21 years old, 30 000$ to start with, advice?

Question

Hi all!

I'm a new member and I've been listening to BP podcasts for 2 months now. I just love it. I'm from a french province (Quebec) which is close to Montreal in Canada, my english might not be perfect (and i'm sorry for that) but here it is :

I am a full time student but I'll most likely get a full time job by the end of the year. I have about 30 000$ sleeping in a trust fund. I've been waiting to start in real estate for a while now (almost 3 years) and it is time to get started. I would like your advice on these two choices I consider :

Option 1: Getting a first SFH below market (under 150K) which would consume almost all my cash, rehab it, rent it and refinance it (we don't have seasoning period here) and repeat. Problem is, the market is quite tight in my area and homes are an average of 120 days on the market. There aren't many ''deals'' and only a few foreclosures (under 5). Next taxes sales is only in September. Therefore, I am scared of not finding great enough deals to do BRRR. Plus, I don't wanted to get involved with private lenders yet since I have no experience.

Option 2: Waiting for a couple months because one of my family member will most likely be able to loan me (interest free) another 25K then I could get into a bigger building and buy my first MF building (5-6 units) around 400K.

Do you think it is better to get started now with, let's say a 150K SFH and perharps not being able to buy another property before getting another 20-30K for a down payment (which could take me 2 years) OR wait a bit and get into a 400K MF building. The 400K would be financed 75% bank, 12.5% seller financing, 12.5% me. The SFH would be financed 80% bank, 20% me.

I'm currently setting up a Real Estate Investments company and looking for an optimal growth strategy.

Any ideas ideas or thoughts or experiences would be very appreciated.

Ho, also if you can rate my ''english writing'' on a scale of 1 to 10, 1 being awful (ah ah). I'm trying to improve.

Thank you,

Kevin

Ben Leybovich · Answer

Kevin,

1. You are not ready to do anything but study. You wouldn't be posting this if it weren't so - Don't even think about deploying capital!

2. I know your market - hotter than hell. You'll be tempted to invest long-distance - in Ohio, for instance. Be mindful. Long-distance management will eat you alive, for one. Not to mention that I'd rather pay too much for quality in a land-locked appreciating market, rather than buy cheap PIGS in Ohio that are going to go nowhere but down...

3. Leverage is absolutely key to building wealth in RE, both on the macro and micro scale. On the macro scale, understand - we live in a fractional reserve banking system, which is based on leverage. Not using leverage is akin to swimming against the stream at Niagara... On a micro - $5,000 in my world buys $375,000 apartment complex, which is worth $450,000 in 2 years, and puts $1,000 +/month in my pocket - leverage makes thins possible. You've got $30,000 - that's plenty, if you know what to do :)

However, leverage cuts both ways, and when it cuts the wrong way, it slices like a hammer. Which brings me back to my first comment - knowledge and perspective should be your focus! money, in this game, follows knowledge!

Good luck, Kevin!

Joshua McGinnis · Answer

@Ben Leybovich

How does $5K in your world buy a $375K apartment complex? Just curious...

Kevin Bellavance · Answer

Thanks for the awesome tips everyone!

Getting great responses is very helpful.

@Matthew Cole, Sorry for not being clear. I speak french. Therefore, english isn't ''natural'' for me. but yeah, I have people (family) who will ''sponsor'' my loans with the bank. I can't have a loan myself right now.

@Ben Leybovich, Thanks for the feed back! I would say I've been studying for quite a while now, almost 3 years. I read dozens of books, watched and listened for about hundred of hours of informational content and I'm studying Business, therefore I know (theoretically) how the system works (Bank and everything around financing/debt, leverage, ROI, etc). But now I would like to get started. I'm ready for it, knowledge wise. My question was just to get some advice or feedback on people's opinion. Not because I have no clue where I'm going. Also, our market is hot, that's for sure. But our bank system is more strict and risk averse than in the US. That's why our Real estate market (in Quebec) didn't crash in 2007-08 when everything out there was falling apart. Our banks don't lend to everybody and you have to have some good money to invest. In our market, putting no money down is impossible with our bank system. They do not accept seller financing more than 12.5% or less. Therefore, when we want to invest long term, buy&hold, we can't use the ''no money down''. Of course, we can use private lenders or creative financing for flip and short term, but for the long term, we need raw money. I'd be glad if you could elaborate on how you are able to invest long term (apartment complex) with no money down. I've turned this question a thousand times in my head for the last few months and I've found nothing (out of about 15 solutions that I disscused with my mortgage advisor)

@Engelo Rumora, I'm not getting in Real Estate to brag or something... I want to build wealth for myself. If I wanted to impress, I'd take my 30K and buy a brand new BMW, but I'm not. I like challenges, I have big dreams and even bigger goals. I'm not doing it for the ''chicks''. But thank you!

@Limo Jeff Martino, very great advice! Didn't thought of it. Could force me to be creative. Nice, love it.

Engelo Rumora · Answer

Biggest mistake I made when first starting in RE was investing in property through financing and to impress the chicks with the title that came associated with RE.

For example: "Real Estate Entrepreneur" lol

Very bad idea lol

Be patient, do more due diligence on the people you are looking at working with rather than the stats/demographics of a deal or area.

Establish and end goal and work backwards.

That's a few quick and key pointers from someone that has been around the block as they say lol

Thanks and much success.

Account Closed · Answer

Research to find who is successful in doing what you want to do ( make money in real estate), offer to be a Locator for these successful pros, find deals for them, offer to work for free in return for some mentoring.

There is no better way to accelerate your real estate career, find a mentor and you'll grow fast in this business. You can learn about this from Napoleon Hill, where he writes about The Master Mind concept.

Charles

Ben Leybovich · Answer

Commercial lending and private money - relationship-based stuff. Very important!

Joshua McGinnis · Answer

Good on you if they agreed to do it. I had a seller offer me more than 6% of purchase price towards closing costs once and my lender wouldn't allow it - but I was using FHA so perhaps that's the difference.

Ben Leybovich · Answer

Well, I guess it's time to study :)

Concessions are the same as him coming down on the price. As long as the lenders are good with me applying those to the DP, than everything is fine. Prorations of rents the same. The only thing in question, if I understand you correctly, are the security deposits. It's true that some States require those be set aside into an escrow account. Not in Ohio, as far as I know. The money doesn't belong to me - it's the tenant's money. But, at least for a small asset like this, as long as there is enough liquidity to satisfy all deposits, everything goes into the same pot. Attorneys felt comfortable with the HUD as it stood...I didn't argue...lol

And thus, $5,300 bought $373,500 asset, which I recently refinanced to wrap both notes into one $350,000 note. The building appraised $450,000 and fully financed generated $12,000 of CF in 2014.

Not a bad way to deploy $5,300 - agree?

Joshua McGinnis · Answer

OK - I'll bite. After reading your 5K word post, I found the answer. :)So you got two loans: one commercial loan at 70% LTV, second at 25% LTV, leaving you to cover the remaining 5%. You then offset the remaining 5% down through additional seller concessions.How were you able to legally use the seller concessions to go towards your down payment? I didn't think this was allowed.

Ben Leybovich · Answer

Read this - Symphony Case-study

21 years old, 30 000$ to start with, advice?

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