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Getting Started In Real Estate Investing

First Steps Towards Finding An Investment Property In Portland, Oregon

The title of this post isn’t a pitch to sell you a book or have you attend one of my seminars. In this post I want to tell you about my next steps towards getting started in real estate investing, namely finding a mentor and locking in on my first target.

This is yet another step in my direction of diversifying my portfolio. I have read a few books on real estate investing, it’s time to act. Just like most concepts there are a few key factors to consider but in the end you have to actually do it to learn it and hopefully succeed.

Getting A Mentor

My real estate agent Tim Manickam, who helped me by my condo happens to invest in real estate but we never really got a chance to sit down to talk shop. He has mostly multiplexes which he manages through a management company.

I reached out to him recently to look for an investment property somewhere close to inner Portland. A place that I would myself be willing to call home, maybe live in for 1-2 years and then rent out.

I told him that I would need his help as a mentor so if he was willing to take me under his wing we could do business again. He agreed so we should be looking at a few properties in the next few days.

Timing The Market

I absolutely believe that a person can time the market despite the popular axioms, in a specific niche, perhaps not the market as a whole. But I am not even trying to do that here, I have simply reached a time in my life when I am ready to invest in real estate.

Right now the interest rates are low but just like back in the early 2000’s home prices are artificially inflated. There is a bit of slowing down probably because it’s December but it likely will pick back up for most of 2017.

Depending on which income strategy you’re after in real estate, the value of the home may not matter quite as much. Sure, it would be great if I could get the same home for a lot cheaper but what I mostly care about is the rental income.

A home which makes me $1,500/month in rental income could be worth $250k or $350k, it wouldn’t affect me too much if I’m following a rental-income strategy. If I am trying to flip a home or do private mortgage lending then I’d likely take a hit.

My Criteria

To keep it simple: a place that I would live in myself. I don’t want to take on too big of a project and I don’t want it to be in an area that is too far from common areas of interest. Walking score is important because it’s Portland.

I learned a long time ago that certain criteria make a home very rentable in any market:

  • 2+ x 2+
  • attached garage
  • vented kitchen
  • away from busy streets
  • minimal stairs
  • no attic, no basement (less maintenance)
  • good lighting

The price range is something I am willing to be flexible on, if the net cashflow is positive then I can go up to $500k. I will be looking at mostly $300k homes first.

The Numbers

I will try to put around $100k down. I don’t think rates will go up too quickly so I am okay with an ARM. I will finance up to $400k but that’s pushing it for me.

A mortgage of $300k:

  • $1,500/month principal/interest
  • $250/month property taxes
  • $40/month property insurance

That’s a total of $1,790/month of pocket expenses at the very minimum. I would need to account also for:

  • property maintenance (~$4k/year)
  • vacancy (~1 month rent/year)

If I can rent a place with at least $300-500 of net income a month while I’m still paying for a mortgage then I’m happy. I would be aiming higher but it’s tough to come by right now.

The Problems

Property tax can vary a lot here and there are some rent controlled parcels of land that I have to make sure I don’t fall into.

The neighborhoods are weird here, the difference between nice and extremely run-down is one city block in some places.

I have recently become a per diem physician, my income has been shit. That will look bad on a loan application. In order to remedy this I will need to sign back on full-time or at least a larger portion of part-time.

The Process

It’s easier to secure a mortgage for an owner occupied primary residence as opposed to a non-owner occupied one. For the latter, a higher down payment is needed (~25%) and the bank can play with the rates more.

I’ll likely move into the property myself, fix anything that needs fixing, feel out the area and take my time coming up with the most ideal tenant possible.

In the meantime I’ll rent out my condo either on Airbnb or do a longer term lease for a medical student/resident since OHSU is nearby. They have a website for off-campus housing which I can use to advertise my space on.

I already started the application process with a local credit union and SoFi because the latter had amazing reviews and I must say, it was the most intelligently designed online application website I’ve ever deal with.

I’ll be touring a few properties over the next 2-3 weeks and see if I can lock something down with an offer. Otherwise I’m willing to wait until next year and start the process again.

I have mobilized some of my brokerage investments in order to have about $100k for a down payment. If no sale occurs then I’ll get right back into the market.

I’ll be having pencil/paper, Zillow and Craigslist available because whatever property I view needs to generate adequate rent for it to be a worthwhile investment before I put an offer on it.

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