All Forum Posts by: Jeff Holmberg

@Anthony Vicino

Thanks for the words of wisdom! I’ve since secured access to more financing, which will help me shift my focus to larger markets like the Twin Cities or Rochester. This should help give me more opportunities to pick from, and make it easier to sell when the time comes.

Just throwing this out there to you and everyone else who has weighed in on this thread, I’d love to buy you lunch (via DoorDash if you’re far away) and hear your stories about how you got started and things you’ve learned,

Jeff

@Noah Chappell

@James Hamling

Thanks for the ideas! I really appreciate your time, and I now agree that overpaying for real estate is never justified. I’m working with an investment-minded realtor now to look harder for good deals.

Thank you everyone for your feedback! I really appreciate you taking the time to help me out. Here are some of my key takeaways from your comments:

1.) Although I hope to make this a long-term buy/hold investment, I need to keep my options open for selling it earlier than planned, due to some unforeseen repair, vacancy, etc.  To the extent I overpay for the property, I will lose money in the event of this unplanned sale.

2.) I should look harder for property that I don't have to pay higher than appraised value for.  I admit I've only looked hard in two cities.  There's a lot more cities to look at!

3.) Just because a property costs less doesn't mean it's less risky, because the probability of it becoming a bad investment isn't any lower. 

I will likely reach out to some of you to learn more about your lending / realtor services. Thanks again!

After years of reading books on real estate (most recently by David Greene and Brandon Turner), I'm finally getting started!  Unfortunately, I think I need to break some cardinal rules in order to get into the game. But before I do, I'm hoping to explain the situation and see if more seasoned investors here think I'm being wise or foolish.

I live in the upper Midwest, and I feel like there's a lot of potential to buy properties that fit my criteria in Minneapolis and Des Moines. The most relevant criteria for this post include: bad homes in good neighborhoods, high comps compared to my property, and "all in" cost at <80% of ARV. However, Minneapolis and Des Moines are highly priced compared to surrounding small towns (as much as 10x more expensive). Since I'm sure I'll make a lot of mistakes in my first couple properties, I've decided I'll feel more comfortable starting out my real estate journey in smaller towns (around 25,000 people) with low-cost property, in the $25k to $75k range. After a few years of growing my experience and my capital, I'll feel more comfortable entering larger markets and taking on bigger risks.

In the meantime: I'm finding that these smaller towns don't have rental property that meet my criteria.  Instead of buying a bad house in a good neighborhood, I'd be buying (or rehabbing) a good house in a bad neighborhood.  Not bad like crime-ridden; just bad like: low prices, dilapidated homes, near business districts, etc.  Given the high demand / low supply, sellers of rental property are asking for a lot more than surrounding homes sell for. 

Quick example: I could buy a duplex for $70k with enough cash flow to make me feel good about that price. But the appraisal might come in around $30k-$40k based on surrounding homes, so I'd seek seller financing for the difference. I would likely treat the duplex as a long-term investment, focus on the cash flow, and disregard the fact that it's supposedly worth less than what I paid for it. If my models hold true, my long-term ROI could still be great at around 12%/year. But even if my models are wrong and I end up with lower returns (or even a loss), then at least I'm getting experience with low risk like I wanted.

Am I being penny wise and pound foolish?  Or am I being wise by starting with very little weight on the bar, and only adding weight as I get stronger?