First Real Estate Investment

[Buck Palmer]

Good Morning Bigger Pockets Family, I am from Jackson, Mississippi looking to invest in my first property, preferably a fix and flip since my father has been a painter for 25 years. Because of his experience, he knows plenty of people that he has worked with in the past that I would hire to renovate. I have about 10k and great credit to get started. Any advice? What areas in Jackson should I be looking to start? Should I save more money? Anything I need to be aware of? Please do not hesitate to voice your opinion! 

[Susan Maneck]

Hi Buck! 

The problem you are going to find is getting financing for property as an investor. The houses you can afford given the size of your down are ones banks are not likely to want to lend money on because their costs are about the same as for a big loan. What I suggest you do is something I recommend to most newbies, especially young men. Rather than fix or flip, do something called house-hacking. That's where you buy a 1-4 unit property owner-occupied. If it is a small multi, then you live in one unit and rent out the rest. If it is simply a SFR then you live in one room and rent out the rest. If you do the latter, then you might want to buy something near JSU, Tougaloo, or one of the other colleges in the area, and rent rooms to students. This will allow you to get into a property for as little as 3-5% down. Even though this would also be an equally small loan, banks can't turn those down if your credit is otherwise good because that is considered red-lining which is illegal for owner-occupied loans. But I think you still need more money to pull this off. While the 10K you have will likely be enough to close, where are you going to get the money to rehab the house? I almost always spend at least 5K getting a house in relatively good shape rent ready. However, remembering my own student days I can say that if the rent is right, they are often less picky about the condition of the house they live in, so if you house-hack you may be able to do the repairs at the same time you are renting out rooms.

Best of luck to you! 

[Buck Palmer]

Quote from @Susan Maneck:

Hi Buck! 

The problem you are going to find is getting financing for property as an investor. The houses you can afford given the size of your down are ones banks are not likely to want to lend money on because their costs are about the same as for a big loan. What I suggest you do is something I recommend to most newbies, especially young men. Rather than fix or flip, do something called house-hacking. That's where you buy a 1-4 unit property owner-occupied. If it is a small multi, then you live in one unit and rent out the rest. If it is simply a SFR then you live in one room and rent out the rest. If you do the latter, then you might want to buy something near JSU, Tougaloo, or one of the other colleges in the area, and rent rooms to students. This will allow you to get into a property for as little as 3-5% down. Even though this would also be an equally small loan, banks can't turn those down if your credit is otherwise good because that is considered red-lining which is illegal for owner-occupied loans. But I think you still need more money to pull this off. While the 10K you have will likely be enough to close, where are you going to get the money to rehab the house? I almost always spend at least 5K getting a house in relatively good shape rent ready. However, remembering my own student days I can say that if the rent is right, they are often less picky about the condition of the house they live in, so if you house-hack you may be able to do the repairs at the same time you are renting out rooms.

Best of luck to you! 

 Well what I was thinking that I could do was look for a tax deed property in a decent area (closer to one of the colleges in town) and use my business credit to acquire the property and to renovate. Once i’m done renovating, I could refinance and pull the profit out and use that to pay the debt off and repeat the process. I already have a 16k credit card and i’m looking to stack more. How do you feel about that strategy?  

[Susan Maneck]

Quote from @Buck Palmer:

Quote from @Susan Maneck:

Hi Buck! 

The problem you are going to find is getting financing for property as an investor. The houses you can afford given the size of your down are ones banks are not likely to want to lend money on because their costs are about the same as for a big loan. What I suggest you do is something I recommend to most newbies, especially young men. Rather than fix or flip, do something called house-hacking. That's where you buy a 1-4 unit property owner-occupied. If it is a small multi, then you live in one unit and rent out the rest. If it is simply a SFR then you live in one room and rent out the rest. If you do the latter, then you might want to buy something near JSU, Tougaloo, or one of the other colleges in the area, and rent rooms to students. This will allow you to get into a property for as little as 3-5% down. Even though this would also be an equally small loan, banks can't turn those down if your credit is otherwise good because that is considered red-lining which is illegal for owner-occupied loans. But I think you still need more money to pull this off. While the 10K you have will likely be enough to close, where are you going to get the money to rehab the house? I almost always spend at least 5K getting a house in relatively good shape rent ready. However, remembering my own student days I can say that if the rent is right, they are often less picky about the condition of the house they live in, so if you house-hack you may be able to do the repairs at the same time you are renting out rooms.

Best of luck to you! 

 Well what I was thinking that I could do was look for a tax deed property in a decent area (closer to one of the colleges in town) and use my business credit to acquire the property and to renovate. Once i’m done renovating, I could refinance and pull the profit out and use that to pay the debt off and repeat the process. I already have a 16k credit card and i’m looking to stack more. How do you feel about that strategy?  

 I've never tried going the tax deed route, so I can't help you there. But keep in mind, as with most auctions you can't get inside to check the condition of the property you want to buy. These houses have usually been vacant for years and I don't have to tell how much vandalism there is in Jackson. The first house I bought had every copper wire and pipe stolen in it! Also, are you prepared to do foundation repairs if necessary? That's one of the main reasons these houses get abandoned, that and bad roofs but you can probably tell that from the outside. 

Usually you have to rent out a property for a year before you can refinance. If you are going to try and finance your rehab using credit cards, make sure you have more than one. That's for two reasons. One, your credit score will take a dive if you use more than 30% of your total available credit, so plan on having three times the amount of available credit as you think you'll need. The other reason is that you need to keep those interest rates low, very low. If you just got this card it probably has a teaser rate now, but you need to be able to do a balance transfer once it runs out if you haven't paid it all off. I did use credit cards to help build my portfolio. If you do it right you can keep the interest rate and fees down to the equivalent of 5% a year, but it is risky. Whatever you do, do *not* fund your rehab at the usual credit card interest rates. Remember, your goal is to get an bigger pocket, not an empty one. 

[Vic Valera]

Buck,

Nice to meet you. I’m an investor in Jackson, MS also. I invest in fix n flip and buy & hold in NE Jackson.Any where between wholefoods and the Starbucks on county line rd you can’t go wrong. Best of luck to you. Let’s link up sometime I enjoy meeting other investors in the area.