Advice for Purchasing first Real Estate Investment Property

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Advice for Purchasing first Real Estate Investment Property

Michael Chase
Member since 2022 · 4 posts · 1 vote

Good Evening everyone,

After months of research and years of thinking about investing in real estate, I'm ready to do my first deal. I have my preapproval in hand and am analyzing deals like a mad man. 

Any advice for someone just starting out?

I've found a few potentially good deals. I've analyzed and the numbers work. One particularly interests me. Its a 4 bd, 2.5 bath 3,000 square ft for 179k  but it needs some updating. If done right I believe the home could sell for 350k+ do to the value of the smaller homes on the same block and the neighborhood its in. I would need to get into some creative financing for the rehab because I just dont have the cash at this time. Any suggestions?

Another analyzed deal is a 6 bd, 3 bath, 2 kitchen, 3200 sq ft SINGLE FAMILY for 135k. Call me nuts but i could easily see with some creativity turning this into a 2 unit apt due to the lay out and would cashflow like crazy in this scenario.  However the seller is wanting cash which I dont have that much. Im still educating myself on wholesaling but is this a possible way to profit off the deal, even though i dont have the cash in hand? 

My situation is this- 20k liquid, and growing every week, and 20k credit with solid finances (not alot of debt). Any advice yall could give me would be appreciated. Trying to break through this barrier of hesitation and let the numbers do the talking. Thanks

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
3y
Quote from @Michael Chase:

Good Evening everyone,

After months of research and years of thinking about investing in real estate, I'm ready to do my first deal. I have my preapproval in hand and am analyzing deals like a mad man. 

Any advice for someone just starting out?

I've found a few potentially good deals. I've analyzed and the numbers work. One particularly interests me. Its a 4 bd, 2.5 bath 3,000 square ft for 179k  but it needs some updating. If done right I believe the home could sell for 350k+ do to the value of the smaller homes on the same block and the neighborhood its in. I would need to get into some creative financing for the rehab because I just dont have the cash at this time. Any suggestions?

Another analyzed deal is a 6 bd, 3 bath, 2 kitchen, 3200 sq ft SINGLE FAMILY for 135k. Call me nuts but i could easily see with some creativity turning this into a 2 unit apt due to the lay out and would cashflow like crazy in this scenario.  However the seller is wanting cash which I dont have that much. Im still educating myself on wholesaling but is this a possible way to profit off the deal, even though i dont have the cash in hand? 

My situation is this- 20k liquid, and growing every week, and 20k credit with solid finances (not alot of debt). Any advice yall could give me would be appreciated. Trying to break through this barrier of hesitation and let the numbers do the talking. Thanks

I'm going to give you some advice using your above post as a basis for it:
1 - You're a REI not a REA.  # of beds, baths, cost/sq ft mean nothing as far as influencing your decision to buy a property.
2 - Smaller homes have no impact on the value of larger ones.  Only use sales comps on homes in the immediate area that are within 10% of the home in question.
3 - The knowledge you need to do Wholesaling is the exact same as if you are buying it for yourself.  The only difference between a wholesaler and the end buyer is the one that actually closes on the property.
4 - The cost of any/every home you invest in is ONLY the cash you put into it...as long as it is cash flow positive.  The tenant is paying everything else, not you.  The goal of the CF is to recover your cost as fast as you can, so the smaller the cash you put in, the faster you should recover your cost and start to profit.
5 - Now, here's the most important (yes, even more important than the above), don't start looking for properties and then figure out how you are going to pay for it.  Do it the other way around. Start with what you can afford, which is your cash.  Figure that is your DP, closing costs, rehab, and all the other cash items that happen upfront.  Extrapolate out from there to tell you the max offer you can make (notice I didn't say asking price).
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  • Kit SerrellBusiness Member
    Investor · Member since 2021 · 157 posts · 218 votes
    3y

    Have you considered househacking or a live in flip/BRRR instead? There are 0%-5% down loans options for primary residences and you (normally) only have to live there one year. If you got a 0% down loan you could take your 20k cash to start a live-in flip or BRRR either now or when the market picks back up. Alternatively, you could househack to eliminate your cost of living and build up your cash faster. You could also do a combination of both. For example, you could renovate then househack or buy a duplex and only renovate one side while houshacking the other, etc.)

    For the two deals you listed, it may be hard to get creative financing for your first deal (outside of seller financing) in this market unless you partner with someone on the deal or can convince a hard money lender to lend to you. Hard money/private money lenders normally require you to have some skin in the game (more than 20k) for your first deal or either to put down as a down payment or as collateral/reserves.  

    1Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    3y
    Quote from @Michael Chase:

    Good Evening everyone,

    After months of research and years of thinking about investing in real estate, I'm ready to do my first deal. I have my preapproval in hand and am analyzing deals like a mad man. 

    Any advice for someone just starting out?

    I've found a few potentially good deals. I've analyzed and the numbers work. One particularly interests me. Its a 4 bd, 2.5 bath 3,000 square ft for 179k  but it needs some updating. If done right I believe the home could sell for 350k+ do to the value of the smaller homes on the same block and the neighborhood its in. I would need to get into some creative financing for the rehab because I just dont have the cash at this time. Any suggestions?

    Another analyzed deal is a 6 bd, 3 bath, 2 kitchen, 3200 sq ft SINGLE FAMILY for 135k. Call me nuts but i could easily see with some creativity turning this into a 2 unit apt due to the lay out and would cashflow like crazy in this scenario.  However the seller is wanting cash which I dont have that much. Im still educating myself on wholesaling but is this a possible way to profit off the deal, even though i dont have the cash in hand? 

    My situation is this- 20k liquid, and growing every week, and 20k credit with solid finances (not alot of debt). Any advice yall could give me would be appreciated. Trying to break through this barrier of hesitation and let the numbers do the talking. Thanks

    I'm going to give you some advice using your above post as a basis for it:
    1 - You're a REI not a REA.  # of beds, baths, cost/sq ft mean nothing as far as influencing your decision to buy a property.
    2 - Smaller homes have no impact on the value of larger ones.  Only use sales comps on homes in the immediate area that are within 10% of the home in question.
    3 - The knowledge you need to do Wholesaling is the exact same as if you are buying it for yourself.  The only difference between a wholesaler and the end buyer is the one that actually closes on the property.
    4 - The cost of any/every home you invest in is ONLY the cash you put into it...as long as it is cash flow positive.  The tenant is paying everything else, not you.  The goal of the CF is to recover your cost as fast as you can, so the smaller the cash you put in, the faster you should recover your cost and start to profit.
    5 - Now, here's the most important (yes, even more important than the above), don't start looking for properties and then figure out how you are going to pay for it.  Do it the other way around. Start with what you can afford, which is your cash.  Figure that is your DP, closing costs, rehab, and all the other cash items that happen upfront.  Extrapolate out from there to tell you the max offer you can make (notice I didn't say asking price).
    3Reply
  • Michael Chase
    OP
    Member since 2022 · 4 posts · 1 vote
    3y

    I appreciate your feedback. Yes, I have considered using my VA loan and using as my primary residence for the 4 bed 2.5 bath deal I mentioned, and since the property taxes are outrageous in this neighborhood, I would also get some help on the property taxes to limit my expenses and continue to aggressively save. My mortgage broker assured me (and this may be a hard lesson learned) that he can get me into my investment property for 5% down on a conventional loan with my credit and income. If that does fall through and they want 20% down as I have heard like a song on repeat, then that will definitely get revisited. I would love to do a lot of the rehab myself, especially with my knowledge and experience in residential construction, and save some money on the rehab as well, however do to my job and working out of town for majority of the year, I would have to hire a contractor. Another possibility would be to just sit on the property and continue in about 4 months I would have around 40k to work into the rehab, which I figure is enough to get me started. Not sure the best way to approach it

    Creative financing may have not been the best wording. I essentially meant taking out a construction loan but Im unfamiliar with there requirements. But if the home appraises like I think it will, then I could be buying into equity. My understanding is this is an estate acquisition and they just want the property gone. Theres still a lot of unknowns, but I will definitely keep that option open 

    0Reply
  • Michael Chase
    OP
    Member since 2022 · 4 posts · 1 vote
    3y
    Quote from @Joe Villeneuve:
    Quote from @Michael Chase:

    Good Evening everyone,

    After months of research and years of thinking about investing in real estate, I'm ready to do my first deal. I have my preapproval in hand and am analyzing deals like a mad man. 

    Any advice for someone just starting out?

    I've found a few potentially good deals. I've analyzed and the numbers work. One particularly interests me. Its a 4 bd, 2.5 bath 3,000 square ft for 179k  but it needs some updating. If done right I believe the home could sell for 350k+ do to the value of the smaller homes on the same block and the neighborhood its in. I would need to get into some creative financing for the rehab because I just dont have the cash at this time. Any suggestions?

    Another analyzed deal is a 6 bd, 3 bath, 2 kitchen, 3200 sq ft SINGLE FAMILY for 135k. Call me nuts but i could easily see with some creativity turning this into a 2 unit apt due to the lay out and would cashflow like crazy in this scenario.  However the seller is wanting cash which I dont have that much. Im still educating myself on wholesaling but is this a possible way to profit off the deal, even though i dont have the cash in hand? 

    My situation is this- 20k liquid, and growing every week, and 20k credit with solid finances (not alot of debt). Any advice yall could give me would be appreciated. Trying to break through this barrier of hesitation and let the numbers do the talking. Thanks

    I'm going to give you some advice using your above post as a basis for it:
    1 - You're a REI not a REA.  # of beds, baths, cost/sq ft mean nothing as far as influencing your decision to buy a property.
    2 - Smaller homes have no impact on the value of larger ones.  Only use sales comps on homes in the immediate area that are within 10% of the home in question.
    3 - The knowledge you need to do Wholesaling is the exact same as if you are buying it for yourself.  The only difference between a wholesaler and the end buyer is the one that actually closes on the property.
    4 - The cost of any/every home you invest in is ONLY the cash you put into it...as long as it is cash flow positive.  The tenant is paying everything else, not you.  The goal of the CF is to recover your cost as fast as you can, so the smaller the cash you put in, the faster you should recover your cost and start to profit.
    5 - Now, here's the most important (yes, even more important than the above), don't start looking for properties and then figure out how you are going to pay for it.  Do it the other way around. Start with what you can afford, which is your cash.  Figure that is your DP, closing costs, rehab, and all the other cash items that happen upfront.  Extrapolate out from there to tell you the max offer you can make (notice I didn't say asking price).

     I understand what you are saying. Probably getting a little ahead of myself. As stated before I've thought about investing for years now, and with BP I've got the edge to just do it, and want to take advantage of the best deal I can. I have done comps for the property, there weren't many but the home next to this sold in november for 279k and once again a smaller home. So even using that as my baseline is 100k above list. Lot of variables to consider. Would your suggestion be to go into something more turnkey? Just to close a deal and get that experience. I just want to do it, go through the process. 

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    3y

    Impatience isn't the answer. Learning by doing works with the proper guidance. "Just doing it" sounds great when you're buying basketball shoes, but will lead you to financial disaster. You want to see how fast $20k in cash disappears? Just do it. You will learn more with that $20k if you paid for structured education, and it will be a lot less painful. As a REI, over the course of time, you'll be responsible for handling billions of dollars of REI and cash. Think about it. Does that sound like the correct way to learn how to do that, is to just jump in because you are impatient?

    0Reply
  • Nate Sanow
    I​nvestor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
    3y

    If I follow your story correctly, you 1. Have a loan pre-approval and 2. You have enough for a low down payment and 3. Have a house you CAN buy, not sure if you SHOULD buy, and not sure HOW to make it an investment?  

    If this is all true, I suggest buying it and being patient. You made it sound like it needs cosmetics, is it functional? Meaning, does the HVAC work? Do you have hot water? Etc. If it's not a termite infested, fire burnt down, flooded with monsoon water nightmare I would say…buy it. Assuming your ARV is correct especially.

    Trick is be patient.  Might take you time to update or improve it.  I wouldn’t over-do any improvements and focus on renting out the rooms to roommates if young and single especially.  Good luck.  

    0Reply
  • Michael Chase
    OP
    Member since 2022 · 4 posts · 1 vote
    3y
    Quote from @Nate Sanow:

    If I follow your story correctly, you 1. Have a loan pre-approval and 2. You have enough for a low down payment and 3. Have a house you CAN buy, not sure if you SHOULD buy, and not sure HOW to make it an investment?  

    If this is all true, I suggest buying it and being patient. You made it sound like it needs cosmetics, is it functional? Meaning, does the HVAC work? Do you have hot water? Etc. If it's not a termite infested, fire burnt down, flooded with monsoon water nightmare I would say…buy it. Assuming your ARV is correct especially.

    Trick is be patient.  Might take you time to update or improve it.  I wouldn’t over-do any improvements and focus on renting out the rooms to roommates if young and single especially.  Good luck.  

    That’s is correct. Im viewing the house Sunday and hope to get a lot of the same questions answered. As far as I know it’s functional, it just needs cosmetics, and a lot of them lol. But has potential. I appreciate your advice and feed back. 
    0Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    3y

    @Michael Chase

    -look for a house hack.  don't get overleveraged on your first deal.

    -i don't know anything about your market, but it seems very unlikely to me that you could double the ARV of something that is listed on the MLS via just a cosmetic rehab. if that were possible, it would get snapped up immediately, and you wouldn't even see it.

    -turning a SFH into a duplex is not like flipping a switch. it might not even be possible.

    -go to REIA meetings, go visit 10 properties every weekend with an agent, make conservative offers on a house hack.

    -did i mention house hacking?  look into house hacking.

    0Reply
  • David A Lisowski
    Rental Property Investor · Inlet Beach, FL · Member since 2018 · 199 posts · 111 votes
    3y

    I'd say you need to decide on a what type of investment you are looking for and pick a strategy that will accomplish that investment goal.

    Buy and hold long term rental?

    Buy and hold short term rental?

    House hack?

    Primary to investment property conversion?

    Buy, fix, and flip? (Sometimes referred to as the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy)

    It looks like you mentioned a VA loan? And a loan pre-approval?

    I don't believe the VA does investment properties so you'd have to purchase the home as your primary residence.

    And was it a pre-approval with an underwriter approval, or just a pre-qualification? Things are different in each process (essentially, pre-qualification means nothing other than you have good enough credit).

    You mentioned some interesting properties, but are you finding these retail (i.e. Realtor, Zillow, through an agent, etc.) Or are these considered off-market deals?

    The best thing to consider when looking at a deal is having accurate information and numbers on the costs/expense, the loan/financing, and income (either actuals or proforma estimates).

    Run scenarios at the ideal conditions and the worst case. Would you tolerate the worst case numbers? Could you? For how long?

    Does the area offer potential growth and equity gain?

    Also, know your "Outs." At all points in the process. At all stages. You should know what an exit strategy would be at any given time. From when you make an offer all the way through owning and operating the investment.

    0Reply
  • Wale LawalBusiness Member
    Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
    3y

    @Michael Chase

    Real estate can be a sound investment, and one that has the potential to provide a steady income and build wealth. Still, one drawback of investing in real estate is illiquidity: the relative difficulty in converting an asset into cash and cash into an asset.

    Unlike a stock or bond transaction, which can be completed in seconds, a real estate transaction can take months to close. Even with the help of a broker, simply finding the right counterparty can be a few weeks of work. Of course, REITs and real estate mutual funds offer better liquidity and market pricing. But they come at the price of higher volatility and lower diversification benefits, as they have a much higher correlation to the overall stock market than direct real estate investments.

    Read this article for more information https://www.investopedia.com/m...

    All the best!

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