Need advice on investing in my first prop...

[blittles]

Hello,

I am very new to this and I'm looking to invest in my first property.
I don't know if I should buy a vacation home and rent it out or if I
should buy a regular single fam home and rent it out....which ever
brings in the most profit. I don't know where to start...please help
me. I'm looking to make an extra $500 or more a month but it seems
like some homes do not bring in that much a month....please help!!!
where should I start???

P.S. My credit score is not that high but it will be a year since I purchased my home that I am currently living in.

Thanks,
B. Littles

[Debbie]

Hello,

I am very new to this and I'm looking to invest in my first property.
I don't know if I should buy a vacation home Not recommended for novice and rent it out or if I
should buy a regular single fam home and rent it out Better for novice....which ever
brings in the most profit. Duplex/Triplex/Fourplex brings in better cash flow compared to Single Family Home I don't know where to start...please help
me. I'm looking to make an extra $500 or more a month but it seems
like some homes do not bring in that much a month (Hubby and I own two sideXside duplexes--after mortgages, property taxes & insurance, we get more than $500/mo---in a great neighborhood....please help!!!
where should I start???

P.S. My credit score is not that high but it will be a year since I purchased my home that I am currently living in.

Thanks,
B. Littles

I highly recommend that you take time to look around. If you really want to bring in $500 or more per month after mortgage, taxes, insurance then take the time to look around. When we bought our two duplexes, it was 13 yrs old (now 14 1/2 yrs old) each side has 2 bd/2 full bath/attached 2 car gar. Property taxes a little high. We remodeled. Added fence in backyard. Plus, we made sure that it's in great neighborhood. Although we paid retail for them, but we paid less than comparables. That automatically gave us equity on top of the 20% down (our choice for down payment). The over $500/mo profit only applied if there's no vacancy plus a portion goes towards maintenance. Rest goes towards our young daughters' college funds.

We do have SFH. We've been very, very lucky that the vacancy has not exceeded more than couple of weeks. Imagine the vacancy lasted a few months-----there's no income to cover the mortgage, insurance, property taxes. Keep that in mind.

Keep us posted.

Thanx. Debbie

[Aldo]

I'm not going to be as gentle as the prior post. I'm just too realistic for that.

The truth is that you will never find what you are looking for without an enormous down payment. How enormous? I'd guess about a 50% percent down payment would be an absolute minimum. Experienced investors with great credit and an outstanding investment track record rarely expect more than $150-200/mo positive cash flow at the time of purchase. Many find $100/mo per unit to be acceptable. Vacation rentals are not the ideal investment for someone without rental experience. But, that's the bad news.

Here's the good news. For a new investor, the ideal property has two to four rental units - no less and no more for reasons I won't go into at this time. The generally accepted rule of thumb is to buy a property that will generate not less than $100 per month, per rental unit of positive cash flow. In the current RE market, even that is a hard criterium to meet. They're out there, but you really need to beat the bushes to find them.

[Debbie]

Blittle,

As I re-read my response, I'm concern that my statement regarding more than $500/month profit might be misunderstood.
I was referring to earning $500.00/mo profit from ALL four units, with no vacancy. (Four units=two sideXside duplexes). In other words, $250.00/mo profit from a duplex or $125.00/mo per unit.

Just to clarify better for you.

Thanx. Debbie

[blittles]

Thanks Debbie and Aldo :smiley21: I will of course continue to do my research. Thanks for giving me some insight on this. Aldo, thanks for being honest....what about "flipping", would I have a better chance at that as a beginner?

[Aldo]

I'm not really up to speed on flipping as I've only flipped one property which was a lower end SFH that didn't need a lot of work.

I can say that a flipper gives you a nice paycheck when sold, but there's usually a lot of work and expense involved in preparing the property. Often the projected expenses can be included in the mortgage, but you really have to know what you're doing to pull that off. I once bought a 4 that needed a lot of heavy duty work. I bought it for $44K, the seller took back a $4K second mortgage and I got a $59K first mortgage. So, I'm proof that it can be done.

Personally, I prefer the relatively stable monthly income of buy-and-hold properties. If you don't get advice about flipping in this thread and want an overload of info, you might want to start a new thread and title it something like "Should I Flip?"

[Bernie (FL)]

Hello:

I'm not a experienced investor, actually I've yet to invest in anything but from being on here, studying rei techniques. I would say a good start for you would be bird dogging to get your feet wet. You will get a lot of guidance on this forum. Just remember, once you start having success, don't forget the help the fine people on here gave you and give back by helping others.

Oh, welcome to the forum!!

[SlumLordMike]

Experienced investors with great credit and an outstanding investment track record rarely expect more than $150-200/mo positive cash flow at the time of purchase. Many find $100/mo per unit to be acceptable.

I'd honestly say that I have 'good' credit and a 'good' track record. By Aldo's standards I'd say I have been lucky. I have a string of rentals that posi-cashflow between 150 and 415 a month. The average is 250 on the no money down deals, although the 415 was only an 8k downstroke. A lot depends upon your market and purchase price combined with any rehab cost. All my properties are currently SFH's.


For a new investor, the ideal property has two to four rental units - no less and no more for reasons I won't go into at this time.

Uncle Aldo, would you please go into that now or start a new thread at your convenience? I'm really interested in your reasoning. My insurance man kinda covered the "over 4" thing, but I want it all spelled out straight from the land of cheese and miniature deer.

Oh, ya godda love da packers, eh?

[Aldo]

In addition to knowing a fair number of local investors, I've participated in the Q&A at mrlandlord.com daily for over 8 years. During that time, this topic has come up many, many times and the general consenus, nationwide, is not less than $100/mo per unit - regardless of the size of the property. I must commend you for the cash flows you're achieved, especially considering that yours are sfh's. I've had a few multi's like that, but not many. (Note that I only do multi's.) The difference between my (probably our) nothing down deals and those of new investors is that my (our) deals involve Starker money. While there is a downstroke, it doesn't come out of my (our) pockets. That's obviously an issue that can be confusing to new investors.

What's this about miniature deer? I'll have you know that, last November, a friend murdered a deer that weighed almost 35 pounds before he undressed it. (I've heard stories about hunters and I won't even go there.) He gave me half of the meat and that made the best cheeseburger I've had since the last time I went to McDonald's.

da packers you refer to must be them thar feetball players (I've never seen any one run on one foot) that the Green Bayers keep talking about. I'm not sure how they came out in the Volleyball matches, but I think they beat Lower Slabovia in the Ping Pong finals.

To the 2-4 unit issue! The title of this thread should be enough to attract anyone interested, though it might be good to repost this from time to time for new members and/or visitors.

You mentioned the cost of insurance and that's certainly an issue, but not a biggie. A $120/yr difference in insurance premiums for identical properties is ten bucks a month. Anyone who can't cover that overpaid for their property or failed to run the numbers.

The most important (say extremely critical) issue is that an investor automatically (usually) becomes a landlord. While investing can be complex, landlording can be, and is, more complexer. There is a whole different set of laws governing landlords and that's where the problem comes in. A savvy investor will have a 'back porch' contingency in his/her CFD while a landlord has zero protection for, say, a lead paint or mold lawsuit. Trust me, that's the good news because day-to-day landlording is fraught with legal and nuisance issues ranging anywhere from parking space assignment to proper eviction procedures.

If you wish for more info, I'll gladly expand on this because every investor out there needs to know how to deal with the tenants they often inherit when they acquire a property.

[SlumLordMike]

To the 2-4 unit issue! The title of this thread should be enough to attract anyone interested, though it might be good to repost this from time to time for new members and/or visitors.

You mentioned the cost of insurance and that's certainly an issue, but not a biggie. A $120/yr difference in insurance premiums for identical properties is ten bucks a month. Anyone who can't cover that overpaid for their property or failed to run the numbers.

My insurance guy, who has always been competitive, quoted me 3500 bucks on a brick ten plex selling for 250k. I pay about 2000 bucks to insure 250k worth of SFH's. So when I talk about over 4's being costly to insure, that was my meaning.



The most important (say extremely critical) issue is that an investor automatically (usually) becomes a landlord. While investing can be complex, landlording can be, and is, more complexer. There is a whole different set of laws governing landlords and that's where the problem comes in. A savvy investor will have a 'back porch' contingency in his/her CFD while a landlord has zero protection for, say, a lead paint or mold lawsuit. Trust me, that's the good news because day-to-day landlording is fraught with legal and nuisance issues ranging anywhere from parking space assignment to proper eviction procedures.

If you wish for more info, I'll gladly expand on this because every investor out there needs to know how to deal with the tenants they often inherit when they acquire a property.

I was more looking for why a 2-4 vs. a SFH. Break it down for us Ice-A.

[Aldo]

.......quoted me 3500 bucks on a brick ten plex selling for 250k Is that for real?? Last June, the premium for my brick 12-family valued at $450-500K was $1318. (See a pic of it at www.apts-4-rent.com) The entire premium for my then 42 units in seven properties was $5975. I use the American Family Ins. Co. Business Owners Policy with $500K liability and added liability coverage provided by a separate umbrella policy. I'm absolutely astounded seeing the rates in your area and would like to think that you can find better rates. Have you tried shopping insurance brokers?

I was more looking for why a 2-4 vs. a SFH There are the standard pros and cons attached to both. I'll offer the two major pros for each.
1) SFH's have greater appreciation and longer term tenants
2) 2-4's have greater cash flow and provide income when a vacancy occurs.

Okay. I lied. There is a third, more huger and maybe the most hugest, pro which, in the end, is a plus for any investor with the intent to acquire more properties. As in any industry, some people simply are not cut out for certain 'jobs'. In our industry, that job is often landlording. Managing a 2-4 offers greater exposure to dealing with tenants and serves as a tolerance test. If a person succeeds in landording a 2-4, s/he will do equally as well with a SFH. If that person finds that s/he simply can't deal with tenants (even with the help available here), a different investment strategy might be a good idea.

[jzajzz]

.......quoted me 3500 bucks on a brick ten plex selling for 250k Is that for real?? Last June, the premium for my brick 12-family valued at $450-500K was $1318. (See a pic of it at www.apts-4-rent.com) The entire premium for my then 42 units in seven properties was $5975. I use the American Family Ins. Co. Business Owners Policy with $500K liability and added liability coverage provided by a separate umbrella policy. I'm absolutely astounded seeing the rates in your area and would like to think that you can find better rates. Have you tried shopping insurance brokers?

I was more looking for why a 2-4 vs. a SFH There are the standard pros and cons attached to both. I'll offer the two major pros for each.
1) SFH's have greater appreciation and longer term tenants
2) 2-4's have greater cash flow and provide income when a vacancy occurs.

Okay. I lied. There is a third, more huger and maybe the most hugest, pro which, in the end, is a plus for any investor with the intent to acquire more properties. As in any industry, some people simply are not cut out for certain 'jobs'. In our industry, that job is often landlording. Managing a 2-4 offers greater exposure to dealing with tenants and serves as a tolerance test. If a person succeeds in landording a 2-4, s/he will do equally as well with a SFH. If that person finds that s/he simply can't deal with tenants (even with the help available here), a different investment strategy might be a good idea.


I got a 3 family unit .. after PITI it's $600 .. but you gotta realize that you shouldnt look at that $600 as profit... that $600 goes toward paying for Water and Sewer .. and in my case ..property management .. I highly recommend property management for someone new to the game.. Landlording as Also menitoned is not for everyone ..and can get annoying.. I pay 8% to my property manager and that relieves a whole lot of stress especially since my property is 2 hours away...

Prop. management company takes care of maintenance .and they know THE LAW .. so it's essential to know the TOWN law to protect yourself against lawsuits and such ..