How to Build an Out-of-State Investing Team in Any Market (Rookie Reply)

0:00Tony:What if the cash flow number you're chasing is actually holding you back from getting your first deal? Today, we're breaking down the real math behind minimum cash flow, why it matters, and when it doesn't.

0:11Ashley:We've also got a question that stops a lot of rookies in their tracks. Should you buy an investment property before you buy your primary home? Plus, we'll tackle how to build a rock-solid out-of-state investing team when you're totally brand new.

0:28Tony:This is the Real Estate Rookie Podcast. I'm Ashley Kerr.

0:31Ashley:And I'm Tony J. Robinson. And with that, let's get into today's first question. All right. Today's first question comes from John in the BiggerPockets forum. And John says, as the market is changing, and I'm seeing in my market that more houses are producing lower cash flow, what would be your minimum cash flow that you'd like to see from an investment? I know that there is a lot to consider, but if cash flow really is king, would you be okay with a$150 a month cash flow in a growing metropolitan area? We're seeing different versions of this question I think pop up a lot recently around, can we still get cash flow?

1:05Ashley:How much cash flow should I take? What's good cash flow versus what isn't? I think that there's a lot that goes into this, and I'm curious for you, Ash, what your take on it as well. But I think the good cash flow can vary a lot depending on the person, depending on how much capital you put into that deal, depending on, you know, so many different factors. So to boil it down to say, is it good or is it bad? I think it's a little difficult. Funny enough, you say 150 because that was the actual cash flow, my very first deal that I ever did. That first long-term rental that I bought in Shreveport, Louisiana.

1:41Ashley:um my cash flow after everything you know property management vacancy you know um capex uh was 150 bucks per month to me that was an amazing deal because i had zero dollars in that property i literally had zero dollars into that deal so i had an infinite return so for me 150 bucks i had a pm you know maybe took me a couple hours a month to kind of deal with the pm um but it was 150 bucks and basically free money that I was getting. I had a tenant paying down the mortgage. You know, it wasn't a super strong appreciating market, but still there was some level of appreciation. So for me, 150 was great.

2:21Ashley:So that's how I would approach it. It's like, well, what am I putting into it? How much time is it involving? Am I getting any other ancillary benefits? What's your take, Ash?

2:31Tony:Yeah, the last thing I would add is what else could you do with any money invested into the property? or with your time that you're going to be putting into managing this property and really seeing if there's a better opportunity for you. But I think that can also get you stuck in analysis paralysis where you're becoming too concerned about getting the best and the greatest return on your first deal. That first deal is going to bring you so much value by propelling yourself into your real estate investing journey.

3:01Ashley:I think it's also important to understand what kind of market you're buying in, are you buying in a market that's meant for, you know, quote unquote, high cash flow? Or are you buying in a market that's meant for maybe more appreciation? And if your main focus is just like maximizing cash flow, then yeah, maybe 150 bucks a month isn't enough for you. And you need to go into a market where you can maybe extract more on a monthly basis. But if you're buying in a market, you know, like where I live in Southern California, where appreciation, you know, historically has been really, really high, then 150 bucks a month is probably pretty good if you know you're going to gain, you know, eight, 10 % a year in appreciation or something to that effect.

3:35Ashley:So I think the market types and managing those expectations is important. But the other thing, Ashley, I think is, and, you know, John didn't really specify here. But when he says 150 bucks per month in cash flow, is that like true net net cash flow? Or are you just taking, you know, gross rent, minus your mortgage and calling that cash flow? Because in addition to just your mortgage and whatever other kind of ancillary property expenses you have, you still have to account for things like potential vacancies, repairs and maintenance, CapEx. And if your 150 doesn't include those, then I would assume that once you start adding those things in, you might be barely breaking even or potentially negative.

4:15Ashley:So at that point, I think generally speaking, probably not going to recommend that anyone does that deal. If you're actively losing money every single month on a property, there are probably some unique situations where it does make sense, but in a general sense, usually we don't want to be negative on a deal. So I think also looking at, are you actually calculating the true net net cash flow? And guys, this is why the bigger pockets calculators I think are so helpful, because it forces you to make sure you're accounting for all of those things that a lot of rookie investors might miss. Ashley, I guess one last question for you on this one.

4:46How important do you think cash reserves are

4:49Ashley:when determining the type of cash flow that you're willing to accept.

4:54Tony:Are you saying like how much you should have saved before?

4:57Ashley:Not quite, but like, yeah, so like, I guess when I think about 150 bucks per month, if your water heater goes out and say it's only been running for six months, at 150 bucks per month, you don't even have enough to replace your water heater, you know?

5:13Tony:Well, I think that goes back to the true cash flow. is$150 after you've already accounted to saving 8 % for repairs and maintenance going forward too. And CapEx, saving for that. So I think that's a big factor in how that compares. If you are already counting that you're going to spend X amount every year anyways in repairs, maintenance, and capital improvements as to whether. But if you're not in that 150, like that 150 is going to be enough when you knew that roof or that HVAC. And you're going to end up, if you're not accounting for those variable expenses, you're going to realize a couple of years from now, you actually have negative cash flow on that property.

6:00Yeah.

6:01Ashley:And I guess, yeah, that's, that's where I was taken is like, if, if you're, if you're jumping into this deal and you know, maybe you use all of your extra cash on actually acquiring the property and you're, you don't have enough set aside for some of these surprise expenses, even if you're setting money aside on a monthly basis for CapEx and reserves, if something big happens in month number three, probably haven't set aside a whole heck of a lot. And if you don't have any excess funds, then yeah, 150 bucks a month is definitely not enough. Right. So So I think there's also a discussion around, or at least you should take into account how much reserves you have going into the deal to kind of weather some of these storms because I think it does make a difference.

6:40Tony:Up next, should your first move to be buying an investment property instead of your own home? A lot of rookies think this shortcut gets them ahead. We'll break it down right after this.

6:50Ashley:Did you know your house gets bored when you leave? I can't actually prove that, but it probably misses out on the action, the footsteps, the late night fridge raids. Yeah, when you're gone, your place is basically on unpaid leave. It's sitting there in the dark thinking, I could be contributing right now. Your side room wants a side hustle. Even your Wi-Fi is like, we could be networking. You're on vacation, spending money like it's a sport while your staircase at home is fully capable of sending your income upwards. Here's the twist. You can go on a trip and actually earn money. Airbnb makes that possible with the co-host network.

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9:55Tony:We just talked about minimum cash flow, and now we're moving into a decision a ton of rookies wrestle with. So this question is from the BiggerPockets forums, and it says, hey, everyone, I am weighing the options between buying an investment property before a primary. I am still staying at home. My girlfriend has one more year of law school, and then we will stay with my parents for one year before looking to buy our primary home with joint income so she can have a year's income at least to show. I have a real estate mentor who is helping walk me through the whole process. Nothing crazy. On top of all this, I will still be working and saving.

10:29Tony:Should I look to dive into a rental property or just wait to buy one after we get our primary? I feel it's better to start building the foundation early. I totally agree with that is to start. It's better to start now than to wait. And it doesn't necessarily mean starting with a rental before starting with your primary. One thing that I noticed that I want to call out is saying that he wants to wait for his girlfriend to have one full year of income before going and purchasing their primary. My sister literally graduated college, had an offer letter to work part-time, not even full-time, and she got approved for an FHA loan to purchase a property on her own.

11:12Tony:So I don't necessarily think you need to wait.

11:15Ashley:Yeah, my very first investment deal, I talked to that lender earlier in the year. I did not get approved for anything. I got a new job offer in the middle of that year. It's a totally different company. It wasn't the same company. It was a completely different job. And it was the same. With that offer letter, they said, okay, cool. We can approve you based on this offer letter. I hadn't even started the job yet. and I was able to get approved. So yeah, I mean, I agree with you that you don't have to wait the four year.

11:41Tony:So I guess his question comes up too, is should he buy the rental property or wait till after the primary? And I think this really comes down to what you can do. So like if you're able, you have the capital, you have the time to buy a rental property now and still have enough capital to buy your primary, yes, go ahead. I actually think that the best thing to do is to buy a small multifamily, a duplex, and live in one side and rent out the other side. And then you are accomplishing both of these things. You're going to get better financing than you would for an investment property because you're going to be living there.

12:24Tony:And you're already used to living with people because you're living with your parents. So at least you'd get your own side of the duplex possibly, or you could do rent by the room in a property too. So I know everyone's sick of talking about house hacking, but I think this would be a great scenario to combine getting your primary and to have your first investment property.

12:46Ashley:Yeah. Couldn't agree more. Ash, you, you, you hit the exact point that I was going to make is that it doesn't have to be either, or like just make it an, and go do both. And then, you know, maybe you buy one today. And then when your wife does finished law school and she's got this new attorney degree then or career, then you go out and buy another one that's a primary residence. And if even if you guys just stay on that same cycle of buying one new property every year for the next 10 years as your primary in a decade, you've got 10 properties with really good long-term fixed debt that are hopefully cashflow and pretty well.

13:18Ashley:You know, we keep referencing back to this episode, but Matt Kruger, I can't recall the exact episode number. If you just search YouTube for Matt Kruger and real estate rookie, you'll find his episode, but that was his exact strategy. Every year he just bought a new primary residence and then rented out the old one. And that stacks up over time. It seems like you guys are young, didn't mention anything about kids. So you've probably got a certain level of flexibility that might get harder as you're, you know, you kind of start to mature in life and responsibility. So I love the idea of doing both.

13:47Ashley:I think, and to your point, Ashley, you said this earlier, Like, like if you do want to separate them, just making sure you have enough capital. But I think the other piece too, is, uh, keeping close tabs on your DTI, uh, just to make sure that if you guys do buy the rental today, will you have enough in terms of debt to income ratio, where you have enough room there to still get qualified for that primary down the road or where there may be some challenges there. And again, I think working with a good lender, they'll, they'll be able to answer that question for you. but I agree, Ash. I think waiting, the best time to buy a real estate deal is yesterday, you know, and then the second best time to buy real estate deals today.

14:24So if you guys have the

14:26Ashley:right deal, if you guys have the right resources right now, pull the trigger and then take the next step to figure out how you guys get the primary from there. All right. So coming up, if you're going out of state for your first deal, who do you hire first? And how do you know you're not being taken advantage of? So stick around. We'll answer those questions right after we're from today's show sponsors. Did you know your house gets bored when you leave? I can't actually prove that, but it probably misses out on the action, the footsteps, the late night fridge raids. Yeah, when you're gone, your place is basically on unpaid leave.

14:57Ashley:It's sitting there in the dark thinking, I could be contributing right now. Your side room wants a side hustle. Even your wifi is like, we could be networking. You're on vacation, spending money like it's a sport while your staircase at home is fully capable of sending your income upwards. Here's the twist. You can go on a trip and actually earn money. Airbnb makes that possible with the co-host network. If you're away for a while or have a secondary property, you can hire a vetted local co-host with real hosting experience to handle it all. A co-host can handle guest communications. It can manage reservations and keep things running smoothly so you don't have to check your phone between beach days.

15:39Ashley:That means less stress and more time enjoying your trip. You can relax knowing guests are taken care of and your place is in good hands. You travel, your house works, everyone wins. If you're ready to host but could use some help, find a co-host at airbnb.com slash host. If you own a short-term rental, here's something worth knowing. Not all landlord policies are built for your type of property. And with holiday bookings, chilly weather, and higher guest turnover, having the right coverage is more important than ever. Steadily offers insurance designed specifically for short-term rentals, covering property damage, liability, lost rental income, and even unexpected issues like bedbugs.

16:17Ashley:Steadily works exclusively with real estate investors, so they understand the details that make short-term rentals unique, and they build coverage to match it. A quick review of your rates and coverage every year can help you protect your property and your cash flow. Get a quote in minutes at biggerpockets.com slash landlord insurance. Steadily, rental property insurance for the modern investor. For decades, real estate has been a cornerstone of the world's largest portfolios, but it's also historically been sort of complex, time-consuming, and expensive. But imagine if real estate investing was suddenly easy.

16:48Ashley:All the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Fundrise flagship fund. Now you can invest in a$1.1 billion portfolio of real estate, starting with as little as $10. The portfolio features 4 ,700 single-family rental homes spread across the booming sunbelt. They also have 3.3 million square feet of highly sought-after industrial facilities, thanks to the e-commerce wave. The flagship fund is one of the largest of its kind. It's well-diversified, and it's managed by a team of professionals. And it's now available to you. Visit Fundrise.com slash bpmarket to explore the fund's full portfolio, check out historical returns, and start investing in just minutes.