Would you start a direct mail campaign to find 2-4 unit multi, in hopes of using a FHA loan...

Question

Hello BP!

I'm wondering if anyone has done this or if anyone can provide some insight on how this could work. I really would like my first purchase to be a great legitimate deal. I know that in order to locate deals now days, you have to get out there and get your hands dirty (especially in my San Diego market). My hope is to start a direct mail campaign to hunt down a small multi unit at a great, off market price. I hope to use either a standard FHA loan or try for a 203K loan (if needed or if possible).  I am wondering what this looks like once I find someone who is willing to sale.

Should I have financing already set up? Only problem I have with this is that I know it will take a few months to find anything.

Should I always try to see if the seller would be interested in financing the deal until I found funding? Is it normal to request 6 months or 3 months? (I feel like I only hear about years being thrown around)

Should I try to seller finance even longer? I've heard a few podcasts that talk about seller financing being a great option that people don't request enough.

I currently rent and would like to stop throwing away ridiculous amounts of money every month. I plan to be a buy and hold investor in my local area.  At the moment I'm not interested in investing out of state. It's seems every time I ask a question about investing in San Diego I get 5 people telling me that there is no chance to be profitable and I need to try investing out of state. I do understand where they are coming from but also I understand that even if I did Invest abroad and made crazy amounts of money, I still will be paying for a rough over my head. If I'm able to shrink that living expense as much as possible, even if it doesn't "cash flow", I still think its a great investment in time and my overall wealth building ability.

I am extremely green in regards to REI and would appreciate any and all feed back (even the people who will still reply with GTFO of San Diego).

Thanks everyone for their time

Justin Fernandez · Answer

Find a property, get it under contract for 60 days.  Your financing shouldn't take longer than that to get put together and make sure to do your due diligence first, but your loan is only valid for X amount of time, not sure in your state.

They use years because of the amount and amortization, if it's someone that wants more for their money.  Unless you plan to pay the whole price within 3-6 months, then over 10,20,30 years and what can work for you.  You have a better shot with a 4, then 3, then 2 because of rehabbing and getting it rent ready while minimizing vacancy.  You should find one that at least cash flow's positively so you know that you're doing this right. Just because you pay much less, doesn't make it a deal since you will eventually rent that one out also.  But it's your money and you are comfortable with what you're comfortable with.  Always run the numbers and do your due diligence.

Gross Monthly Rents (GRM) is one of the main factors for MFH since there are rarely comps for them unless they were popular in your area.

A book I'd recommend to know what you're doing is Investing in Duplexes, Triplexes and Quadplexes by Larry B. Loftis.  Definitely helps my decision making when looking at MFH.

Shawn Couch · Answer

You should really get yourself prequalified so that you know what you will be able to afford. Otherwise you may be wasting money on mailers, and waisting yours and the Seller's time haggling over a deal.  Besides having a pre-qual in hand is a good negotiating point.

Buying units for your first property is a fabulous idea and taking advantage of the FHA super low down is a great way to buy units

I would also take a look at what is listed on the MLS just in case you see a deal that you really want.  SD is expensive and even off market deals can sometimes sell for almost as much as retail.  I can run a search for you and email you the link if you want.  My suggestion if you want to do mailers would be to go "driving for dollars" and look for some more rundown properties in an area that you want to buy in.  Then you can get the owner name and address from the tax rolls and start your mailing.  One hitch may be that the owners may not want to do any work, and some older buildings will not meet financing criteria so you may need to get a 203 qualification as well.

Regarding out of state investing, it is a good way to make some cash and high returns with a lower point of entry than San Diego.  However, I would use that FHA loan and buy your first Owner Occupied Investment property with little down first and foremost.  I currently own rentals out of state in Northwest Indiana.  If I used my money to buy a home, I would be paying the same amount as my current rent, but have upside in appreciation, but risk in depreciation and repairs, liability, etc.  If I bought a rental here in San Diego with my cash, I would be collecting about $1500 a month in rent.  However, I am collecting $7400 a month in gross rent which pays my rent and then some.  Food for thought.

Let me know if you want any help.

Shawn Couch · Answer

@Brandon Heath

I do own a condo in North Park that cash flows, but it was picked up via a short sale.  Those are hard to come by now a days, and very few sit on the MLS for long before they get scooped up.  I had a tri-plex in OB, but sold it in 2008 for a BIG gain.  I lived in the front and the back units paid my mortgage.

My out of town properties are coordinated via a local investor who I partner on some flips and pay to rehab my keepers.

Brandon Heath · Answer

Thanks @Justin Fernandez

I was aware you could determine the length of the contract but I didn’t think about giving myself enough time to land a loan.  I’ll be sure and grab the book asap!

Thanks @Adam Pierce

I just heard of this strategy on a podcast. Putting out the word with a bunch of wholesalers to go and bring in some deals (hopefully off market).  I really need to start attending all the REI clubs in my area. I always seem to find an excuse not to. I’ve heard this is a great way to meet wholesalers in my exact market. And of course using bigger pockets.

If I do go with the direct mail route, I understand that it won’t be a quick one time deal. From what I’m reading you are correct, I’ll have to touch the home owners a few times before anything sticks.

How did you start on your first multi?

Thanks @Shawn Couch

I will definitely look into getting pre-qualified before I get started. I imagine this will also assist in letting me know exactly where I need the deal to land (financially). I won’t completely ignore the MLS, but just from running my own numbers I have never found anything that would at the very least break even after I moved out. These of course are usually places that have sat on Zillow for 6-7 months so basically, no one wants them. Now having access to deals once they hit the MLS, that’s something I haven’t tried. Maybe I can work out something in the near future.

So do you own here in SD at all? Out of state does sound promising, but I feel there are enough things that can go wrong with me in a place I’ve lived my whole life. Maybe after I have a grip on what it takes to land lord locally, Ill look into another place like Indiana.

Mind if I ask how you acquired your property out there? Did you work with a partner who has boots on the ground? Family?

James McCoy · Answer

Cluster marketing is always the key. Getting your name to a potential seller enough that you are top of mind when they decide to make a move. we can always help.

Adam Pierce · Answer

If you are concerned with costs you can let a wholesaler and real estate agent do the searching for you.

With that being said, I think direct mail is a great tool however you need to be prepared to send out multiple waves of letters to the same addresses if you want to see results.

I work with a couple different marketing companies who use direct mail and it takes about 3 letters to the same person to get the call; just something to think about when you are figuring your costs and time.

Would you start a direct mail campaign to find 2-4 unit multi, in hopes of using a FHA loan...

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