you are looking to help other people. Feel free to reach out if you need anything while you are getting your foot in the door with real estate. I may not be the most polished investor but I'm also not going to try and sell you on anything either haha.
@Zach Howard Using OPM isn't a bad strategy when it comes to real estate. The problem is thinking when you are starting out that you should use 100% OPM.
Don't use this money for down payments, and don't use it to be 100% leveraged. As others have said you WILL fail. There are other ways to use OPM and not be as risky about it.
What you should do is leverage this money at 80% LTV and put 20% of your own money into the deals. That gives you a great advantage to the lending investors are getting here in the states with the much lower interest rates.
As others suggested you could also lend this money out for 10-12% and make your money that way and not put yourself on risk on the asset. The problem there is you only have 200k and there are a lot of local lenders that offer similar same terms, so why would anyone chose someone outside of the states? If you go this route you better find a way to set yourself apart. That means you'll probably have to take on riskier borrowers or agree to riskier terms.
My advice - If you don't have boots on the ground here in the states (that you can rely on), or someone you know you can trust to borrow this money then I wouldn't risk it. Make those connections first.
I know you want to take advantage of a great opportunity in your lending terms but that's only a piece of the pie when it comes to success in real estate.
I'm curious as to why you suggest putting down 20% of my own money. Somehow I think it's better to hold onto my own money and keep that dry powder on the sidelines waiting to get into the game if there are some emergency expenditures (haha, very likely with the kinds of deals I'm thinking about in class C neighborhoods). I can't wrap my head around your ideas, but I would really love for you to educate me on your thought process. And why 20-80, is that some magical ratio, or perhaps it's backed up by some sort of statistical analysis?
I'm still really not sure what to do, so thank you very much for your contribution to this thread, I hope you'll say more. I'm still in reconnaissance mode... so need to collect as much information and knowledge as possible before deciding what to do.
20-80 is more of a rule of thumb and not a "magical" ratio. If you have a good understanding of your market, asset class, risk profile, etc. this ratio can change accordingly. One thing I can assure you, there isn't an asset class in the world that would have me comfortable at 100% leverage.
Your money on the sidelines is great in principal but in reality it will be put to work covering the net loss on the properties you buy as you will be overleveraged and won't be able to cover your operating expenses with the rent. So really to have a higher chance at success you should have both money to put in the deal to lower your leverage AND money on the sideline to cover those potential cap ex projects.
As you seem to be aware, class C is risky. Having no experience is risky. Not being in the country you want to invest is risky. 100% leverage is risky.
Lowering your leverage point is one of the easier ways to decrease your risk and therefore increase your odds at success. If you had 20 years of experience, great connections in the US, and knew your market in and out then I would say you could probably leverage at a higher rate and could probably manage that risk because you have substantially decreased all of the other risks.
You should really study what happened in the US during the 80's when overleverage on real estate put a lot of people in a bad spot. This is what got Dave Ramsey in trouble years ago and that's why he preaches financial advice the way he does.
Back to the original topic. I'm thinking about getting a 200k personal loan - I'll use my salary to repay equal monthly payments for the next 5 years. As long as I don't lose my job and don't have any major financial surprises, repaying this loan is not a problem. Another way to think of this is that the repayment of this loan has nothing to do with what I use the 200k for. Having said that, I'd like to put the 200k to work, otherwise what is the point of borrowing the money in the first place?
I think then that if you were me you would use the 200k to purchase something outright in cash, and not use the 200k for down payments on 1 or multiple properties - fair?
@Zach Howard Using OPM isn't a bad strategy when it comes to real estate. The problem is thinking when you are starting out that you should use 100% OPM.
Don't use this money for down payments, and don't use it to be 100% leveraged. As others have said you WILL fail. There are other ways to use OPM and not be as risky about it.
What you should do is leverage this money at 80% LTV and put 20% of your own money into the deals. That gives you a great advantage to the lending investors are getting here in the states with the much lower interest rates.
As others suggested you could also lend this money out for 10-12% and make your money that way and not put yourself on risk on the asset. The problem there is you only have 200k and there are a lot of local lenders that offer similar same terms, so why would anyone chose someone outside of the states? If you go this route you better find a way to set yourself apart. That means you'll probably have to take on riskier borrowers or agree to riskier terms.
My advice - If you don't have boots on the ground here in the states (that you can rely on), or someone you know you can trust to borrow this money then I wouldn't risk it. Make those connections first.
I know you want to take advantage of a great opportunity in your lending terms but that's only a piece of the pie when it comes to success in real estate.
I'm curious as to why you suggest putting down 20% of my own money. Somehow I think it's better to hold onto my own money and keep that dry powder on the sidelines waiting to get into the game if there are some emergency expenditures (haha, very likely with the kinds of deals I'm thinking about in class C neighborhoods). I can't wrap my head around your ideas, but I would really love for you to educate me on your thought process. And why 20-80, is that some magical ratio, or perhaps it's backed up by some sort of statistical analysis?
I'm still really not sure what to do, so thank you very much for your contribution to this thread, I hope you'll say more. I'm still in reconnaissance mode... so need to collect as much information and knowledge as possible before deciding what to do.
20-80 is more of a rule of thumb and not a "magical" ratio. If you have a good understanding of your market, asset class, risk profile, etc. this ratio can change accordingly. One thing I can assure you, there isn't an asset class in the world that would have me comfortable at 100% leverage.
Your money on the sidelines is great in principal but in reality it will be put to work covering the net loss on the properties you buy as you will be overleveraged and won't be able to cover your operating expenses with the rent. So really to have a higher chance at success you should have both money to put in the deal to lower your leverage AND money on the sideline to cover those potential cap ex projects.
As you seem to be aware, class C is risky. Having no experience is risky. Not being in the country you want to invest is risky. 100% leverage is risky.
Lowering your leverage point is one of the easier ways to decrease your risk and therefore increase your odds at success. If you had 20 years of experience, great connections in the US, and knew your market in and out then I would say you could probably leverage at a higher rate and could probably manage that risk because you have substantially decreased all of the other risks.
You should really study what happened in the US during the 80's when overleverage on real estate put a lot of people in a bad spot. This is what got Dave Ramsey in trouble years ago and that's why he preaches financial advice the way he does.