New Investor - Max Leverage and Cash Flow?

Question

Robert Leonard · Answer

@Patrick Baker If I were starting from scratch with that much cash to work with, here's what I would do.  I would order the book Hold, - How to Find, Buy, and Rent Houses for Wealth and read it from cover to cover. Download the free online resources that you will use in your business that are referenced in the book.

Look for a distressed property that you can purchase at a deep discount using your cash buying advantage and renovate with cash while keeping about 25% of your cash as a reserve.  Get it occupied with a tenant and then once you've proven your concept and capacity to execute your plan, you are ready to talk to banks about what you are doing and how you want to scale it.

Go to www.memphisinvest.com and give them your name and email address and you will get access to Chris Clothier's "How to prepare a bank book" video that will set you up for success when you walk in the door head and shoulders above others looking to do business with banks. You want to deal with commercial lenders at smaller banks or credit unions.  Keep shopping until you find the ones that don't have seasoning requirements, they do exist and I've used them personally and know others who have in other markets.

Get J Scott's forms and documents that will be like gold for your business at www.123flip.com for the price of your name and email address.

Do these things following the models and tools shared by proven pros and you won't be in the game, you'll be in the business!  Then wash, rinse, and repeat to your heart's content.

Jerry W. · Answer

@Patrick Baker you have great advice from some sharp folks here I don't have much to add.  Have you considered trying to buy a multi property using FMHA and only 3.5% down?  You can get the 30 year loan and low interest rate, rent out the other units, and really leverage your money.

Mary B. · Answer

Welcome Patrick

BP is one of the best networking places for the new and seasoned  real estate investor. Plenty of resources for you to utilize at will. Don't be a stranger, participate in the forums. Happy investing to you.

Kudos,

Mary

Joe Fairless · Answer

@Patrick Baker - welcome to BP! And I'm from DFW and invest there so know the market very well. Went to Aledo.

One thing I'd mention with your plan is to make sure you have a lender lined up to do these cash out refinances. A lot of lenders don't do cash out refis on investment properties.

Ben G. · Answer

@Patrick Baker

I'm an active wholesaler in Indianapolis with a lot of money invested in marketing in Indianapolis.  If you would like to be added to my buyers list please PM me and I'll email you with any deals.  My deals may be few and far between, but that's because my deals will have accurate ARV and Repair estimates to save you and I both time and headaches down the road.  Again please PM me if you are interested.

Robert Leonard · Answer

@Patrick Baker Before I became licensed, I went through several agents before I found one who consistently returned calls and made appointments.  I still work with that agent today, because she is willing to work to earn her commissions and I like being around "go getters."  Now, I work at my pace and on my schedule when it comes time to submit offers and get access to properties because I am licensed.

Patrick Baker · Answer

I have to admit that I am blown away by the generosity here at BiggerPockets.  You guys are awesome.

@Robert Leonard Thank you for the suggestions.  I'll take a closer look at the smaller markets around me and I'll definitely get on the REO lists of banks in my area (never thought of that). I'm curious how you find the deals and submit offers on properties listed on the MLS... do you work through an agent or do you have your own license?

@Andy Collins That's great information.  Can you help me understand your numbers in Dallas?  For the 90% properties, do these need rehab as well?  What kind of cash flow are you seeing in your area on these properties?  It's probably useful to mention that I'm targeting ARV's of 120-130k, 3/2/2 1700-2100sqft SFR.

@Jerry W.

I like the idea of multifamily properties for sure. If I was fresh out of college without an awesome wife and two kids in the nest, I'd definitely do what you suggest here.  Living for free would be amazing.  That's a move I wish I would have known about before I started paying those high apartment rents during grad school! :)

Andy Collins · Answer

@Patrick Baker   as others have stated, a few years ago you could do that with very little out of pocket, I'm in the Dallas market now, good deals are hard to find, especially if you want good neighborhoods.

Three deals in your first year is a very realistic goal, don't buy all 3 at once, buy the first watch the process, get it rented, move to the second,,by the time the second is in rehab its time to start looking for #3.

Choose neighborhoods wisely, that's the most important part, if I have to end up paying 90%  on a house in a neighborhood I want, vs a super deal in a not so nice neighborhood,,I will take the 90% deal all day.  The better neighborhoods are easier to rent and easier to sell when you get to that point, and you will be able to choose your tenant.

Robert Leonard · Answer

@Patrick Baker I recommend you find properties every way you can think of and keep looking for new ways.  Finding off market properties through your own marketing is usually the best way to find the absolute best deals.  But that takes a lot of know how about targeted marketing, timing and negotiating skills that you may not have time to build if you have a full time job and want to get off to a quick start.

Then finding the right wholesaler(s) to work with will be the next best option, because a good wholesaler does what I just mentioned and after adding something for their profit, passes the deal to another investor like you or me. As far as trusting anybody's numbers on anything, you can't from the start.  You have to get a firm grasp, of your own, on valuation of properties and understanding rehab costs.  Trusting anyone on those will only come with your own experience and their proven accuracy over time.

In my home market, its very difficult to find a good deal straight off the MLS. But just 20-30 minutes away in smaller (but not rural) markets, you can find great deals on the MLS.  Anytime you can find highly profitable deals on the MLS, that's low hanging fruit that's ripe for the picking.

Another thing to do is get on every bank you can think of's email subscription list for their REOs.  Some will send you "coming soon" notices before properties hit the market and you can get a little of a head start on your analysis, but they will almost always end up on the MLS where you'll compete on the open market.

The best way to find them is always going to be market specific.

Patrick Baker · Answer

@Steve Endress Thanks for the encouragement of knowing that this strategy can pay off. I'm going to take you up on the offer to discuss further, too, by the way.  Thanks for that.

@Mike D'Arrigo

Thanks for your comments and suggestions.  To be honest, I'm ok with parting with up to 10% down on each house... I just don't like the sound of 20-25% down per house, so I'm looking for another way.  My goal is to have 3 homes purchased and rented out by the end of 2014.

@Curt Davis

I'd love to hear more about your approach.  Getting 4-5 homes at 20% down is a valid strategy, but I'd rather not burn through that amount of cash if I can avoid it.  For the rehab piece, I have a relationship with a great property management company in my area who would help with the rehab using their list of contractors, then take over the leasing and management duties thereafter.  I hope to learn a lot from the first 1-2 projects and expand as I can.

New Investor - Max Leverage and Cash Flow?

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