First Time Investor - What TO DO - a little advice - Posted by Allan

Posted by Allan on April 02, 2007 at 18:06:56:

I agree Tim - I’ve read some books on leveraging, etc…use as little as possible of my own money with the positive cash flow in mind…thanks for the advice.

First Time Investor - What TO DO - a little advice - Posted by Allan

Posted by Allan on April 02, 2007 at 17:07:15:

Here’s a hypothetical question for those that are expert/seasoned investors…I am currently 23 years old in CA, own a Primary Residence and an income property with an approximate equity of $200k, which I actually have a line of credit of $100k - untouched (adjusted as of today’s market). I have also saved about $200k in liquid cash from previous sale of my previous residence which I think is a good starting point to start investing for some real estate cash flow properties. If YOU were in my shoes, how much of the approx. $300k should I invest? Any idea where I could find such properties with at least 8%+ cap rate? I’m sure it wouldnt be in California…your’e great advice will be fully appreciated…just think of it as helping the next generation…

Re: First Time Investor - What TO DO - Posted by Rich

Posted by Rich on April 06, 2007 at 19:43:58:

I would look at markets with growing job base (more jobs = more demand) and houses in the 100K range. I would look at favorable landlord laws. I am now looking at Nashville, Memphis, and a couple of others with solid population and job growth. With $300K, I would buy 5 - 7 of these (you get better rates with 30% down) for rent. Or in some geographically restricted areas, Townhouses make a good buy. I would stay away from condos. They are too much like apartments.

Re: First Time Investor - What I would do - Posted by Don (VA)

Posted by Don (VA) on April 04, 2007 at 14:55:49:

As the other posters say, congratulations. However, in addition to Tim’s caution, let me add that you’ve done your investing in a spectacularly good market. It was difficult, from 1997 to 2005, to buy a decent residential home and lose money…in fact, it was difficult not to make a bundle. And, judging from your age, you couldn’t have started buying before 2002. So you caught the crest of the wave.

Be more careful now. We’re in a downturn now (as we were back in 1991-1992) when prices actually can go down, and even decently-priced properties can sit on the market for months and months.

You talk about investing for cash flow, which is fine. However, cap rate is a term typically applied to commercial property. If that’s what you mean, that’s fine. If you mean residential property, that’s different. Also, regarding cap rate, I don’t invest in commercial property but heard a great presentation from a commercial investor at my local REIA. (Guy’s name is Shawn Scarlatta. He’s not a guru, just an investor.) He made the point that you’ve got to look way, way beyond the cap rate…and that the cap rate itself really isn’t the best measure…cash on cash return is a better starting point. And you’ve got to do your due dilligence, look for the right geographic areas (certain spots in the Midwest appeal to him; there’s a lot of debate over areas of Texas).

He did recommend a guru’s bootcamp; I’m not going to plug it, but do some research and know what you’re getting into and how commercial investing works.

If you’re looking at residential property, considering the current economy, I’d try to find underpriced nice properties in decent areas. Don’t go negative cash flow, but consider keeping that thin today for the extra return you’ll see (nice property, good appreciation, good area) when the economy rebounds in a couple of years.

Re: First Time Investor - What TO DO - Posted by Chris

Posted by Chris on April 03, 2007 at 14:50:55:

I am in Central NY, a 4 unit in good condition, but in the city goes for 80k and gorss’ 24k per yr, taxes and water 2500 yr. The cash flow is great but there are downsides to investing here, lots of bs, if you’ve got the stomach for it there is money to be made.

Re: First Time Investor - Posted by Natalie-VA

Posted by Natalie-VA on April 03, 2007 at 12:39:35:

Whatever you do, continue to make good decisions like you already have. You appear to be in a great position at a young age. Congrats!


here’s a little - Posted by Tim

Posted by Tim on April 02, 2007 at 17:19:38:


It wouldnt matter how much cash you have you still need to be frugel and protective of your money. It’s been a while since I was in CA but don’t discount your market. The best thing you could do for yourself is to get creative and start thinking outside of the mainsteam way of buying properties while you start looking in your area for deals. I would suggest you start reading some of the articles on this site from investors that are proven and know what they are talking about.

It would only take a few bad deals to eat all of your cash and you would be stuck. So don’t rely on the amount of cash, rely on your ability to put together creative deals that will take as little cash from your pocket as possible with the highest return you can muster.

Tim - VA

Re: this got posted in the wrong place…sorry - Posted by Chris

Posted by Chris on April 03, 2007 at 14:55:38: