Buying a house as an Analyst?

Incoming FT analyst and considering purchasing an investment property in (Denver / Scottsdale) possibly. Wondering if this is a smart decision and something I should consider further? I have excellent credit (750+) with 4 years of history, so I'm confident I could qualify with my 85k base.

My logic is that I will be locked away for 3 years without the need for anything capital intensive during that time outside of rent in NYC when in-office operations resume and I can capitalize on the build to my net worth.

Has anybody else done something similar?

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Comments (42)

Dec 1, 2020 - 12:55pm

short answer: yes

Real estate is hard to get into because accumulating your first down payment can be a challenge, but then its a snowball effect of building and pulling out equity to purchase another property. Save your bonuses and use them as cash down for properties, you'll be able to semi-retire long before the rest . I'm on property #2 and saving for a third!

Dec 6, 2020 - 10:49am

This is only sort of true.  The average real estate appreciation over the past 100 years or so has been about 3%, i.e. about in line with inflation.  Some areas have obviously outperformed others, though. If you're buying it as an investment, you should do some due diligence. I think in a lot of cases putting your money in real estate is worse than just buying index funds unless you'd have no down payment.

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Dec 1, 2020 - 2:02pm

Wait, so you're living in NYC but want to buy an investment property in Colorado? Unless I'm misreading this, how will you manage the property? You need boots on the ground, and hiring a property manager can be expensive.

Dec 3, 2020 - 4:20am

Don't listen to these guys about trying to talk you out of it. You have a good plan with having a person you're close to oversee it and affording the down payment. I know many successful out of state real estate investors. Go for it. 

Dec 14, 2020 - 12:10pm

OP, how are conversations going with lenders? I think most cringe when you are that far away from the property and I doubt you want to put your family members on the loan or deed. Also, if the rate is materially higher than a primary or even secondary, your cap rate might be lower than expected. Just sayin...

Dec 1, 2020 - 4:12pm

Less familiar with Colorado, but have family in Scottsdale and the market is absolutely crazy since Covid started and houses are selling way above replacement value. Unlike much of the US, AZ is extremely pro housing growth and there's still plenty of land supply to built on so I am not sure that the current surge is going to last. Personally, I would probably wait and see before diving in. 

Dec 1, 2020 - 6:43pm

Appreciate the response. Seems AZ is becoming increasingly popular and COVID could have served as a catalyst for people moving out of the current dictatorship in CA.  Not starting full-time for around 6 months, so I'll still have some time to watch the housing market.

Funniest
Dec 2, 2020 - 11:20pm

The libs flee from CA and then continue to vote blue in AZ...

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Dec 2, 2020 - 12:05am

What are you assuming in terms of financing? I'm not sure a bank would lend to you unless there was a fairly substantial downpayment, well above 20% because its an investment property. Not to mention you aren't even living in the same state. Also, credit score is only a very minor aspect to getting financing for a home. There are a lot of other factors such as most banks will want to see a sustained period at your current job. 

Setting all the financing aside, if you find a way to pull it off, buying an investment property certainly isn't the worst idea. Starting young and deploying capital. Those cities aren't cheap so not sure what you'd really be able to buy/qualify for on a 85k base but if you can and you have family support to help manage I doubt you'll regret it long term. There isn't really a rush though so things will be easier and you'll have more capital and be more credit worthy to a bank after a couple of years working, so that might be a better time that right away. 

Dec 2, 2020 - 9:46am

I wouldn't recommend learning the ropes of real estate investing by buying your first property that's over a thousand miles away. There are places in New York and a few hours away that would probably be a bit easier to manage. 

I've been buying more property since COVID started and have a few agents that bid at foreclosures on my behalf while I work at my day job, but I work in the real estate industry and have been investing for nearly three years. 

Dec 2, 2020 - 10:00am

the time to buy is when opportunity presents itself....its called "buy the dip"

Right now, real estate prices are 10-20% higher than what they should be...so this is not the time to buy...this is the time to SELL real estate.  Save up all your money and wait for the next real estate dip...then buy.  There is currently a lumbar shortage causing build prices to be higher...copper prices are also high (plumbing copper pipes extra expensive now).  Also, you want to be able to put 20% down, so you don't have to pay PMI (private mortgage insurance).  That insurance isn't for you...its for the bank...the bank forces you to buy insurance FOR THEM.  That's crazy...so wait until you have 20% for the downpayment, plus ~50k in reserve for repairs and misc costs before you buy your 1st property....and THEN start building your empire.

In the meantime, get your real estate brokers license, and make some extra money, zero risk, as a part-time broker...and use those commissions for downpayment $$.

just google it...you're welcome
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Dec 2, 2020 - 11:23am

If I had a dollar for every time someone said the RE prices are too high right now and to wait for the dip I'd be a very rich. You can't market time RE. Plus the switching/transaction costs are very high. Long term its a depleting resource with rising populations. Rates are expected to remain low for the next several years so that won't be a near term trigger to lower prices. 

Building a bigger nest egg is the smart play but not due to prices being inflated that's a fools errand trying to predict especially for an asset that should be held long term. 

* PEX is preferred over copper these days, better quality, lasts long and is cheaper 

Dec 25, 2020 - 4:59pm

I would reconsider your view on PMI. I agree that it is protection for the GSEs for lending to riskier borrowers that put less than 20% down, but that's not a bad thing. If you are buying a house with 3% or 5% down (assuming owner-occupied), you are buying long before you would be able to with 20% down. PMI will fall off when you reach 78% LTV. As your home appreciates, you will be able to use that to get rid of PMI quicker. You also can rent out bed rooms or other units if you buy a multi. I think the juice is worth the squeeze with PMI.

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  • Associate 2 in IB-M&A
Dec 2, 2020 - 10:46am

Agree with this.

While you may qualify for a very cheap house on 85k if you had a large down payment, you won't qualify when you also have an apartment in NYC eating up a large amount of that. Analyst money is not that much after taxes, rent, and expenses.... will be difficult/impossible to carry a mortgage on top of that.

Put your money in an index fund earmarked for this and wait 2-3 years - both to have enough money and for real estate prices to come down. 

Dec 2, 2020 - 12:57pm

Correct me if I am wrong, but don't boomers own like 2.5 houses per capita? Boomers only have ~20 years left before they downsize, die, or go into assisted living. Will this not increase supply by a large amount causing prices to drop ~30% in the American market for real estate? As the boomer and silent generation population is like ~25% of Americans, demand for housing will decrease causing an additional price drop. 

Think Japan's lost decade. I would love some experts' thoughts on this subject. 

Dec 2, 2020 - 1:40pm

I'd be shocked if boomers owned 2.5 houses per capital. Also, if so, the "extra" houses are likely vacation homes - so potential out of flavor vacation spots could take a hit. Many of these people will have their houses just pass through to their kids. I don't see a situation where boomers dying leads to a 30% correction. That is absurd. 

At the end of the day we are moving away from homeownership as a place to live and more towards an asset class. Owning a home is becoming more unattainable and rents are being pushed higher. Of course some more rural areas where young people don't want to live will be hit harder, but urban areas and sunburns of urban areas aren't going to have some massive correction due to baby boomers dying, or at least its unlikely. 

Dec 18, 2020 - 10:36am

Not hard at all to see 2.5 homes per capita... think this is a median vs mean question. Number of homes owned by boomers divided by number of boomers. Some boomers probably have very large portfolios and offset by many others who may not even own one house. 

  • Intern in HF - Other
Dec 2, 2020 - 1:00pm

I don't know the Denver market at all but I would recommend staying away from Scottsdale/PHX unless you know the market very well. I went to ASU and the appreciation in prices from 2013-Now has been crazy. I've been monitoring some properties there for 3-4 years now and I think 90% of the available inventory at minimum that I've come across is garbage if you're looking at it as an investment property. If you were living at the property as an owner and renting out rooms to people there might be a few more viable opportunities but I would stay away personally. 

Since you have family there you may already know this but between monsoon season, habobs, dust storms, etc. you have some potential for maintenance disasters. Phoenix also doesn't have any drains so when it's 115 and raining like a fucking hurricane everything floods.

If you're thinking about Air BnB the market is overly saturated and oftentimes hotels are cheaper during the offseason (April-Early/Mid October). In addition to the market being saturated realistically the only time of year people will be coming into town is late October - March and you're pretty much stuck with something that won't bring in income from Air BnB for 7 months a year.

Not trying to discourage you but just offering my two cents since I've looked at doing this myself and have friends that have done or are doing this. The least successful guy I knew was taking on insane levels of debt service (putting down 3.5% as his down payment) and the most successful lived at home for 6-7 years and threw every cent he had from his job into buying property. He's now in his mid to late 20s and travels the world selling high-end art as a side gig. 

Dec 2, 2020 - 1:32pm

If you're going to stay there for a long time, I recommend you buy a house that is affordable to your monthly payment from your monthly salary. It is a good investment looking long term. If you're planning on moving or short term, then liquidity might be a problem.

Dec 18, 2020 - 10:33am

You don't get it. Whole idea of direct RE investing is significant leverage (control a 250k asset with only 50k equity), tax advantages and control (ie idiosyncratic opportunity, remodel house how you see fit, sell it when you want, etc). I would agree on the point regarding time however...will be a pita as a FT analyst

Most Helpful
Dec 2, 2020 - 9:09pm

I have a couple of investment properties. All are cash-flowing and working out pretty well. I think it's a great idea that you want to invest in real-estate and it can be relatively passive if you set it up the right way. A couple of things to think about though:

  • You're probably not going to have enough money to buy anything in Denver or Phoenix. Unless you qualify for FHA or the likes (which you won't) you're going to need to put 20% down at a minimum. Plus you'll need closing costs and other misc as well, so even if you had 100k in cash, so basically all of your post tax bonus, plus additional savings, the most you could afford is a $500k house.
  • Even if you did the purchase, now you need to make sure it's rentable and if you really want it to be passive, you're 100% going to need a property manager. If you have family nearby, you could burden them with it, and it's going to be a burden no matter what. Things like finding tenants, marketing the property, on-going repairs, evictions, etc are all not worth dealing with unless you're experienced. 
  • It's unlikely that this type of a property ($500k in Denver or Phoenix) is going to appreciate that greatly unless you get lucky on a certain location becoming very hot in a short period of time. 

What I would recommend instead is, start researching smaller markets online. Bigger pockets is a great online resource for real estate investing. Start understanding the process and the math behind finding a good cash-flowing property. Then, when you're ready, but a cheap single family or multi-family building in a mid-tier city, I'm talking about places like Jacksonville, Indianapolis, Cleveland. These are places where houses are unlikely to appreciate a ton, but they can be 15-20%+ cashflowers even after property management, repairs, etc are factored in. Once you get a couple of those under your belt and have some stable income coming in (plus hopefully more money saved from a few years worth of bonuses) you can decide if you want to go after a bigger appreciation style deal, or just keep building the portfolio.

That would be my advice, but that's just one flavor of real estate investing. There's plenty of different strategies out there, but as an analysts with limited cash on hand, I would't aim too high to start. A 500k house in Denver or Phoenix will just end up becoming a liability.

Dec 3, 2020 - 5:00am

Buying a property is a phenomenal investment, in standard times. However, these are far from standard times and property values are definitely overvalued by a decent bit at the minute. Personally I'd wait &/or buy something closer to my home base so that I could manage problems if/when they arise.

  • Associate 2 in IB-M&A
Dec 3, 2020 - 11:34am

While credit score does matter, a 4 year history is nothing and your overall gross income is fairly irrelevant. Banks don't provide mortgages based on your income, it is based on your ability to facilitate the monthly payments, someone making $1m a year could easily be turned down for a small mortgage if they have other financial obligations taking the majority of their monthly income. If you are unable to cover the monthly mortgage costs on top of your other monthly obligations inclusive of an apt. in NYC the odds of you getting a loan are quite slim. Even considering that you plan to rent out the property a lender will not factor that in as a secured income stream to cover the mortgage costs. Additionally, never invest in real estate with the intention of renting out the property without first understanding the laws around renters rights at both a state and local level, eviction can be a nightmare in some states.

Dec 25, 2020 - 5:04pm

It depends what kind of financing you are going after. Fannie/Freddie does look at your personal income. This kind of loan will give you the lowest interest rate and a 30 year amo. You have to borrow in your personal name, but you can always quit claim to an LLC after closing. You can only have ~10 fannie/freddie (conventional) loans. The other option is a commercial loan such as the one described above.

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Dec 4, 2020 - 11:04am

The Phoenix MSA is a very strong RE market with most of the demand coming from CA.  Prices are high and inflated in many of the established older areas (Phoenix, Scottsdale Tempe), however the western suburbs (Goodyear, Buckeye, Surprise, Peoria) is where prices are significantly lower.  The most growth will take place in this area due to vacant land being available for developers and increased development of freeways/linkages.  I think purchasing an investment property in the west valley would be a very smart move.

Dec 4, 2020 - 2:14pm

East Valley has very strong employment and population growth fundamentals. Chandler / Gilbert are especially strong in terms of affluence. The path of growth is extending into Queen Creek where new master planned communities are being developed and are selling out quickly to out-of-towners looking to relocate. SE Valley is much stronger than the West Valley. 

Dec 14, 2020 - 12:16pm

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