thinking of real estate investing..

where to start.. what to do... 

I'm not looking to flip homes.  I have a full time job.  I'm looking for ways to make money on the side and grow a portfolio of cash flow generation while someone else pays off my mortgage.  Recently a guy who was retiring at work told me all about how he started a real estate ladder years ago by buying land and slowly selling to developers.. eventually working a $6M deal on a big apartment building.  He's not hurting for retirement money.. 

I'm currently doing about 20-22% of salary(when you include all the weirdo matches my company gives me), so I'm doing OK for retirement.. but just want better.  

As a start, I signed up for bigger pockets and and starting to dig around.

Dish it like you're gossiping about the new season of teen mom at the water cooler.. 

In reply to Fueled by Caffeine :

You'll want something to deal with costs like property taxes, required maintenance.  Etc. Farm land near urban areas is always the traditional route to land investment.  If you're wise look for the younger farmers looking to grow to rent the land to.  A lot of younger farmers like it when you share the risks and rent it on a share cropping basis.  That way if the market tanks or there is a serious drought etc. they haven't put out a lot of cash.  
If you go that route the land rental fee has to reflect your risks as well.  

I am a big (295#) fan of Dave Ramsey.

About 2 1/2 years ago my brother and I wanted to get into Real Estate Investing and took this computer course just to get a feel of the industry. It gave us a good basic understanding of what was going on. $109.00, 6 weeks, well worth it. 1 1/2 years ago we bought a self storage property and it has been a great decision.

https://www.ed2go.com/princeton/online-courses/real-estate-investing

In reply to Datsun310Guy :

I'll listen to it.. I must say, I'm quite turned off by his mixing of god and money...  I've never loved his stuff, but I'm willing to change my mind.

In reply to Fueled by Caffeine :

This one is basic investment talk.  What happens if you're borrowed up and your renter flees?  Can you cover 3-4 months of mortgage?  

He's just talking about positive cash flow.

Dave ended up buying an office building for cash in Brentwood, TN. 

There's some serious risk in flipping. Have you thought about rental arbitrage? I know several real estate agents that run a side business of running short-term leases out of homes that investors/homeowners have had trouble selling.  They recoup their modest up-front investment in each property within 2-3 months then are profitable from then on.

Paging Toyman for his dad’s experience and dculberson

My dad dabbled in it. He found it was good in the diversification sense, but the market did better for the period he dabbled. He had other goals for his dabbling than making money, but it did teach him it would be too much work. 

Ive run some analysis and my own stress tests on it. I’ve found the following: 

1: if you’re doing a house, do it in a college town so you can rent by the bedroom. You’ll rent the entire house for $2,400 a month, but you’ll advertise it as $800 a bedroom. 

2: if you’re not in a college town, don’t do a house. Do an apartment building/triplex/duplex. That way if one sits empty for a while you’re still pulling in income. 

3: make sure whatever area you’re buying in still appreciates. Same thing as buying your house, location location location. If the home values are only keeping up with inflation, it may not be enough. 

4: look up the 1% rule. Seemed like a good idea to me.

5: Airbnb is throwing another interesting quirk into this that is worth exploring. I’d want to make sure that the locale allows it without too much red tape.

6: you’re a nice guy, FBC. Landlords sometimes have to be shiny happy people. Be ready for that.

I’m still considering it for the future, but I’ve never been able to drum up enough initial outlay to make it worth it FOR ME.

I'm keeping a bit of an eye out myself for a potential rental property in this area, so this thread is pertinent to my interests.

My thoughts:

• I'd abide by the 1% rule, which is one of the reasons I can't find suitable property here right now
• Careful with AirBNB and local ordinances (and condo rules if you're thinking condo). Given the pushback on AirBNB & friends in areas of the country, I'd only consider a property that makes financial sense as a long term rental and would treat potential AirBNB income as gravy. If it only makes financial sense as an AirBNB but not as a long term rental, you're vulnerable to changes in rules and something that may have been cashflow positive may suddenly go negative.
• It's a business, not a charity.
• It's not passive income unless you have a local management company. That was the setup I had to have with my last rental property (in the UK, after I moved over here). Factor that in if you can't occasionally be a Shiny Happy Person and/or don't mind fixing the clogged and broken toilet at 3am on Sunday. Or check that the renter actually closed the windows before buggering off to Ireland for two weeks. Fortunately my neighbour caught that one.

One of the best setups I saw catered to small business owners. When you walked in, there were a few offices (12x10 ish) that had their own walls and doors. Shared bathrooms, kitchenette, and conference room. So 1 floor had 5-6 "suites" for rent for $500-$700 depending on size. It gave the insurance guy. Wealth guy, private detective, whatever, a cheap office for his business, and got the landlord 3 times what 1 floor would get. 

In reply to Fueled by Caffeine :

IMHO he has some good, basic advice that is sound, but when I did listen to some of his stuff a few years back, there was some objectively bad advice mixed in. So I'd take what he says with a large salt lick in pretty much all cases.

How old are you ?

If you can do it  , think about storage units ,  maybe made out of 20-40 ft containers , 

If you are buying a house or duplex etc , you need to be able to do the  work like clogged drains  etc or  have a  person you can trust to get it done , 

And be strict  on payment ,  too many people are happy to leave in the middle of the night , and thrash the house on the way out !

Commercial. Stick with commercial. 

If I could do it again, that’s all I’d do. 

Commercial tenants livelihoods depend on their location. They can’t afford to not pay you the rent. Residential tenants will skip town at the first whim or whimsy. 

The best deals are multi-unit rental spaces. Picture a dozen small rental units. These will attract Ma and Pa businesses that don’t want drama, or have big legal teams. Service businesses (cleaning, plumbing, alarm companies, etc). They won’t have a lot of walk-in traffic. They will want easy access to an interstate.  That’s about it. 

Forget about complicated commercial leases. Ma and Pa don’t want anything to do with triple net leases, or long term.  One year leases. They will renew for 15 years straight. Offer them basic maintenance, 1200 SF Suites, dumpsters and lawn care at a simple price they can understand and you’re golden.  

Don’t buy cheap. It’s located poorly, and only a few problem tenants will want it.

Look for a break-even, with a slight positive (which pays for maintenance- pay it to yourself, or make nothing on cash flow). That’s ok. Your money is in the tax advantages, and the long term appreciation and rent hikes.   

Dont be afraid of a mortgage.  It helps you leverage into more appreciation and tax advantages.

After a couple years, mortgage the appreciation and buy another. 

The mortgage payoff should coincide with your projected retirement date. Then you will have serious cash flow to enjoy. 

Regarding AirBnB...

Its trendy. It’s in the news. I do it. And it’s tremendously risky. 

Every municipality in the country is reconsidering their stance on it. If you buy a property that depends on what you can get away with, expect that it can change in a heartbeat and you could lose everything. 

Another thing about commercial...

The maintenance calls only come during working hours. 

You will never get a 2 AM call about a clogged toilet. 

Real estate is a long game. Don’t believe the BS you see on HGTV about flipping, etc. 

Real estate is not a passive investment.   REITs are. 

Another thought, especially based on SVreX's comment about real estate being a long game (which I totally agree with).

The fact that both radio and podcast ads are filling up with the usual "make us rich quick by coming to our 'dare to be rich with real estate and house flipping' seminar" suggests to me that now might not be the best time to look at real estate. Even in this not very affluent area, homes that are in the price range for rentals seem to produce rents in the .3-.5% range.

Remember when these ads were clogging up the airwaves the last time?

Just a few thoughts. 

I agree with SVreX and Steve that commercial is the way to go, but based on first hand experience keep this in mind:

- Commercial loans will be for a short period of time and amortize over a greater period of time. Let's say 10 year loan amortized over 25 years. 

- Be careful of going in thinking you will not have problems at 2 am. You could be renting to a bakery that works overnight and clogs the drain lines because they are stupid and remove the grease trap. Or a Machine shop that works 3 shifts and the AC or heat goes out. 

In reply to Slippery :

Yes you are right. There are exceptions. 

But a machine shop would not be zoned commercial- that would be light industrial. Both a machine shop and a bakery are in the business of “manufacturing” product, not service businesses. 

I am suggesting a very tight niche. Ma and Pa service businesses. 

Choose your tenants by choosing the property that suits them. 

In reply to Slippery :

You are also correct on commercial loans... from a bank. 

These kinds of properties are frequently sold with owner financing. That would alleviate that problem. 

BoxheadTim said:

The fact that both radio and podcast ads are filling up with the usual "make us rich quick by coming to our 'dare to be rich with real estate and house flipping' seminar" suggests to me that now might not be the best time to look at real estate. Even in this not very affluent area, homes that are in the price range for rentals seem to produce rents in the .3-.5% range.

Remember when these ads were clogging up the airwaves the last time?

This. Finding any real estate in the current market that's priced low enough to be a good deal is extremely difficult. Doesn't matter if it's raw land, a flip house, or a multi family rental property. Everybody wants to be a real estate investor right now and prices are just too high. Around me, medium scale land lords are unloading many of their properties right now because they're more profitable to sell than they are to keep as rentals. I think now is the time to be watching, learning, planning, and saving up rather than buying. At least that's what I'm doing. It just seems like the smart money got into real estate 7-12 years ago and is now holding for the long term or cashing out and selling to people that are late to the party (for handsome profits).

I say something similar in most of these threads that come up, but you have to do the math. Real estate ties up your resources in a single asset (more risk), it's more expensive and time consuming to buy/sell, it complicates your taxes and insurance more than an index fund, etc. If money in an index fund is going to average 7 or 8% returns over a 30 year period, you need your real estate to do better than that by a decent amount or it's not worth the hassle for an average person. Know the math inside and out (income taxes, property taxes, insurance, property management, depreciation, maintenance, vacancy etc). Be patient and prepared so you can act when the right opportunity comes along.

There is only one real estate investment that isn't a lot of work: buying a property at the beach and going there to relax. Anything else carries work and risk.

Most real estate investors have put in more work for lower total returns than they would have you believe. 

Don't discount the amount of luck involved in most success stories.

The advice you get from any 'successful' real estate investor who hasn't been doing it for more than 10 years, is from somebody that has only ever succeeded in an up (easy) market...And never in a down (difficult) market.

R.E.I.T.