How to Buy Your First Multifamily Rental With Low Money (Rookie Reply)

0:00Sometimes rookies think the hard part is just getting money together. But once you have savings or a professional background or a strategy in mind, the next question becomes, what is the safest first move? Today's questions come from the BiggerPockets starting out forum. We have someone with$250 ,000 wondering what to buy, a property manager trying to choose a market and find mentorship, and a new investor looking at OPM for a first multifamily.

0:31This is the Real Estate Rookie Podcast. I'm Ashley Kerr. And I'm Tony J. Robinson. And with that, let's get into our first question for the day. So this question comes from Dana Fitzpatrick in the VP forums. And Dana says, I have$250 ,000 in funds to start out. I live in the Seattle area where the house prices will make it hard to cash flow. So I'm considering other markets. What would you do with this amount? I'm considering duplexes or a small multifamily or sticking with single family homes and buying a couple and doing a BRRRR, what would you suggest? All right. Great question, Dana. Well, first, congrats.

1:04You got a quarter of a million bucks to go invest, which is a great starting point. I think, honestly, it opens up a lot of options for you. But I think the first thing that I would ask, and this is what I say to a lot of these questions, is what's your goal? What are you trying to accomplish through real estate investing? Do you want long-term appreciation and you're not necessarily concerned about cashflow today? Sounds like you kind of are considering cashflow because you said it'd be hard to cashflow in Seattle. But if appreciation is what you want, Pacific Northwest might be a great place just to start dumping your cash.

1:37Do you want to maximize cashflow? How much time availability do you have? Do you have someone that you've got a lot of flexibility during the day? Are you super time constrained? Are you someone who maybe likes the idea of managing a renovation project? Or does that make your eyes gloss over? Do you like the idea of like a steady long term tenant? Or would you prefer something like a midterm or a short term rental? So I think before we talk about what's the best way to deploy those funds, my first question is like, what's your goal? What are your tendencies? What are your, you know, like who are you as an investor?

2:09And that can kind of point you into the right, into the right strategy. But let's just say that based on this question that you are really focused on cash flow. There's two different things I would focus on. You have the capital, it feels like, to probably buy something in Seattle. So maybe can we take this nice market where you are going to get appreciation, but layer it with a strategy that produces more cash flow? Ash, do you remember the Nossums? I think they were also in the Pacific Northwest, right? Like they're, I think, in the Seattle area also. We interviewed a couple. You guys can go look them up.

2:41But they invest high cost living area like Seattle and their entire strategy was taking like four or five bedroom properties and turning them into like eight bedroom properties and doing student housing. And they were making an incredible amount of cash flow on every deal that they did. We have other friends who invest in that area. Thatchwin, James Daynard. James does really high end flips. could you take this 250k and combine that with some hard money and buy a house for a million and you know flip it for 1.3 possibly uh could you do like that where you buy a single family home uh you add an adu in the back you you split two lots you sell the adu or you maybe keep it as a rental you appraise and you get this this huge windfall so i think a lot of times people hear high cost of living markets and just immediately assume that they they can't make anything work I think that the nuance is that maybe a traditional single family long term rental won't work, but there are other ways that we can kind of slice and dice to be able to still get some value from it.

3:43You could also be a private money lender. We know a lot of investors in Seattle. There's some great meetups like real estate at work is one of them. But you could also start off just lending your money to someone. There's also the option of doing a flip that wasn't mentioned. So I'm assuming that you're probably looking for something long term if that wasn't an option for you flipping. So appreciation or cash flow on the property instead of just like recouping capital and building up capital and getting that quick cash, as they say, from flipping compared to holding on to a rental property for 10 years.

4:20So I completely agree with Tony. You've got to look at what your options are for what you want out of real estate, but also are those realistic to achieve it? Do you have the time to manage tenants? Are there property management companies in your area that can support your property and are actually good, have good reviews? But also too, is there any other area you'd want to invest in outside of Seattle? So I have friends that invest in Tacoma. I don't know anything about it. I just know they have long term rentals and short term rentals in Tacoma, and it is a little bit cheaper than the actual city of Seattle.

5:00So I would say, is there other markets that also your money can go further? But I would start out with one thing, one strategy, one house. And I know we have broken down like, OK, if you have two hundred and fifty thousand dollars, should you take that money and buy, you know, use that as a down payment and buy five different houses in the Midwest? Or should you take it and buy one property in cash with that$250 ,000? My recommendation is if you have no real estate experience, no construction experience, no rehab experience, is to start with one property. Even if you just use some of the funds, then you go, you know, six months later, a year later, you go and buy the next one and the next one.

5:42But I don't recommend taking that and deploying it over five properties at once. really take your time and do it slow because Tony and I have both scaled way too fast without putting systems and processes in place and learning a few important lessons. So that would be one recommendation is to make sure you don't scale and grow too fast, even if you have the capital available to actually implement and to move on these properties. Ash, just really quick. I love the idea of being a private money lender. Easily you could get maybe 12, 15 % returns on that money, potentially even more. Our friend Devon Canard, who we've interviewed on the podcast, that's what a lot of his investing is today is private money lending.

6:28And he's like, man, I just get such a great return from doing this. And it's relatively speaking of a small amount of work to make it happen. So I love the idea of private money lending. Coming up, a Southern California property manager wants to invest, but does not know which market to start in or how to find mentorship. We'll talk about how to turn that vague search into a practical plan. Here's why savvy real estate investors are obsessed with bonus depreciation. It lets you take that rental property or commercial building you own and depreciate most of the cost against your income legally 100 % IRS compliant.

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9:32Okay, so here's his question. I'm a property manager in West Los Angeles trying to get into the game. I'm slowly underwriting deals, but I'm not certain which market to begin with. I work and manage in West Hollywood and Los Angeles. The laws here are brutal. I know firsthand. I'm considering more landlord-friendly markets within California and preferably driving distance. I'm hoping to get some guidance and accountability in my corner. Please feel free to share suggestions and experiences. Thanks. Okay, so the first thing that jumps out to me is preferably in driving distance. Why do you want your properties within driving distance?

10:15And I'm assuming the answer is probably going to be something as in if there's an issue that you can go and take care of it. But really, it's just going to be a security blanket. and honestly that was me for a while I just wanted the the safety of being able to go to my properties but it's like a lot of the things that would come up as issues what am I gonna do about it anyways so I think first of all really think about that does it actually have to be within driving distance or if there is an issue or some reason you need to go there are you going to have to call someone to either go with you to take care of it or to show up.

10:57I mean, if you're going to be, if you're planning on doing the maintenance, then yeah, I can understand that, that you want to be within proximity so that you can be there to take care of maintenance, save some money, and you have those handyman skills available there. Now, as far as like finding a different market, it seems you still want to stay within California, but want to find somewhere else where it's a little more landlord friendly than the actual area that you work in as a property manager. So I guess your starting point would be as to looking at those surrounding areas and what are those?

11:35What are those areas that you think are a little bit more landlord friendly and just literally make the list, make the list and then start looking around and doing some research, going into the BiggerPockets forums. Are there other investors you know of that are in those markets? Are you able to connect with any of them through the forums or on Instagram? And, you know, what questions do you have for each of those markets that make it landlord friendly to you that would make it appealing? So then you want to build out your buy box. So your buy box is going to be the type of property you want, the neighborhood, and then what you want in the neighborhood.

12:12Like, do you care if they're great schools? Do you want to park in the neighborhood? What are those landlord laws that are important to you and build out that buy box. So I think once you can create that list of markets and then build out your buy box, also your budget, what is your budget? Because that will also play an important role in what market you go and invest in as to what you can actually afford. And then I think you'll be able to narrow down some markets just from building out those two lists, the buy box and the markets that fit your landlord criteria. Great advice, Ash. And you answered, I think there's nothing I can add on like how to choose the right market.

12:51But the other part of Callaghan's question was, I'm hoping to get some guidance and accountability in my corner. I mean, luckily you're in LA, right? Lots of other investors in that market and tons who are doing this remotely. I'll just go find as many local real estate meetups as I can and just start attending regularly, as many of them as I can. And go in there and share them this exact same question, but with the folks who are in those rooms and say, hey, look, I'm a new investor. I've got some experience on the management side, but I want to become an investor myself. I'm just trying to decide what markets are working well for you guys.

13:28And if you can tap into a network and someone who's already got, hey, here's the property manager that I use, or here's the wholesaler that sends me my deals, or here's a contractor that we'd never use in that market because of X, Y, and Z. That's how we started to build, I think, a little bit of the confidence in some of those other markets. I think that helps with like the networking side. On the accountability side, that part is, you know, I mean, you can join like an accountability group or, you know, you can join like a, you know, get a few of the folks you meet at the real estate meetup and say, hey, let's meet every Tuesday and talk about our investing goals.

14:04I think that's one path. Obviously, you can invest in and help, right? Like you can go join some of the programs that exist out there. And I'm not advocating for one versus the other. but I also do think that there's a certain level of focus that someone puts when they have to vote with their wallet to actually sign up to do something. And it's like you can have the gym membership, but when you pay for a trainer and like, hey, let's meet on this day at this time, you're more likely to actually show up for that session. So on the accountability side, sometimes making that commitment financial is a good way to hold yourself accountable.

14:41But But take all those things together. And I think that's how you actually get out of the kind of analysis paralysis you're sitting in right now, Callaghan. And if you want some real motivation and inspiration, come to BP Con in Orlando, Florida this year. And it's every year, usually in the beginning of October. But you will attend that conference meeting so many different types of people. People who have just found out about real estate investing, people who got their first deal, people who have been stuck in analysis paralysis for five years, people who have bought 20 properties within the last year.

15:16It's such a wide range of experience of people that attend this conference. But you're going to walk away feeling so motivated and energized. And the thing that I think a lot of people struggle with is they get that feeling when they leave a conference, but they don't take action or actually implement what they learned or what their takeaways were. So if you can get the opportunity to go to BP Con, I recommend sitting down every night writing what you learned, what motivated you, what do you need to do as an action item when you get home and kind of have this collection of your thoughts. So when you get home, you will have that motivation, but you also have an action plan because motivation can always take only take you so far if you're not actually implementing.

16:06But that's always a great way to find an accountability partner too, is at BPCon. All right, guys, we're going to take a quick break, but when we're back, a new investor wants to use other people's money to buy his first multifamily deal. We'll talk about what has to be true before you raise capital from other people. Finding a strong rental property usually takes time, research, and calculated risk. Lennar Investor Marketplace helps simplify all of that. With a free account, investors can browse new construction homes built for rental potential alongside real-time data showing estimated returns, expenses, and local market insights.

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20:59And now he wants to use other people's money or OPM to get into his first multifamily deal. So here's his question. He says, I'm the managing member of my own new company. And after years spending time setting real estate investing, I'm now focused on taking action and acquiring my first multifamily investment. My strategy is centered around value-add properties, creative financing, and the BRRRR strategy. I'm primarily looking in Florida and the Southeast with an emphasis on multifamily assets that can be improved, the renovations, and better operations to create long-term cash flow. One challenge I'm working through is structuring acquisitions without relying on a large amount of personal capital.

21:40I'm learning about seller financing, private lending, DSCR financing, which ends up debt service coverage ratio financing, and other creative strategies that can help bridge the gap while still putting together deals that make sense for everyone involved. I'm here to learn from investors who've actually done it. So for those who've actually purchased their first multifamily property, what was the biggest obstacle you had to overcome? If you were starting over today with limited capital but strong determination, what would you focus on first? What mistakes should I avoid while building relationships with brokers, lenders, and private investors?

22:12I'm committed to building this business the right way, your education, discipline, and the writing, and strong relationships. Great question. Ash and I have both leveraged creative financing. We both leveraged raising capital from other people. We've kind of lived this experience. And we were both the investors at the beginning of our journeys who didn't have money for different reasons. Ash was fresh out of college. I was recently unemployed. So both of us kind of started our journeys with this need to be able to partner and raise capital. Tony, everyone's going to be thinking, oh, my God, Ashley, you just started investing last year.

22:51I'm sure that's what everyone thought when they heard me say that. So when we talk about partnerships and raising capital, I think one of the best skills, if you have limited capital, one of the best skills that you can develop is finding a good deal and being really good at management. Like, like, like really, cause those are the two elements that money, like me just having money doesn't necessarily solve. Right. But if I can get really, really good at finding my own deals, whether that's going straight to the seller, whether that's working with, you know, building a network of wholesalers, whether that's building a network of lender or of agents in these different markets, but if you can get really, really good at finding great deals, I think that's always going to give you a better chance of partnering with people because now you're giving them access to something that they wouldn't have access to otherwise.

23:49If you can say, hey, I've got this deal. I'm going to pick it up for 200K. It needs about 100 grand of work.

23:59So we're it's a great deal. And there's a lot of people who would jump at the opportunity department with you on that. So I think having a really defined process for finding great deals. The other side of that is, hey, once this deal is done, can I manage it? And I'm using manager loosely because it depends on what type of strategy you're going after. If you're flipping, managing is, hey, managing the subcontractors, the contractors, the schedules, the budgets. If it's a long-term rental, it's placing tenants, putting up the listing, managing them once they're actually there. If it's midterm or short-term, it's the design, the amenities, the guests, the ins and outs, the reviews, and all those elements.

24:42If it's room-by-room rentals, it's dealing with those dynamics. If it's sober living, it's that. If it's assisted living, it's that. Whatever strategy, I'm saying managing is in terms of whatever needs to be done to execute that. But if you can get really, really good at that, or at least prove you have the capacity to get really, really good at that, well, now you've solved two big issues of the people who have money. Because typically, the more money I have, the less time I have. The more time I have, the less money I have. So if you can go to the person that has an abundance of money, but limited resource of time, and you can fill that gap by doing the things that require a lot of time, it becomes a lot easier for the two of you to partner together.