First home purchase
Hi Fellow investors,
Me and my wife are under contract for our first property listed as a SHF with 4 BDs 2 BATH, 5 minutes from garden of the gods driving. The property also has its own ADU on the side that's completely detached from the main house. Has its own kitchen, bath, laundry hookups, little yard and living room space.
We Plan on living in the main unit for over 5 years atleast. Is this a good investment? House was 570k and that ADU projected rent is atleast $1700 a month. We are only putting 5% down with conventional.
And what are some ways we can continue to build our portfolio in RE?
Looking forward to your honest replies
Quote from @Jean Pierre Jabo:
We can't answer if this is a good investment without all the details. It looks pretty good on the surface. You have an affordable place to live, about half your mortgage payment is paid by the renter, you get to dip your toes in the investor/landlord waters, and you are in a market that should continue to appreciate in value.
I recommend reading and educating yourself while saving up for the next investment. Learn from people with 30+ years of experience, not the YouTube gurus that bought all their investments in an ideal market.
1. Start with BiggerPockets Ultimate Beginners Guide (free). It will familiarize you with the basic terminology and benefits. Then you can read a more in-depth book like The Book On Rental Property Investing by Brandon Turner or The Unofficial Guide to Real Estate Investing by Spencer Strauss.
2. Get your finances in order. Get rid of debt, build a budget, and save. The idea that you can build wealth without putting any money into it is a recipe for disaster and the sales pitch of gurus trying to steal your money. A wise investor will not try to get rich quick with shortcuts. If you can't keep control of your personal finances, you are highly unlikely to succeed in real estate investing. Check out my personal favorite, Set For Life by Scott Trench , or The Total Money Makeover by Dave Ramsey.
3. As you read these books, watch the BiggerPockets podcasts. This will clarify and reinforce what you are reading. You can hear real-world examples of how others have built their investment portfolio and (hopefully) learn to avoid their mistakes.
4. NETWORK!!! Get out of your comfort zone. Stop hanging out with your deadbeat buddies that spend all day drinking, talking sports, and otherwise wasting away. Go to BUILD YOUR TEAM at the top of the screen and look for local investors or meetups in your area. You can also find real estate investing groups through meetup.com, facebook, or a Google search. Birds of a feather flock together!
5. Now you need to figure out how to find deals and pay for them. Again, the BiggerPockets store has some books for this or you can learn by watching podcasts, reading blogs, and interacting on the forum. A handy search bar in the upper right makes it easy to find previous discussions, blogs, podcasts, and other resources. BiggerPockets also has a calculator you can use to analyze deals and I highly recommend you start this as soon as possible, even if you are not ready to buy. If you consistently analyze properties, recognizing a good deal will be much easier when it shows up. Find Brandon's videos on YouTube for the "four square" method of analyzing homes and practice. It doesn't take long to learn how to spot a good deal.
6. Study the market. You can learn to do this independently or get a rockstar REALTOR to lead the way. I highly recommend a well-qualified REALTOR who works with investors and knows how to help you best.
7. Jump in! Far too many get stuck in the "paralysis by analysis" stage, thinking they just don't know enough to get started. You could read 100 books and still not know enough because certain things must be learned through trial and error. You don't need to know everything to get started; you need a foundation to build on and the rest will come through experience and then refining your education.
You can build a basic understanding of investing in 3-6 months. How long it takes to be financially ready is different for everyone. Once you're ready, create a goal (e.g. "I will buy at least one single-family home, duplex, triplex, or fourplex before the end of 2019") and then do it. Real estate investing is a forgiving world; the average person can still make money even with some big mistakes.
#2 House Hacking Contributor
- Investor
- Charlotte, NC
Hey @Jean Pierre Jabo,
First off, WELCOME!
Second, congrats on being under contract for potential house hack. It sounds great off the cuff. I hope the contingency period goes smoothly for you.
@Nathan Gesner makes some fantastic points! I think following that advice would be very helpful for you.
To piggyback off of what he said, I'd focus on the long term vision. Build a solid foundation from the start, so adding to your portfolio won't be a problem. Use this first investment to see what you like and don't like. Do you like being a landlord? Do you like hosting (MTR/STR)? Do you like any DIY projects or is hiring a contractor your thing? Etc.
Your net-work is huge in this industry, so I'd encourage you to go to local meet-ups, spend time with other successful investors, etc.
Keep educating yourself. Every resource Nathan mentioned was great, but I would like to add Chad Carson as a great resource. His book The Small & Mighty Investor is a great read and possible mindset shift for your investing career.
Good luck on your first house hack Jean!
#1 Contractors Contributor
- Contractor/Investor/Consultant
- West Valley Phoenix
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#1 Contractors Contributor
- Contractor/Investor/Consultant
- West Valley Phoenix
What is your NET cash flow? That's the big question.....
@Jean Pierre Jabo
How much would you pay in rent for a similar 4bd/2bath in your area?
Goal is to reduce your biggest expense (housing) with income coming from the ADU to save money for your next RE purchase.
And is the projected $1700 income from the ADU comps for a long term lease? Its possible you can get more with MTR/STR.
Nathan, thank you for your reply and good wisdom and great insight on this question that I had
Wesley I. Its around $2200 and ofcourse depending on location. But the ADU comp is for MTR, so usually about 3-5 months