Trying to plan long-term, but where to begin

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Trying to plan long-term, but where to begin

Jonathan D.
Cincinnati, OH · Member since 2013 · 3 posts · 0 votes

I am looking for some advice about what is the most responsible path to take in my situation.

I just turned 25 and would like to start investing in real-estate with the goal to create long-term value. I do not need the cashflow for daily expenses; I would rather reinvest it to grow my real estate holdings.

I have zero debt but do lease a car and rent a condo for $1000/mo. Cash for downpayments will not be an issue, though limited credit history may (good credit, just limited since I have no mortgage on record).

My main questions are:

1. My first step is to stop paying rent and getting nothing in return. My current condo I am very happy with, and is desirable for several reasons. It is in a desirable neighborhood and walking distance to dining and shopping. Renting or buying these condos is also the cheapest way to get into the neighborhood - it's the only condo development, and all of the single family homes start at around 450-500k. I have the option to purchase it for 130k, which is below market value (owner is family). I have worked some comps and it appears it could rent for $1200-1300 comfortably, but my main concern is that it has a $267 HOA attached to it that would eat directly from my profit. Is a condo in this situation automatically unrentable from a profit perspective? If that is the case, I will need to move (I can't imagine buying a condo I won't be able to later rent when I move to a house).

2. The other thing I am considering is that my area always has several condos available for sale on the same street as me that then become occupied quickly (Proctor and Gamble employees make up 80% of the clients). It would be tempting to purchase them for around 150k and develop 2-3 properties just a few feet away from my own condo. Managing the would be much easier. Plus, I have the benefit of having super-stable tennants that are professional, clean, work for P&G mostly, etc. And I already know the HOA does a great job keeping things in good shape since I've lived there for two years now. I am already familiar with the rules, regulations etc. This is also in an area that is not over-saturated with condos like downtown, and where modest (not incredible) appreciation is forecast. Again though, the kicker is the HOA. Each unit I buy will have a HOA attached.

In my situation, would you consider moving entirely out of my location or is it possible to make such an otherwise perfect situation work even with high HOA's? Any other advice would be greatly appreciated as well.

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  • Mark Ferguson
    Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes
    12y

    Have you worked out the numbers to see what your cash flow would be? That would be my first step. That is a high hoa. How much are taxes?

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  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    12y

    @Jonathan D.

    I would buy a personal property first. Lower interest rate, down payment and easier to buy. Our first house was a personal property. 6 months later we bought our first investment followed shortly by another investment. We like buying personal properties that will become rentals because it is an EASY way to get into the market.

    If the taxes/insurance are low enough even with an HOA it might make sense. We honestly don't follow the 1-2% rules. We buy long term houses that have low maintenance higher cliental. I call it the Southwest Airlines style!

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  • William T.
    Wholesaler · Saint Louis, MO · Member since 2013 · 336 posts · 54 votes
    12y

    @Jonathan D. You have the right concepts in mind which is great. Have you considered how much cash flow is ok? Have you determined your exit strategy? Do you have other investor's in the area that you could sell to for a bigger investment project? How are you going to determine what is a good deal?

    Start listening to the BP podcasts and read the BP beginner's guide, this will help you to answer some/all of these questions. Good luck, wish I would have start early like you.

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  • Jonathan D.
    OP
    Cincinnati, OH · Member since 2013 · 3 posts · 0 votes
    12y

    Thanks for the responses. I have indeed begun listening to the podcasts and have been spending a lot of time reading here.

    One thing I am concerned about is my ability to secure financing. Let's say I want to invest 150k cash. I like the idea of buying 3-4 places and using that cash for down payments. Even better, I'd like to buy places with as little down as possible and use that cash for improvements to force appreciation. But I doubt I will ever get approved for 4 loans at my age with no mortgage credit history.

    I could buy 2 100k places in cash, but then my returns are lower as I lose the ability to leverage my money.

    What options does someone in my situation have for financing?

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  • Robert Leonard
    Investor · Lafayette/Baton Rouge, LA · Member since 2013 · 1k+ posts · 915 votes
    12y
    You haven't mentioned your work history? That's an important piece of creditworthiness. You need to know what your credit score is. Sounds like you are making assumptions about your own creditworthiness. Go to www.creditkarma.com and you can get a good picture of what your credit profile looks like with feedback about what you can do to improve it!
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  • Jonathan D.
    OP
    Cincinnati, OH · Member since 2013 · 3 posts · 0 votes
    12y

    I am the president of a tech company I started several years ago. That's where I got my cash from - I took a bit of equity off the table in a recent financing round.

    My credit score is in the mid 700's (real credit score, not creditkarma score). Zero debt, student loans are paid, no late/missed payments, etc. Just only have 6 years of credit history since I didn't get a credit card until I was 19 and have no history of mortgages. And I didn't start making a high income until late last year, so have less than a full year's proof of sufficient income. That's what has me concerned.

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  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    12y

    @Jonathan D.

    My husband and I bought our personal property at 23 and 25. We also had mid 700's credit and not a lot of credit history. My husband is in the military and I wasn't working as I had just received my masters. So we weren't the BEST candidates but we were able to get financing with no problems.

    My recommendation is to go talk to the banks. Under 4 mortgages should not be too much of a problem. Plus you have a lot of cash to work with so the20% down for investments should not be a big deal.

    Personal properties conventional financing are as little as 5% down.

    The one thing I would look at with condo's is how many rentals are in the complex. If more than a certain number are rentals FHA and VA will not loan in those places. That's why we buy "townhouses" with HOA's they don't have the same rental requirements.
    @Jonathan D.

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