All Forum Posts by: Michael Wentzel

@Carole G. We had two rentals in Colorado Springs. We recently sold one and purchased our first multi-family down in Pueblo. We're hoping to purchase another single family down there by the end of the year. So that's the market we're focusing on at the moment. Where do you invest?

Mike

@Robert Eddings Welcome to Bigger Pockets! We're living in Colorado Springs at the moment, but investing in southern Colorado where the purchase prices are lower. I can imagine the heavy work load of the restaurant industry would make you long for passive income. Have you read the BP Beginner's Guide? Have you narrowed down where or how you would like to jump into investing?

The good thing about your desire for passive income, is that you're probably going to need to factor in the property manager. And if you factor in a property manager, you should be willing to invest in a market where the numbers are great. You don't necessarily need to live there. So the possibilities are endless. If you'd like to know more about southern Colorado let me know. I'm still learning, but I'm willing to share my experience.

Mike

Hey Craig! Thank you for your service.

You said financing seems to be holding you up. Have you met with a couple lenders to see where you are at and what they can do for you? I would recommend sitting down with a couple mortgage lenders from national (big) banks and a couple from local or regional banks. We're self-employed and write off a lot of expenses, so it has been tough for us to get lending. But now we've found a local bank who has been excellent to work with and really opened up new possibilities.

Also, if you're looking to move into your first purchase, you are in great shape. This usually allows lower down payments and lower interest rates.

I hope you find that first property that works for your residence and as a rental.

Mike

@Christian Lautenschleger Welcome to Bigger Pockets. This is great place to learn and get feedback on any first steps/ deals you're considering. I'm relatively new to Real Estate investing, so I'll share the steps I took over the last 6-12 months.

1) Podcasts- I haven't read any Real Estate books, but the Real Estate Guys and Bigger Pockets podcasts have taught me a ton.

2) If you're planning on using a lender, chat with a few. Maybe two at national banks and two from local/ regional banks. Don't let them run your credit, but get a good idea of what they can do for you and who you might want to work with long-term. Then let the one you like run your credit and get pre-qualified before going house hunting. If you don't have cash or a lender lined up, you're wasting your time and your Realtor's time.

3) Pick a market- The forums here are a great resource for different markets. Once you have one you like, I would meet 3-4 Realtor and 3-4 Property Managers. This will help you learn the market and start building your team.

4) Find the first deal- If you're just entering the market, you might want to start small. If you get a mortgage on a $50,000 property, you are only out of pocket around $12,000 for your first experiment. If you jump into a $150,000 property you'll be out of pocket around $32,000 and any mistake you make will much more pronounced. It is one thing to have a property sit empty when the payment is $250 per month. It is quite another when the monthly payment is $750 or $800 per month.

5) Get feedback- Once you're ready to make that first offer, lean on your Realtor, property manager and bigger pockets for feedback. I haven't joined a REIA and don't have many investor friends. So getting feedback from Bigger Pockets was huge for me.

So there's a few action steps that I ran with as a beginner and it seems to have worked well. I found a 4-plex for $85,000 in need of no repairs and with three units already occupied. I'm hoping to pick-up another single-family home by the end of the year and keep growing my portfolio next year.

Mike

@Marcus Johnson Good question. We have a buy-and-hold strategy. We look for 2% rent to purchase price, $200 cash flow per door and 30% return on cash investment (with a mortgage). In our market, appreciation isn't likely, but the purchase prices are low and the cash flow numbers are good. It should be noted that the 2% guideline most often works in properties priced well under $100,000.

The 2% guideline can't be found in every market. So you'll need to decide if you're committed to staying close to home and can find numbers there that make you happy... or if you're willing to chase better returns in more distant markets. One quote that really sticks with me is, "Live where you want to live, but invest where the numbers make sense." Being overseas forced us to use property managers, but it has also led us find better numbers outside our home area now that we are back in the US.

Mike

@Jason D. I would definitely rent it out if you're having trouble selling it. If you add in 10% for property management, 10% for maintenance and 5% for vacancy, that is another $450 in expenses. $1800 - $1000 - $450 = $350 cash flow per month with conservative numbers. Unless you need to sell it for some other reason, I would hang on to it.

On challenge might be in finding renters who pay $1800 to $2000 per month. Most people who can afford this can afford to buy, so they aren't renters. So you're marketing to a very small group of people. It might be worth chatting to a couple property managers to talk about rents and vacancies in this piece of the market.

Mike

Great thread! We are just getting into low-income rentals.

We are also in smaller cities, so I think the "rough" areas aren't as "rough" as you might find in the major metropolitan areas. We just have five units at the moment, but they all rent for between $475 and $600 a month. We do use a property manager, so gives us a bit of a buffer from many of the headaches that come from owning low-income rentals.

We have a buy-and-hold strategy. We look for 2% rent to purchase price, $200 cash flow per door and 30% return on cash investment (with a mortgage). In our market, appreciation isn't likely, but the purchase prices are low and the cash flow numbers are good.

Our heart is make a profit, provide safe and affordable housing and to give back to our tenants. We're exploring ways to do this. One is just giving a gift card in December no matter how long they have been with us or if they are current on rent. As we build a larger portfolio we're also going to look into offering them a free month of rent if they complete a financial management course.

Mike

Hey Jordan,

I just found an insurance broker I really like. My local lender passed his card to me. I didn't give it a thought until my previous insurance provider gave me a ridiculously high quote on a new property we were purchasing. My Realtor also recommended a company. So I asked both for quotes and went with the first because of great communication and a great price.

So I would work your network for referrals. Grabbing a random company off the internet may not lead to the long-term relationship most investors want from an insurance broker.

Mike

@Andy Robison You're doing a good job crunching numbers and using Bigger Pockets to gain perspective. Jerry W's breakdown of our your second property was great. I would use the 2% (rent to purchase price) and 50% rule just to get an idea if it is a possibility. But plugging in the actual numbers is always best before pulling the trigger. I would definitely factor in the property manager from the beginning, whether or not you plan to use one over the next couple years.

Someone mentioned earlier that $22,000 cash into a deal was probably high for your first deal. I like the third property you mentioned at $33,000 because you should have a lot smaller initial investment which leads to less stress as you're learning.

Do you have a good lender, Realtor and property manager giving your input as you look to invest? Leaning on the local knowledge of people in the business can really pay off.

Mike

@Pam R. On a good month you would be cash flowing $525 a month, which is great. But most investors would want to factor in maintenance (10%) and vacancy (5%) to get truer numbers. Since we were previously overseas and are now investing about 40 minutes away, we also factor in property management (10%). If you are managing the properties yourself, as you build the portfolio, you will have created quite a job for yourself. When you factor all these expenses in, your cash flow would be down to $220 per month.

So with these numbers factored in, we shoot for 2% rent to purchase price. That means if you bought a house for $123,000, it would need to rent for $2460 per month. These numbers are hard to find in most areas and impossible for find in some areas. Many investors are willing to purchase a property that hits between 1% and 1.5% if it is in a good neighborhood.

I hope your single-family house hunting goes well. I would encourage you to push for more aggresive numbers so you could afford to hire a property manager in the future or still cash flow if rents take a hit.

Mike