All Forum Posts by: Vernon Huffman

Hey mate,

I'd advise against $50,000 houses unless you are full time on the ground.

Turnkey houses for $50,000 tend to be in rougher parts.

C or D class.

High crime, lot's of volatility, boarded up homes, no upside from an appreciation standpoint, cars with no wheels lol and PM collects rents with a bullet proof vest and shot gun.

Works well for some and the hustle is real. But you gotta be on the ground.

Great on paper and some years you might get 15% returns and next year -15% returns.

Plus, there is no true value in such areas as homes sell for $1,000 and others to unsuspecting out of state buyers for $60,000 where the provider makes a $20,000+ margin.

Then it goes vacant, vandalized and back to a $1,000 house

Looks for areas with a more consistent sales value where homeowners also live and not just investor owned.

B class in my eyes is:

1) Close to infrastructure like schools, hospitals, shopping mall, larger employer, etc...
2) Mix of homeowners and investor owned (leaning toward more homeowners).
3) Well kept yards and no boarded up homes. Very few vacant.
4) Tenants employed and pay rent online.
5) Consistent and stable sales prices.

Just to name a few.

Also, sub $100,000 properties need volume to work.

10+ properties in your portfolio as the likelihood of 1 or 2 being vacant at any given moment is high.

Been plugging away at this game since 2012 and lost my A$$ in the ghetto of Rochester buying sub $50,000 and also bought A class condo's in Chicago North of $500,000 which was a breeze but return was 3%.

1,000 flips later I guess I could call myself a veteran 🙈

Wishing you well

@Vernon Huffman

-joining the landlord association isn't silly at all - kudos to you for doing that.  meeting people and going to meetings is actual work, and shows me that you are not in analysis paralysis.  most people want to sit in the dark and look on Zillow and call that 'investing.' it's not.

-creative financing is its own thing.  you can start looking for creative financing deals - i highly recommend seller finance, where the property you're purchasing has no mortgages on it - now, or wait.  they're hard to find, but the more work you put in, the more people you meet, and the more you know what you're doing, the more likely you are to find one. it took me 3 years to find my first.

-there's no issue with financing anymore, or a bank saying 'no,' as there is no limit to how many DSCR loans you can get. they weren't a mainstream product 20 years ago, and now they are. so there is no limit to how many mortgages you can have. i have a mix of conventional and DSCR on my portfolio.

@Vernon Huffman

yes, fixing everything up front is a great way to do it. that's basically the BRRRR method! and if you're handy that can be a huge advantage, as you reduce the cost as compared to someone that has to hire a GC.  but think back to 'netting' anything - if you buy and fix, you have 2 options:

1. don't refinance.  OK, you paid 50K for a house, spent 5K in closing costs, 15K to rehab, and you net (let's say) $500 a month.  that's 140 months to get your investment back, from the monthly cash flow.  i'm not saying that's not a good option - there are other benefits to real estate, such as depreciation and appreciation - but again, let's be realistic about how long it takes to recoup the cash.  $300K in a savings account paying 5% nets you $1250 in month 1. period. no funny business. no risk.

2. refinance.  you improve that property such that it's now valued at 100K. you refinance and cash out 70K. congratulations! that's a BRRRR and you've recouped your investment... but now you have financing on the property, and your monthly cash flow is probably <$100 a month.

@Vernon Huffman

those are paper numbers - it won't actually turn out like that in practice.  maybe in 5-10 years, after you've improved, stabilized, refined, sure.  but not in year 1, or 2, or 3...

if that's something you're interested in, start with 1, hire a great PM, and see what happens.

here in Pittsburgh you can buy 50K houses in decent neighborhoods... and they have years or decades of deferred maintenance and need lots of work.

I'd buy a multi-family property that cash flows in an appreciating market with a growing economic base, like Columbus, Ohio.

I haven't explored this much but I think it would be an interesting strategy (this is assuming you don't need the cash for the next ~3-5 years minimum):

Invest the whole amount in something like VTSAX or the S&P500 or whatever big blue chip stocks a lender likes and pull like half the amount out in a loan or some kind of line of credit. Then use that money to buy properties in cash from motivated sellers, close the purchase super fast (use this to your negotiating advantage to make the deal more profitable), rehab (target a light-moderate job mostly cosmetic), and then you might be able to BRRRR profit but if it's not THAT profitable, then sell. Rinse and repeat.

@Vernon Huffman

welcome.  sounds like you're being thoughtful about this and you got some really thoughtful responses back, including from

@Travis Timmons

@Michael Dumler

just to pile on - it is very, very difficult to, in the short term, replace W2 income with income from long term rentals.  i have started to think of the first few years of ownership as a long stabilization period.  especially with interest rates where they are.  after about 6-8 years, depending on the timeframe you pick, my portfolio generates what I consider to be one part-time income.  so that gives me some flexibility... but it just has not 'replaced' a healthy W2.  with that said, i get another benefits as well, including depreciation that helps offset taxes on my W2 income, and i love watching the debt get paid down every month.

creative strategies can generate more income, but they are higher effort and higher risk.  so there's the trade-off.

Active = Buy, fix, flip, learn from mistakes, repeat, don't make same mistakes.

Passive = Buy, hold, buy more over time, never sell, collect cashflow (If investing out of state, you could consider turnkey. Yes, I'm bias 😁)

Just my opinion and wishing you much success

@Vernon Huffman I'd also try to get creative about some sort of house hack. Part of our plan is that our property in Maine is on 5 acres. We've bought an airstream to throw on the other side of the lot to be a short term rental unit. We also plan on leaving for 4-6 weeks every summer to get the short term rental income from our primary residence in peak season. It's not the traditional 2-4 unit multifamily or rent by the room house hack, but you get the idea - get creative about ways to make money off of your primary residence as well.

Overall point is that you probably need to get scrappy to get you to the point of leaving the W2. 

Never sure how real these posts are, but I'll take the bait and answer. What does $300k liquid mean? You have the cash or you have equity that will be converted to a HELOC, a retirement account that you will pull money out of and be subject to 10% penalties plus your tax rate? Not all $300k liquid is created equal.

As for your goal of replacing your W2, it's going to take longer than you expect and be harder than you hoped. Step 1 is getting your expenses to bare bones, next to nothing cost of living beyond the basics. Step 2 is developing a real subject matter expertise to get outsized returns in real estate. 

I'm a fan of Wes Moss's work. If you want to retire, you need a paid off house, $500k+ in liquid assets (usually a retirement account or after tax brokerage), and more than 1 source of income (RE, retirement account, social security for those of qualifying age, part time gig, etc.). 

My path was short and mid term rentals alongside a successful business that I recently sold AND swapping houses (from Houston to small town Maine) to pocket the difference in price. The rental income is nice, but the pile of cash in an after tax brokerage account and our monthly expenses being around $3500 (post move) is why I am able to leave the day job, not real estate. RE income is about $35k in a normal year, which is nice, but I'm one busted furnace was from that number essentially being cut in half. I also have a very part time contract gig that pays $8-10k per year as a supplement.

I hope that was helpful. I'm happy to connect and talk in more detail if you think that it would be productive. I have nothing to sell, am not an expert, but have made good and bad investments, gone slowly, and learned a thing or two along the way.