Getting the first deal

Starting Out
4yFollow

Getting the first deal

Thomas Rodgers
Middletown, OH · Member since 2021 · 23 posts · 6 votes

I am wanting to get some advise for my next steps and thought it might be better to ask this group over the real estate group. I am nearing the end of my debt paydown phase and im trying decide on a long term plan. Ultimately my end goal is to end up in apartment complexes but my plan to get to get there may not be ideal.

My current plan is to save up money for the down payment on my fisrt house as an owner occupied loan to get a lower down payment and repeat the process until I can start putting down the 20% for multi family investment properties then eventually getting up to apartments.

The main thing I am wanting advise on is weather that is even an ideal plan or not. Also when it comes to getting the first couple of houses should I be submitting lower than list price offers just off of what I see online then doing due diligence and inspections if they even entertain or counter my offer or is the goal to submit an offer good enough to get it under contract and negotiate later, or is there a better way? Lastly what is the best way to get the information to make a good estimate on operating costs of a single family house to evaluate deals?

Thank you.

1Reply
59 views

Most Popular Reply

Adam Sieg
Member since 2022 · 48 posts · 119 votes
4y
Quote from @Demon S Rogers:

@Adam Sieg what company do you go to for your turn key properties?


 We used rent to retirement and have had a lot of success.  We have purchased 6 properties from them - 3 rehab and 3 new builds.  The new builds are still in the process but our 3 rehabs have all been profitable. @Zach Lemaster is the CEO of R2R and has been great to work with.  If you have specific questions you can message me but would encourage you to check out their website to see if they are something that would fit your needs!

7Reply
See this reply in the discussion

16 Replies

Jump to latestLatest
  • Joe Miller
    Real Estate Broker · Columbus, OH · Member since 2021 · 203 posts · 247 votes
    4y

    Save up for a DP and do an owner occupant on a multi-family off the rip. 

    A transaction timeline is: Offer, inspection, appraisal, title work/close.

     You will need to have an offer accepted prior to doing any inspections. You can negotiate somewhat for items found on the inspection report but currently we are seeing many offers in the market waiving their request to remedy. What do you mean specifically by operating costs? Utilities?

    Good luck! Keep reaching out to BP with questions. You got this! 

    4Reply
  • Thomas Rodgers
    OP
    Middletown, OH · Member since 2021 · 23 posts · 6 votes
    4y

    @Joe Miller not really utilities because those can mostly be covered by the tenants. I am more confused on how you would get the information to calculate a reasonable number for expenses when trying to evaluate deals off of apps like red fin

    0Reply
  • Adam Sieg
    Member since 2022 · 48 posts · 119 votes
    4y

    Hey @Thomas Rodgers - lots of great questions all of which we struggled with when first starting out.  Have you ever consider turnkey properties?  We went this route and utilized it as basically training wheels to better understand real estate investing, operating expenses and things to consider when we were at a point of doing it on our own.  Also, you don't have to worry about rehabbing properties, appraisals, making offers etc.  Just an alternative strategy that I think is undervalued.  Would be happy to discuss more if you're interested

    1Reply
  • Thomas Rodgers
    OP
    Middletown, OH · Member since 2021 · 23 posts · 6 votes
    4y

    @Adam Sieg

    Are you just buying a rent ready house or is it a platform like Fundrise?

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y
    Quote from @Thomas Rodgers:

    My current plan is to save up money for the down payment on my fisrt house as an owner occupied loan to get a lower down payment and repeat the process until I can start putting down the 20% for multi family investment properties then eventually getting up to apartments.

    The main thing I am wanting advise on is weather that is even an ideal plan or not. Also when it comes to getting the first couple of houses should I be submitting lower than list price offers just off of what I see online then doing due diligence and inspections if they even entertain or counter my offer or is the goal to submit an offer good enough to get it under contract and negotiate later, or is there a better way? Lastly what is the best way to get the information to make a good estimate on operating costs of a single family house to evaluate deals?

    An owner-occupied house isn't much of an investment. Are you able to live in an apartment? If so, you could start by purchasing a four-plex. Same low down, you live in one unit, and you rent out the other three. After meeting the time requirements, you do it again. After doing it twice, you'll have eight rentals on two properties and should be earning enough to pay for them and the mortgage on a single-family home for yourself.


    The DIY Landlord Book4.7247 Reviews
    WebsiteView Page
    2Reply
  • Justin Elliott
    Investor · Minneapolis, MN · Member since 2016 · 145 posts · 108 votes
    4y

    Thomas,

    A couple of thoughts.  

    - If you are thinking of getting into apartments why not start with a duplex and house hack so you can earn income on your first investment?

    -As far as your offer price I wouldn't suggest just throwing out low offers for the sake of low balling. You'll earn a bad reputation with brokers and you need brokers to be on Team Thomas.  So invest some time into learning how to underwrite deals.  On a single family it's pretty basic.  You've got rent and you've got expenses (maintenance, insurance, reserves, taxes, etc.). If you spend some time in order really know your numbers you'll gain trust with the broker and likely get a look at better opportunities.  By the way when I was buying properties that were in the 2-4 unit space I would try to use the 1% rule to do a quick analysis.  If the monthly rent was 1% of the purchase price then it was worth digging into.  For example, I purchased my first property for $310k and it had $3600 in monthly rent.  

    Good luck!

    1Reply
  • Thomas Rodgers
    OP
    Middletown, OH · Member since 2021 · 23 posts · 6 votes
    4y

    @Justin Elliott

    So how do you get to know the numbers? Are you just estimating your mortgage with a mortgage calculator then looking up local rent and see if the spread is good enough to cover expenses? And I have to try and find a way to do this without house hacking because my family does not approve.

    0Reply
  • Tim Johnson
    Real Estate Agent · Skagit Valley, WA · Member since 2021 · 257 posts · 283 votes
    4y

    @Thomas Rodgers There are many podcasts, videos and books here on BP that will help you analyze a deal. You'll need to put in a bit of study time but it will be well worth it...

    You need to understand if a property is a potential deal.... even before you make an offer..... or you'll just be wasting your time. So in essence.... you learn the skill of quickly running numbers to see if a property COULD work.... if it looks possible you move on to the next stage of making an offer... and following the steps as laid out by @Joe Miller

    For all investment properties you'll need numbers for INCOME, EXPENSE, and your FINANCES (meaning your loan terms, if you're not buying with cash), and of course the PURCHASE PRICE you will offer.

    INCOME equals rent income (and possibly some extras like storage, laundry, etc.)

    EXPENSES equal insurance, taxes, vacancy rate, maintenance, capex, landlord-paid utilities, and property management costs.... some of this information is available publicly and some of it you'll just get skillful at making educated guesses (e.g. 5% for maintenance,  5% capex, $400-$500 per unit for insurance, etc.) 

    Some investors use calculators that you just plug these numbers into, some use the "back of the napkin" method, others like @Justin Elliott use formulas like the 1% rule, etc. In all cases the goal is to be able to analyze a property with these broad strokes in just a few minutes. With practice, you should be able to do this kind of quick analysis in 3-5 minutes per property. When you gain some confidence here...... you are in a different game. Or, to put it another way, if you don't have confidence at this... you are not really in the game. The great thing is that even though it may sound complicated, it's just a matter of practice. Do 10-15 properties a day and you'll be able to do it in your sleep. Do check out some books and videos on this topic though. It will answer a lot of your questions.

    0Reply
  • Adam Sieg
    Member since 2022 · 48 posts · 119 votes
    4y
    Quote from @Thomas Rodgers:

    @Adam Sieg

    Are you just buying a rent ready house or is it a platform like Fundrise?


    Turnkey properties are typically rent ready but they usually come with tenants in place (or will have soon).  Additionally, most TK companies have PM set up already so you are essentially buying a rent ready, cash-flowing property.  You ultimately own the property, unlike fundrise where you are just getting distributions. We've used rent to retirement if you are interested in learning more. 

    2Reply
  • Austin Johnson
    Investor · Jefferson City, MO · Member since 2020 · 192 posts · 178 votes
    4y

    well, what are your goals? What's the target or end goal? that's the first answer you have to find. 
    once you find that, there are multiple exit strategies. for example,

    I'm living in my first investment. it's a live in flip. no floors in two bedrooms, 1956 house with cheap peel and stick flooring in the halls and kitchen. rough hardwoods in the living room. I've fixed all the issues, tore up the peel and stick and refinished all the hardwoods. repainted, refinished cabinets, working on the deck now and eventually painting the exterior. it's WORK. but it's worth it and keeps me busy, lol. it's a home and a project. My exit plan is selling this house, 1031 exchange it into either another flip or a duplex, triplex situation and saving on a mortgage.

    As far as 'how do I find the expenses?' how old is the property? how many capex repairs does it need now or will it need in the near future (find this out during inspections as well as estimates on costs) add up all the expenses. for example. inspector says "it'll need a new roof in 10 years" average roof is $15k. take that by 10 years. $1,500 a year or $125 a month saved for the roof. go through the home doing that. hvac, roof, fridge, stove, etc etc. that's the most accurate and in-depth method I've discovered.  once you have all that, use the BP calculators. take your own math and check it against their math and see if it's a solid deal or not. I feel pretty smart but there's deal I run that once I put them into the calculator they look horrible. it's a solid affirmation of good/bad deals.  

    1Reply
  • David Leggett
    Real Estate Broker · Cleveland, OH · Member since 2018 · 227 posts · 133 votes
    4y

    There's some great advice on here!  You definitely came to the right place, which shows me you're already way ahead of the game.  I love Justin and Nathan's idea of looking for a 2-4 unit and live in one of the units and you fix the others up and rent them out.  They'll be paying for your rent, and you can use the remaining cash flow to save up for your next purchase, or pay off the mortgage sooner and refinance the property and take a large chuck of the equity out and use that for your next investment.  But you're definitely on the right track!  

    However, Joe is correct that you can sometimes get the seller down a bit after the inspections, but with the way the market is now, if the buyer requests too much, the seller will just move onto one of their many backup offers they have.  So it's a tight rope you have to walk, but if you work with a good realtor, they'll definitely help you fine tune your strategy based on the properties needs.  Best of luck and keep us updated!

    0Reply
  • Justin Elliott
    Investor · Minneapolis, MN · Member since 2016 · 145 posts · 108 votes
    4y

    @Thomas Rodgers I understand that, I also have a family, no chance we are house hacking.  As far as the numbers I believe BP has some calculators you can use but your expenses are much more than just mortgage to name a few....

    Lawn/Snow

    Trash

    Maintenance

    Management 

    Utilities (if tenant doesn't pay)

    0Reply
  • Andrew Garcia
    Lender · Charlotte, NC · Member since 2022 · 739 posts · 410 votes
    4y

    Hi @Thomas Rodgers, I would do a 3.5% down small multi-family 1-4 units where you live in one of the units. The mortgage will likely be less than a single-family since someone is paying you rent. 

    To estimate expenses, a good rule of thumb is taking 35% of the gross rent as expenses.

    10% for maintenance. 10% for management. 10% for vacancy. 5% for cap ex.

    As for offers, contact a local agent. Some areas are still tough to get offers $50k over asking accepted. Some areas are easy to get offers $20k under asking accepted.

    Hope this helps! Let me know if I can be of any assistance.

    0Reply
  • Demon S Rogers
    Member since 2021 · 61 posts · 14 votes
    4y

    @Adam Sieg how is rent to retirement? What is your experience?

    1Reply
  • Demon S Rogers
    Member since 2021 · 61 posts · 14 votes
    4y

    @Adam Sieg what company do you go to for your turn key properties?

    0Reply
  • Adam Sieg
    Member since 2022 · 48 posts · 119 votes
    4y
    Quote from @Demon S Rogers:

    @Adam Sieg what company do you go to for your turn key properties?


     We used rent to retirement and have had a lot of success.  We have purchased 6 properties from them - 3 rehab and 3 new builds.  The new builds are still in the process but our 3 rehabs have all been profitable. @Zach Lemaster is the CEO of R2R and has been great to work with.  If you have specific questions you can message me but would encourage you to check out their website to see if they are something that would fit your needs!

    7Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free