With interest rates rising, labor rates through the roof and inventory low finding deals as a new investor is extremely difficult. There are two viable strategies that can work. Since most investors have less experience and just as importantly less Capital the cannot afford to make mistakes early on if they want to build a portfolio for the long haul.
Strategy 1: Elbow Grease
Don't pretend you are a big dog investor and punch out of your weight class. Instead, stay humble and lean into your lack of experience. Find and buy a property that you can live in and self manage. Its not glamourous, its not fun, it takes lots of hard work, but you will learn the hard way how much skill and knowledge it takes to make it in the world of Real Estate investing.
1. Self Manage - You will pay 8-10% for management of revenue, so off the bat you are ahead of the game if you can self manage the property. The key to self management is doing a sh*t ton of online research and properly screening tenants. The secret to collections is not calling on the 5th for rent, its proper screening. Become an expert at this.
2. You are not a GC so don't act like one. Whoever you are and wherever you are from, you can paint! So find a place that needs paint and sprucing up. Things that even a rookie can do to improve a property are painting, landscaping, adding new and improved light fixtures, updating appliances, and other low value labor skills. Do all of that and don't overestimate your abilities by taking on a complex rehab.
3. Stick to the core above and refinance after 5-7 years. Now you have real Capital, your rents should have increased to the point where you can still cash flow on property 1 and you can potentially buy 1-2 more properties with the refinance funds. Yes it takes 5-7 years to get your second property. Real Estate is a slow grind, moving fast will lead to your demise.
Strategy 2: No Elbow Grease, but Realistic expectations
You have a high pressure job, a kid or two and just don't have the time, but want to diversify and build long term wealth. Don't pretend to be the big dog that can figure it all out by sitting on your computer at night for an hour after the kids go down and because you are super smart you can beat the pro's that are doing this full time. You can't, you won't, and your marriage will suffer.
Instead - look for a high quality asset. The asset condition is they key to your survival. If you buy an A class asset in an B class neighborhood you are on the right track. If you chase cash flow so you can pull cash from one property to quickly buy your next one, you will fail. The cash is just not available in the market right now, in particular, for new investors.
Find a reputable property management company that can manage your asset. Expect no cash, sleep well at night, and wait 6-8 years until the property has enough equity to refinance.
I cannot stress enough how important getting a quality asset in as good of a location as you can afford is. You will have a locked in price and a locked in interest rate with rents increasing. If you buy the right property your margin should increase over time and outpace tax and insurance increases.
For the love of everything holy, do not chase high cash on cash returns in high risk areas. You will get your soul crushed by vacancy, delinquency, maintenance cost and CapEx. CapEx cost do not change because you bought a crappy property. The roof still costs $20,000 to replace whether your property is $60,000 or $600,000. Best to buy a higher end property with higher rent where CapEx as a % of revenue is lower.
(Please note all the spelling and grammar errors in this article as evidence there is no AI involved.)
