Bigger Pockets Members,
Just wanted to share a beginner’s story.
My wife and I currently own one rental property but only because we decided to rent out our house when we moved into a home we recently had built on our small farm. We had a great experience with our first year of land lording, due to proper rent at screening and seeking professional advice. So we decided to make a life of it. We know we’ll have some rough experiences but, according to those here on Bigger Pockets, it’s worth it.
We received praise from some for doing what we did but we also received criticism from many more. What we decided to do was cash out a small Roth (20k) and invest it into rental real estate. Our strategy was to invest about 50-75% of it and use the rest for a buffer (repairs, unexpected costs, other OVC’s).
After setting up an LLC with our accountant's and lawyer's direction we began looking for our first deal. Soon we found two homes owned by the same couple and, after running all the numbers, we began negotiating. Currently we have offers on both homes that have been accepted and we're scheduled to close by April's end.
We are excited to get into this business and we’re not letting anyone tell us it can’t be done. I don’t give credibility to anyone who has never tried this and only provides a healthy dose of “don’t do it man”. Decidedly, we’re submerging ourselves with advice and direction of those that know what they’re doing and we’re ignoring the skeptics that have no real reason to discourage us.
Our strategy:
1. Buy for cash flow, or future cash flow once repairs are made and rents are adjusted to a proper fair rate. (So many homes are “ran down” in our area thus bringing in lower than acceptable rent rates).
2. Buy with at least 30% equity so as not to lose money if we are forced to sell or the market crashes (which it will at some point). Gotta have a good exit strategy.
3. Buy homes that need minor repair that we can do ourselves. We’re handy so we enjoy putting in the time to gain some decent sweat equity. This ties back into #1 above.
4. Learn everyday, especially regarding how we can fund deal after deal without being over-leveraged.
5. Maintain solid relationships with our bankers, accountant and lawyer.
Our idea at this point is this: it’s okay if a given investment doesn’t provide incredible immediate cash flow only as long as it will once repairs have been made and rents go up to a fair rate for both parties. If a property is only cash flowing $100/month this year but will cash flow $250 later, we’re good. We are a single-income family and our plan is for me to retire from my day job in 5 years. So, as long as the cash flow at that point on each property is solid we can deal with slightly lower flow now.
My beautiful wife, Rebekah, doesn’t quite have the risk tolerance I have. I wanna move fast, she wants to move slow... so we compromised and we’re moving slow (hahahaha).
We’re newbies and only know what we’ve learned from Bigger Pockets, other investors, accountants and lawyers. However, please allow me to forward on some great advice I heard on a Bigger Pockets podcast: no one gets rich on their first deal but they can get rich BECAUSE of their first deal. Jump in and make it happen. Do it wisely, but DO IT. That’s what we’re doing.
Thanks,
Derek and Rebekah
