Finding Deals

[Michael Visser]

So this is my first post, here it goes. I live in Fort Worth, TX, and I have recently decided to purchase my first home, but I want to treat it like an investment. What are your thoughts on the best way to find a property that I can look to rent after after living in the property for a year?  

[Tom Cyr]

Micheal, welcome to BP.  Your plan is excellent, especially your priorities to focus on what your passion is for your time.

My advice is to share housing with family, friends, strangers, until you have some serious capital raised, OR you find a deeply discounted house to buy.  Don't rush it.  Get your ducks in a row as far as financing so that you are ready to pull the trigger when the deal comes along. 

If you jump into a house just to have one, it will be an expensive seminar that could set you back many years.  Do the math on a napkin to see what kind of profits are realistic.

If you play Cashflow 101, (if you don't, find someone to play the board game with) you'll see that the opportunity is a 50% discounted house that you can turn into a rental ONLY UNTIL YOU CAN SELL IT OR PULL THE EQUITY OUT TO BUY A BIGGER DEAL OR MORE 50% discounted houses.  The actual net on rentals is pretty small and it will take a lot of them to cash flow enough to get you to your target.  The goal is to raise capital that you can invest at a greater cap rate than rent houses with less trouble but is still within your risk tolerance.

if you live in the house for two years, you can sell it and pocket ALL the gains tax-free.  It's one of the only tax breaks for W-2 employees.  If you are living in it and sell before 2 yrs, you will have to pay a chunk of your profit out to Uncle Sam.  Unless you have progressed up the yield ladder pretty far, you probably won't get that amount back in your next deal fast enough to make a quick sale worth your while.

There are many variations of this strategy but this is sort of the most basic.  If you get your discount property-finding machine working, and you can find private lenders or sellers to finance their homes to you, you can re-sell those with owner financing for full price on a short term note and get the equity out over time without the landlord headaches.