How to start investing in Real estate quickly with the least amount of risk

Question

Hey everyone,

I am out of Washington state, and a beginning real estate investor...or soon to be :) I spent the last 3 months doing the wholesale thing, and after realizing that I was using what little money I have, to market for motivated sellers, and not making any money, this was not the most wise decision from a financial standpoint. I decided that I need to spend less, save more, pay of loans and cc's then invest in something that has a quicker more guaranteed return of investment.

I decided to go the buy and hold route, and some possible flips. I have some questions I was hoping some of you could answer.

1.) I am military so I do qualify for a VA loan ( is no money down your first investment property a good route?). Before I decide to make a purchase I want to know I am taking the least amount of risk possible with the most return (duh). So I want to know...What should my financial picture look like? Ideal amount saved, any debts, or debt free? I have a CC, school loans, and a loan from skydiving...it's addicting :) And until recently I took on the whole broke mentality, buy now pay later...buy stuff not assets

2.) I am thinking of the quickest way to pay my stuff of, and qualify for a loan. One option is asking a friend to spot the money to pay all this off, and giving him partial ownership of the first home (duplex,triplex) while also paying him back. I want to make this appealing and beneficial to him, but I don't want to screw myself over. How would I go about doing this...or am I walking in murky waters?

3.) I am also thinking of doing a possible rehab to make up some funds . since ultimately I would like to do both. I would need to find a partner, to invest with. I think I could find someone, but being in the military and rehabbing a home can get pretty busy, so I would probably need someone else to partner with to manage the rehab. Is this stretching it to thin? Would I be losing focus as far as investing strategies?

This is all I have for now, thank you!

Ned Carey · Answer

@James Haffner: Reading between the lines I see big problems here. You want to move fast but you don't want risk. Despite what the GURUs say Real Estate is Risky. The great thing about real estate is the risk is proportional to your knowledge. Real estate is not very risky for me because I know what the risks are and how to mitigate them. To answer the question in your subject line, the best way to avoid risk is Learn everything you can and know what you are doing. You especially have to know how to run the numbers and understand the hidden costs. Make great deals. The better the deal the lower the risk. If you buy well below market you have extra margin to make up for unforeseen costs. Excellent plan. Remember paying off a credit card the charges 12% interest has the same affect on your net worth as investing at 12%. My concern is later in your post you mentioned borrowing/partnering with a friend to pay it off. This is the part that doesn't fit. Flips have risk so certainly no guarantee of ROI. Rentals provide cash flow but not as much as one might expect. Rentals are a great way to build wealth and cash flow but is by no means "quick". Both take cash reserves which you don't seem to have. No money down increases your ROI (Infinite if it is literally no money) However the more you borrow the lower the amount of cash flow and the greater risk. If it is a Great Deal then no money down makes it better. But the extra debt of no money down could turn an average deal into a loser. Rehabbing is perhaps the riskiest strategy. It is also capital intensive. If you have no capital to start even if you could pull off a deal you are taking a substantial risk. Real estate is one of the fastest ways to get rich. But that can mean 10 years instead of 40. My advice to you: Slow down, don't expect it to happen overnight. Get your personal finances in order Learn the business Look for killer deals Keep moving forward. Good luck - Ned

James Haffner · Answer

Thank you everyone for the help! I am going to speak to my VA broker today about finding the quickest way to use my VA loan and were I would need to be financially. @Ned Carey, I definitely agree with what your saying...maybe "mitigate the risk" is a better phrase here :)

David Krulac · Answer

@James Haffner VA & FHA (3.5% down) mortgages are only available for owner occupants for 1-4 units. You can buy a SFH occupy for a year or so then turn it into a rental, then repeat the process. You can also buy multi-family up to 4 units as long as you occupy 1 of the units. I've know several military who buy a property at each duty station, keep it as a rental when you get orders to new duty station. Therefore they accumulate a property at each station, Conus.

Harold Anderson · Answer

James, I'm also a veteran and have used my VA loan to buy two houses. You can't directly use these loans to invest in housing. However, you can use it indirectly. Your VA loan broker will guide you into what you can or can't do. On our current home, we not only didn't put anything down on it, we received a check for $1500. We didn't even have closing costs. We are living in the home (required by VA), rent part of it out, and started a business. Our income exceeds our mortgage and has the potential for at least double what it is now. There are a number of ways of doing this that the VA will allow. The first thing to do is to talk to your VA broker.

Michele Fischer · Answer

I would suggest you step back and get your financial house in order before you take the plunge. Get a credit report, see how it looks, take 6 months or more to improve it. You'll want at least $3K in the bank ready at all times to bail you out of short term real estate woes. To buy a property with a VA loan and get started, I'd have the needed costs to close the loan, rehab costs, plus the $3K+ safety net. As you gather that, explore partners, ways to structure the partnership, and how the VA loan impacts a partnership. Just my two cents...

Harold Anderson · Answer

James, Another thing to look into is if Washington has a state VA loan program. When I lived in Wisconsin, I bought my first house with the federal VA loan, then got a state loan to renovate it. Later, we bought a farm and got a state loan to create a farm B&B.

Bill Horton · Answer

I don't know much about VA loans, but if I was in your shoes I would look into buying a small multi family property to live in. Particularly a 4plex. If you can make it work with your VA loan, you could be out of pocket a minimal amount and essentially have most of your living expenses covered by your tenants. You could buy one that needs a little work and build sweat equity... While you're living there, pay off all of your other debts and save for your next investment. Also, as someone else mentioned, make sure you keep a good amount in savings for when things go wrong, because they will. I am no expert, but that's just what I would do. Good luck!

James Haffner · Answer

Harold, Thank you for he advice! Monday I am going to go have a conversation with my VA broker.

Timothy Trewin · Answer

Harold, That is great advice. There does seem to be ways to make a VA loan in your favor. I am still looking at that right now as I am about to use it to buy my second home.

James Haffner · Answer

Yea, I used bandit signs, PC, YL, CL. I even wrote my own letters for a while. Got a ton of calls but nothing that fit the #'s. Thank you! Yea I am definitely thinking more on the conservative side.