All Forum Posts by: Lionel Li

It's great to see different thoughts on this matter. It really boils down to the appreciation vs cashflow debate. I'm also in a high cost real estate market with little to no CoC return. I've spent a whole year trying to make my area + surrounding cities and states work before finding affordable OOS rentals as a possible investment.

I've purchased the C-D (many C's and one D) properties in Indianapolis in those years, around the same time this predatory "turnkey" company in Indy scammed a ton of investors. I've purchased these properties that needed a lot of cosmetic work and BRRR'd them one by one. Now fast forward 4 years, those properties 7x'd my net worth, my net rental income is 85% *before reserves* of my W-2 take-home pay. Some people will say I got lucky, others will say I'm smart, but all I did was leave my ego at home, pretend I know nothing and leverage the experts in the market. My equity and cash flow today is directly correlated to the people that I've leveraged in Indy, the only thing I brought to the table was trust and grit to get through the tough times.

I'd suggest you do it the way I did it (since you're a seasoned investor), start from ground up, learn the ropes in that market and don't do the turnkey route. In my opinion, turnkey is really for the investors that have little to no knowledge and don't want to put the work/time in at all. There's nothing wrong with that because everyone's situation and time commitment is different but, that would be wrong for you especially if you've already went through the process of owning rentals. 

I'd say your concern of cash flow is definitely valid. I don't think I would've been able to purchase as quickly as I did without it, I didn't have a lot of capital or a very high paying job that I'm able to leverage. You'll find that many investors that begin in the higher cash flow markets graduate into larger deals or deals with greater appreciation. I think when investors use cash flow to springboard them into more equity deals, it can create a lot more momentum than most people think. 

I'm a Queens resident too. Been buying long term rentals in Indy from 2017 - 2020. It's been a great run and I still can't believe the returns, but that was with strategic buys and refinances. 

Having said that, certain metrics for us investors looking to buy have changed as well. If someone says that there's no more cashflow in Indy, I'd tell you they're looking in the wrong place. But if someone says real estate was just as easy as it was a few years ago, I'd tell you they're either lying or haven't seen the market recently.

I'd suggest going in with an open mind, learn from the experienced who are in the trenches and can see the changes to guide you in the right way.

Hope you find success in those cities!

There's all sorts of answers on how you should use your 401k and the future contributions. What I did was:

1 - Lower contribution to only get the maximum match from my employer.

2a. - Take the extra contribution and instead push it into another account to accumulate, I put it in an S&P500 index fund because I have zero tolerance for lazy money. When the time is right, sell those funds and use it to buy a rental property.

2b - If you think putting those funds in an index fund is risky then put it in a checking or savings account, it's no biggie. The point is to assign a specific place for the funds that would've gone to your 401k. Never trust that the money is just going to be available in your daily-use checking account when you need it, it'll always find a way out lol.

3 - I kept my 401k handy, I didn't withdraw anything. Aside from your down-payment & closing cost every mortgage lender needs proof of reserves (3 months -24 months, depending on your lender.) Luckily for you 401ks count towards that reserve. It's not considered at 100% face value, but anywhere from 50%-75%. This has saved me many times over the past 4 years during cash-out refinances.

4 - After a while as my 401k balance grew, I was able to take a loan out on 50% of my 'vested' amount. If your 401k balance is 150k and only 100k is "vested" then you can borrow up to 50k. It loans you the funds and reduces your 401k balance and you'll have to pay interest. However, the interest is paid back to yourself to grow your 401k further! 

I utilized this method to purchase cash flowing real estate and it's been a no brainer for me. A 401k can 100% be a REI tool without having to break the piggy bank.

Hey Alyssa, awesome to see you honing in on the specific targeted areas rather than a scattered shot across the whole city. I'm OOS as well and have (1) rental within 46219 and all my other rentals surrounding the area, so that's the only part I'll speak to. 

You might have learned already from your mentorship but many areas should be looked at on a street by street basis. I generally think east of the 465 in the 46219 zip code is less 'street by street' and on the southeast quadrant of the intersecting highways is safer to generalize as a better area. I've driven through that quadrant extensively when I went because I was putting in offers for a couple at the time and that was my conclusion, but the prices now reflect that as well.

All of my rentals around that area have performed very well from when I started in late 2017 until today from a cashflow & appreciation standpoint, even throughout the pandemic. The rents and prices have grown substantially. No issues with break-ins during renovations that I've been hearing from other investors in other areas, no tenant trashing the place etc.

@Michael Maloney

Hey Michael, I'm a OOS Indy real estate investor from NY.

You can hire a local property manager that has the experience to leasing and collecting from lower income neighborhoods and split profits with them via PM fees. While it's not 100% passive, it certainly takes the learning curve down by a lot but you'll certainly have to know how to deal with PM's. This is my preferred way, mainly because I live in NY lol.

The other option is, if you have more time than income, you take the reins and learn it yourself and keep the PM fee. For the uninitiated investor, you'll have to factor in "oops" money. Oops I picked the wrong contractor, tenant, method of collections or prolonged a lease when you should have evicted. While it's RE education on 3x speed, you'll have to see if you have the stomach to go through tough times and not give up.

In either decision you make, for lower income properties don't get sucked into "paper" returns. A 30k market value property that can potentially rent for $600/mo a month looks like your way to financial freedom, but it's not. These income traps properties will almost always make an investor regret buying. If you find an investor friendly agent, find a great deal and find the best way for you to manage, you'll be a happy investor that can repeat this forever.

Thanks! 

My first one was in late 2017 and I've just purchased my 6th rental along with my primary in Queens this month. I agree, the lower class you go the more street by street it is. All of my purchases were outdated & ugly under market value houses that didn't cost too much to renovate but created a ton of value when it was complete. All of the properties were also bought off the MLS with real estate agents, I've never done an off-market deal with wholesalers or anything. I just pay attention to what comes on the market in areas I'm familiar with and I act fast. The fastest showing I've made was 30 minutes from listing, the fastest offer I've made was within 10 minutes of listing, and the fastest closing I've had was 10 days from offer.

 Hey Tyler,

Congrats on your first deal in Indy, you'll never forget your first. I have a property right in that corner pocket where you've purchased yours (my first as well), and 5 others all within a pretty close proximity. I like that area and had luck with tenants there but I thought I was buying in a C class neighborhood when I started a couple of years ago, values have gone up for sure so that may have changed. I've thought of moving to a better area for LT rentals but I've been pretty happy with where I've been buying. 

Zip codes are a good starting point but I'd probably click zoom in one more time and start to explore pockets of areas or streets to decide where to invest. I'd buy wherever there's an opportunity for value-add or a great deal. There are areas/pockets of Indy I wouldn't touch but for the most part I'm open to investing anywhere an opportunity comes up. 

Continued success to you!

I definitely had the same struggle of deciding what to do in late 2017, find a primary in NYC or buy traditional rentals in general. While I waited I did the opposite and stuck nearly all of my capital into equities with close to the same balance as you, I used the broad index as my saving account which paid off quite a bit.

Finding a primary or even a househack in NYC or even parts of NJ was a struggle for me a few years ago because I couldn't find a deal that I was really satisfied with. OR, I'd find a deal and calculate it but it would push my DTI so high that it would put me on the investing sidelines for the next few years. What I ultimately decided to do was to invest in long-term holds but not in NYC, in Indianapolis.

2.5 years later, I have 6 rentals out of state and I'm closing on my primary in Queens in the coming 2 weeks. I'd say for the person who is able to defer gratification, it could be worth it to go the investment route first and then get the primary after you have some more streams of income coming in. I will say though, if you're in Central Indiana you may not have the same issues of very unaffordable property prices like NYC. That means there's the possibility of househacking where you are, which is probably the best of both worlds. 

Good luck and can't wait to see which route you pick!

I think the house hacking idea is a great way to start. I would've liked to start that way if my area wasn't so expensive. 

After you're qualified by a lender and while you look for that next deal, I'd concentrate on your budget to make sure your expenses aren't too high at the moment. At the same time, up your savings rate and make sure you can build up some more capital. Even if you can't get/afford the property you want right now, there's no reason why you can't start to prep. 

The main goal is to make sure you're ready for the added fixed expenses like PITI & utilities and unexpected costs like bigger renovation than quoted, repairs, vacancies etc. What lenders say you're qualified for doesn't always translate to what you're able to afford.

After you've worked with your real estate agent and researched the areas you'd like to purchase in, you should be ready to pull the trigger when the next deal comes along. 

Putting aside his main teachings of budgeting, not getting into consumer debt etc. Dave Ramsey's philosophy of investing in real estate is not for the everyday investor, it's for the asset heavy or super high income earner. He's putting the "cart before the horse" so to speak, where do you get this cash to put 100% down on an investment property when you're just starting off? 

Sure let's throw basic economics out the window (inflation/TVM), save cash while your warchest is worth less and less every year, and the property you want to acquire is worth more and more every year. Or let's take a bet that the stock market will always go up 12% on average every year. What if 2020 was finally your year to buy your investment property, should you wait a few more years because..oops?

I tend to not listen to people who have an uncompromising attitude (my way or the highway), and maybe the DR fans are fond of him because of his over-the-top assertiveness. Like a lot of people mentioned, leveraged vs unleveraged investing are different ways of investing..you can't tell us what we're doing is wrong and the DR way is right or genius. 

Everybody is a genius. But if you judge a fish by its ability to climb a tree, it will live its whole life believing that it IS stupid. His ways are right for some, but not for me and a whole bunch of us on BP.