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Metropolitan/Expensive Areas off limits to New Investors?

Discussion in 'Real Estate Investing' started by MoreValue, Nov 13, 2018.

  1. MoreValue
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    MoreValue Contributor

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    My Thread on House Hacking: Looking for House Hacking Advice

    As I continue my researcher I have to accept the painful reality that once a location has hit a desirable/metropolitan vibe its officially off limits to new investors. All the low capital things are gobbled up already. Once it’s gone metropolitan it’s gone for good. I mean LA homes aren’t ever gonna be like 150k, yah know what I mean.

    New York, Los Angeles, Seattle, Dallas, etc.


    How do I think of this? I want a place that I want to live which is stated above, but goes completely against my real estate investing goals. In order for me to get started I either have to find an upcoming area really early on or choose a place I don’t want to live at all, but I can actually get deals that places I can afford.

    It’s like I can’t have both. If I want to live where I want, real estate goes out the door. If I want to invest in real estate. I am living in a location that I don’t want to.

    I have a sense of urgency because it has always been my dream to live in or near metropolitan area, but also own a home. I am in my mid 20s and don’t want to throw away my 20s not living where I want.

    Live my life and “pass on real estate” or sacrifice my enjoyment for real estate.

    Living and financial independence goals are opposing each other.
     
  2. CareCPA
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    CareCPA Gold Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass

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    In a lot of the "expensive" markets, it makes more sense to rent than own.

    Have you considered buying a cash-flow positive investment property, and then renting a place to live an an area you would actually enjoy? Does your investment have to be owner-occupied?
     
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  3. MoreValue
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    MoreValue Contributor

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    Isn’t it necessary to live near like 30 min - 1hr of your investment property? If things go wrong? Which they always do. Even if you got systems in place?
     
  4. CareCPA
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    CareCPA Gold Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass

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    It depends on how you manage. I have properties over an hour away. I have a management company that takes care of everything.
    We renovated them when we purchased, and the company takes care of maintenance for a price. It depends on how your numbers look.
     
  5. Seth Goodluck
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    Seth Goodluck Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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    [QUOTE="I have to accept the painful reality that once a location has hit a desirable/metropolitan vibe its officially off limits to new investors.

    Living and financial independence goals are opposing each other.[/QUOTE]

    I would challenge you on both of these points. Or, at least challenge you to carefully consider both of those points (I know you've been in that arena longer than me, so of course take what I say with a grain of salt).

    Point 1: "Desirable Locations are Off Limits to New Investors"

    Being blunt, what you're really saying here is "I don't know or want to or care to find a way to get the required capital to invest in these desirable locations"

    The issue isn't that those areas are out of limits to new investors, the issue is that the most trodden path to real estate investing (straight solo capital) has high barrier to entry in those locations.

    So the barrier to entry is higher than you alone can pay. Great, we've established the actual problem here. You don't have the money by yourself to invest there. How can you fix that problem?

    Two things immediately come to mind: Get more capital through 'undervalued' investments elsewhere and get into the hot markets later... or come up with another way to generate the capital to invest.

    Here's a fastlane idea I'll give out to the crowd here (I've got too many other things on my plate to take this on right now).

    What if you started an investment platform that let anyone invest in real estate? Take... 20 million people who want an ROI on real estate and suffer the same problem you do "I can't afford _____ by myself". If every one of them invested a buck, you'd have ~20 million cash to invest in a big a$$ property or several nice ones in any of those locations. That would sell. Actually, maybe I'll start building that right now. Race you to it?

    And guess what, there are probably a dozen other ideas in the same vein that could fill the same money shortage. Think. Don't give up. If you give up, you lose by default.

    If you feel stuck, re-orient your perspective on the problem. There's a quote that goes something like "If you want to keep having the same results, don't change anything" and another that goes "Insanity is doing/thinking the same thing over and over again expecting different results".

    Point 2: "Living and FI Goals are opposed"
    Think carefully on this point. First off, it's kind of in the face of the fastlane mentality. I mean, I know what you're getting at. You need to ask yourself what matters more... FI means living. Not the other way 'round.
     
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  6. MoreValue
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    MoreValue Contributor

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    So you wouldn’t do this in a separate state then? Like Midwest and live in New York.

    Isn’t a REIT, what you are talking about? I have invested in REITs with terrible timing. Anyways, the problem I found with REITs, was that it lacked leverage like a mortgage. No problem, though. I will just buy REITs on margin. Never got anything really profitable. Margin rates are far higher than mortgage rates. When I did find a REIT that gave dividends in 7-7% and margin was like 6%. 1% return? But appreciation? Based on my experience, REITs really don’t appreciate that much, maybe because I bought at terrible timing.
     
  7. Seth Goodluck
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    Seth Goodluck Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

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    Fundamentally, it would be similar to a REIT in that the intention would be to 'invest in real estate'. REITs have a lot of laws and restrictions associated with them I believe though.

    The difference is that instead of investing in a REIT, I was talking about trying to invent a new kind of Real Estate Investment Platform (REIP? Reip the rewards!) and market it to the masses so that JoeBlow could 'invest $1, $5, $50 in real estate'.

    Coming up with tens of millions on the fly by yourself is difficult initially (until you've fastlaned according to @MJ DeMarco and other successful entrepreneurs here). But if you got 1 million people to invest $20 into something, you would have $20M which would let you invest more freely. The 'investors' would get some small ownership of profits. You would have capital access and could return a hefty ROI for yourself. I suppose the closest analogy to what I had in mind was something like the 'investment platform' called Acorns. But in this case, targeted on real estate. Just an idea at this point though, and there are loads of ideas that stay ideas until someone executes on them...

    Point is, why not go for both. Aim to live and aim for FI. If the road you are on seems to go one way or the other, you're probably on the wrong road.

    If the numbers don't work (which you've expressed they don't), see if you can change the game for better numbers.
     
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  8. MoreValue
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    MoreValue Contributor

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    Just found out IB has pretty low interest rate on margin. 3.68%.

    So this would actually be better than taking out a mortagage and doing rentals then.

    Why don’t I take margin from IB and buy 200k worth of REITs. Not sure if margin rates are fixed. I won’t even have to be a landlord. What can go wrong

    Edit: scratch that, the leverage is what makes rentals so good. REITs are pretty much slowlane.
     
    Last edited: Nov 13, 2018
    Seth Goodluck likes this.

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