First investment. Bad credit. I want to purchase a duplex next year.

[Eddie Hernandez]

Hello, my name is Eddie Hernandez. I'm from North Miami, Fl. This is my first post. My new found infatuation with real estate investing started, like many, after reading RICH DAD, POOR DAD. I started researching books, websites, etc. I've been lurking through the forums trying to absorb as much as possible for the passed week. So here's my situation/question: I'm very interested in buying a multi family residence (duplex) next year. I have poor credit due to being financially illiterate for a long time. I'm getting organized, knocking bills out and I've started a separate savings for my investment venture. I'm not too interested in living on the premises. I would preferably rent the units out. What certain things I should have in place when I have enough to invest? Credit wise? How much is a good amount of $ to have for a 1st purchase (taking into acct, extra unforeseen expenses). Any advice will be greatly appreciated.

[Jon Holdman]

Are you going to be living in that duplex? If so, you can potentially buy it with a FHA loan. That lets you have a low down payment (3.5% I think, though that may have recently changed to 5%). And you can get away with a much lower credit score.

If you're buying it as investor (which you say your prefer), plan on 20% down and a minimum score of 720. Maybe you can get down to 15% down (which will add PMI to your costs) and a score around 680.

Do read in the rental property forum and get an idea of what you're really getting into.  Guru books, like the one you've read, give a very different picture than reality.

Number one dose of reality: Rent - PITI IS NOT cash flow. Not even close. A better estimate is (rent/2) - the P&I part of your payment. Banks use the formula (75%*rent) - PITI, which works if you're managing the property yourself, but doesn't really include the cost of hiring a property manager.

So, the number three task (number 1 and 2 being saving money and fixing your credit) is to figure out if you can even find an acceptable property in an area you want to buy.