Hey everyone, just joined BP a few weeks ago and am getting a feel for real estate investing. There is so much information here that it begins to feel a bit overwhelming. My wife and I are hoping to invest in properties in Orlando, FL (we also live here) while maintaining our 9 to 5 job but are a bit lost on our best course of action. We have about $40k in savings (literally just sitting in bank accounts) however would only like to wrap up $15k total in our first property to make sure we don't make any mistakes. Here are a few issues we are having: • We went to the same lender that we used for our first home (just 2 years ago) to get a pre-approval and have been working with a realtor. Between the listings we are getting from the realtor ($70-100K) and the 20% down our lender is requiring for an investment property we are landing beyond that $15k. Not only are we beyond the budget we set for ourselves but this is for properties are either in OK neighborhoods but will require further rehabbing or in areas that I feel would be hard to find good tenants. • Our realtor only provides use listing from MLS, would we be better suited to find a different realtor, do directly to wholesalers, or just start cruising neighborhood on our own? • Another option we have considered to possibly get over the 20% down hurdle is to start looking for a new primary residence for ourselves and then using our current house as our first rental property. Has anyone had success with this? Our mortgage now is $1460 and comps in the area have a rental price of $1.4-1.7k monthly. Any insight would be great! We are very ambitious but know very few people that have experience with this. I'd be more than happy to spend some time chatting with someone in person over coffee or lunch some time!

Do you have cable? How much do you spend on that a month? How much do you spend on eating out? What non-nessecities can you cut out to increase your savings towards this goal?

@James Buchanan If you got $1700 for rent, you would still not make money. Between repairs and vacancy, you will be in the red, trust me. You're not in a place to do this. With $40K saved, I don't understand why you can't put 20% down towards another property. Another option would be to prepare your property better. Did you purchase it with an FHA or 5% conventional loan? What is the value of the house and what do you owe? Maybe you can throw money at the house and then refinance to a new loan out of the PMI at a lower loan amount (not a home equity line). Then you may be in a spot where you owe maybe $1100/month on it and could rent it out to know you will be positive. Then you could save up and put 5% down on your next SFR which maybe $150 or $200K value but only $10K down. Then I would rinse and repeat on this one, throw all your money at killing that PMI, rinse and repeat. WIth a fully leveraged house and PMI, it's impossible to make money or even break even on a property unless you got a killer deal or it is a killer multi-family deal. In the next primary example, you are even better off if you can buy a multi family with a 3.5% FHA. Then you may be able to save to buy the next one, or just save enough and in a year move in to your next primary house. Then you will have a cash flowing MF and a cash flowing SFR. At this point you could throw many to get out of PMI on the MF and refinance out of it if you'd like as well. I'm also helping you to manage your risk in case of a blip in the housing demand. Reach out if you want to chat more. Keep exploring, but do NOT over leverage yourself as a newbie. You will end up bankrupt.

For the beginning, I really love and understand what Russell mean. We used to have little money and spend all of them. The bad thing is even we have more money we still spend all what we got. To save is a good habit.

@James Buchanan I lived in Deltona for 21 years in DeLand now for 2 (I prefer the vintage feel) but Deltona is definitely a true bang for your buck area...and houses are creeping up price per foot there too. Rentals are gone the day they are listed, if they're not, a drop the rent 50-75$ and it's a whole new ballgame. It's a great market.

This is in part because when you purchased your current house, you went for a place that suited you and your families needs first and foremost, not a place that would be a great deal for a rental. We're not exactly using things for what we purchased them for, in this scenario. The place you are looking at now, different story. Let's suppose you find a place that will be a great rental after you've lived in and improved it for a year. Then let's suppose you move back into the house that you picked out for you and your family, after a year of it being cash flow neutral. What does your cash flow situation look like in that scenario, 12 months on?

Hey Russell, We really don't have many expenses; no cable, $40 for internet, one car payment of $240, a low interest student loan. In the past year we've managed to save about $10k even with our wedding and honeymoon (all paid off). I suppose we could continue to save longer but had hoped that we were finally at a point that it made sense to begin investing in real estate, especially before we have any children to factor in.

Hi @JamesBuchanan I'm in Central Florida as well :-) Don't want to step on anyone's toes (your realtor) but if you and your wife would like to meet for coffee and a chat I'd love to meet you both!

@James Buchanan I am a newbie and do not have tons of experience so take my comments with a grain of salt. This are my 2 cents. With $15K there is not a lot you can do if your plan is to close on a property in that price range, let alone close and rehab it. Not only you have to account for the down payment but also for closing cost, escrow, reserves and holding costs, adding a few more $1000's to the mix. You either need to change your strategy for your first deal(maybe wholesale?), increase your threshold for quite a bit or find money somewhere else (Equity partner or Private Lender). People say there are deals in the MLS and I have to believe it. But I also believe they are available mostly for seasoned investors that jump on them as soon as they come out. Remember that in the MLS you are competing with the entire world and some from Mars. Changing realtors might help you, having a good one in your team is always a good idea but not necessarily will dramatically increase your odds of finding a gem in the MLS. Cruising your desired neighborhoods is a good idea to find off market deals. Spending some money in direct mailing should help as well (you can do it yourself at the beginning and save more than half) As for renting your house, you don't seem to have a good margin there. Your are almost flat and haven't account for vacancies, repairs and management (you can do this yourself and save on this). With all these factored in you'll have a negative cash flow. So in summary, you may have to either change strategies and not plan on closing on a property or find a private lender or equity partner to fund your deal. To get more familiar with these approaches a good start is this BP book: http://get.biggerpockets.com/nomoneydown/ Hope it helps and Happy Investing!

If you're set on buying, I would recommend renting out your current home and financing a new primary home with 5% down. In order for this to make sense, you need to ensure you have sufficient liquid reserves in case things don't go your way. This includes things like large unexpected repairs, evictions, job loss. By buying another primary, you have the advantage of keeping most of your cash...but you pay for that privilege through a higher mortgage and PMI. However, it can turn out pretty well if you are careful.

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Updated over 8 years ago on 06/07/2016. Most recent reply

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Posts: 2
Votes

James BuchananPoster

Orlando, FL

Starting Out

Where to start? 20% down is killing me & a bit overwhelmed!

James BuchananPoster

Orlando, FL

Posted June 04, 2016 13:54

Hey everyone, just joined BP a few weeks ago and am getting a feel for real estate investing. There is so much information here that it begins to feel a bit overwhelming.

My wife and I are hoping to invest in properties in Orlando, FL (we also live here) while maintaining our 9 to 5 job but are a bit lost on our best course of action. We have about $40k in savings (literally just sitting in bank accounts) however would only like to wrap up $15k total in our first property to make sure we don't make any mistakes. Here are a few issues we are having:

We went to the same lender that we used for our first home (just 2 years ago) to get a pre-approval and have been working with a realtor. Between the listings we are getting from the realtor ($70-100K) and the 20% down our lender is requiring for an investment property we are landing beyond that $15k. Not only are we beyond the budget we set for ourselves but this is for properties are either in OK neighborhoods but will require further rehabbing or in areas that I feel would be hard to find good tenants.
Our realtor only provides use listing from MLS, would we be better suited to find a different realtor, do directly to wholesalers, or just start cruising neighborhood on our own?
Another option we have considered to possibly get over the 20% down hurdle is to start looking for a new primary residence for ourselves and then using our current house as our first rental property. Has anyone had success with this? Our mortgage now is $1460 and comps in the area have a rental price of $1.4-1.7k monthly.

Any insight would be great! We are very ambitious but know very few people that have experience with this. I'd be more than happy to spend some time chatting with someone in person over coffee or lunch some time!

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Entrepreneur
Frisco, TX

Account Closed

Entrepreneur
Frisco, TX

Replied June 04, 2016 14:49

Rent out your current home (if it would net cash flow $100-150+ after ALL expenses each month - use the calculators on the site to find out).

Then, use a 3.5% down FHA loan for the new property. FHA can be used for a 1-4 unit property (SFR, duplex, triplex, 4plex) & you are required to live in 1 of the units for 12 months, then you can refinance into a conventional loan & rent out the unit you were in to an additional tenant.

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