1st Investment Advice

[Konrad L.]

Hello Everyone,

I’m looking for advice, suggestions or recommendations for my first investment. I’m not sure whether to go with a 3-family rental first or a flip.

This would be my first home purchase in general. I don’t own a home right now – I rent. My idea was before I buy my first house to own and live in, to (OPTION 1) buy a rental for additional monthly income, so that I can afford a better home and then use the equity to get another rental etc. My big dream was to eventually get a bunch of rentals and live off the income and continue to invest, but I see how that could take a very long time.

My real estate agent advised me to do a flip first (OPTION 2), and if it works out, do another flip, then buy my house, and then get a rental or two etc., which makes sense because I’d be able to build up equity quicker.

I am well aware of the responsibilities that come with rentals, although I’m sure you guys would know of more than I do. Although I’m in healthcare finance now, not making a whole lot money, I do have construction background, so I’m not afraid of a flip either.

Then comes the question of how to get the mortgage for these properties... I have 12k cash but can sell one of my cars and get additional 13k for a total of 25k as a down payment. If I’m correct, with either a flip or a rental, I’ll have to get a conventional loan and 20% down, which leaves me very little money to rehab if I go with the flip, possibly, none.

There's also the option (OPTION 3) of doing FHA with less money down, while rehabbing the place with the remaining cash and living in it for a year, and then after a year, sell it gaining some equity. By then I should have enough to get another with a conventional loan, with money down and for rehab itself.

I’m really not sure which is the best way to go. Ideally I’d like to get into a house of my own within a year, while doing either the rental or a flip.Long term, I think I’d like to own a few rentals and live off that, but again, those are just dreams for now. Maybe these options are just unrealistic, period?

Any and all feedback is greatly appreciated.

Thanks,

Konrad

[Val Csontos]

@Konrad L. I saw you mentioned that your real estate agent "advised you" regarding your RE investment.

I would like to share with you my short story about my agent "advising"me:

I listened to my agent's advise about buying rehabbing and selling a 3 BR 1 BA SF and this is what happened. I worked my a### off to do a rehab project and made $2000 in 4-6 months. My agent made $12,000 on the same deal because he helped me buying AND selling the house as well. This was back in 1999. At that time soon after this deal i came to realize that the RE agents are good at Selling and I am the investor and i need to do my own homework independently from the agent on each investment project.

I am also a Vet (12 yrs USAF) and the way i started out, i would get a VA loan lived in the house for a year, than i would get a second one and rented out the first. (VA let me use the loan twice.) by than i had enough appreciation (equity) in the homes that with the next house I went to the local bank (small bank) they said they will pay 80% with 20% down so I asked them for substitution of collateral (the vp for commercial landing was quite intelligent and creative).

So instead of putting down 20% cash they accepted the equity in the other property in the form of a second mortgage with no monthly payment just as a collateral.

Disclaimer: This will work is you have enogh instant equity in the subject properties (you need to buy them for at least 60 -70 cents on the dollar.

Good Luck to you!