Good deals and Not so Good deals

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Hey all,

This is my first time posting so bear with me. I've recently decided to start investing in RE because I'm sick of paying rent but often when I read about all these good deals, the numbers I see posted on these forums are usually all really low compared to the prices you would see in a larger city. In my case I am in Chicago and it is almost next to impossible for me to find a positive cashflow property in a decent part on the Northside. Since I can only put 10% down my philosophy right now is to find a rehab condo, owner occupy for at least a year, and see what happens from there. I'm almost certain I'll lose money in the beginning but that's why I'm trying to work some sweat equity through a rehab. More importantly, I'm just trying to gain some experience in the whole process of actually making a purchase. I just want to take the plunge, I just don't want to lose all my money in the process. Right now, with 10% down, my mortgage payments on a 150k property might be around 900. Add in *** and Tax and that will bring me to around 1400.

Current rental market for a place in that location looking through online ads look like only 700-900.

Is this just a really bad idea and should I simply consider looking for another area of Chicago where the mortgage payments would be closer in line with the rents? I just can't imagine positive cash flow without putting down more money. Any body have any suggestions?

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Hello splinterlfe,

I am a commercial broker and in my experience DO NOT JUST TAKE A PLUNGE AND LOSE MONEY. A investor will not be in business very long if you don't make a profit.
Here are a few questions you should ask when looking at a potential deal
1. Is this investment long-term or short-term?
2. How soon will I get my money back? (average is 1 year for short-term)
3. Is there a positive cash flow
4. What are the biggest problems in the investment

Remeber as a investor your goal is to make money
email me with any questions or if you want help looking for deals

[Wes Tuinstra]

Well said, Chicagolending!

I just cringed when I read splinterlfe say he was just going
to plunge in.

I am eager to do it too, but I also know that there will
always be deals. Next year, maybe even more so.

For me, I have to be able to "see" what it is I'm doing. There
has to be that aha moment when I "get it" and it makes sense.

That won't take away the fear, but I just can't see investing
without true understanding. Am I wrong?

Wesley

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I think it's also important that you really determine the type of investing you want to do and wait for the right deal to present itself. There are always motivated sellers out there and you can and should definitely look for those people to get deeper discounts. As far as the downpayment is concerned, maybe some creative investing or getting some capital built up before taking the plunge on any property. It really sounds like you're willing to roll the dice which is what forums like this try and help people not to do. This site has been invaluable to me and my success.

I suggest doing a little more research into the different types of investing, begin looking for different ways to find motivated sellers and go from there. Again, I don't know the whole story, but if you're just going through MLS listings and looking to buy a house for retail, what do you hope to accomplish?

Are you counting on the house appreciating to make your profit? If it doesn't, are you prepared for that and do you have another exit strategy in place?

If you are going to take out a 90% loan on the property, what will be the expected cash flow after your PITI payments? Is there enough cushion there for you to have a decent cash flow and keep reserves in the bank for the tenants that trash the property or stop paying?

Those are just a few of the questions you should ask yourself before taking the plunge. It's great to be motivated and ready and raring to go, but be sure you're not being too impulsive. The rule of thumb for many investors is to have your profit built into the deal at the time of purchase. Don't gamble and hope the house will be worth more when you want to dump it, and even worse, if something happens and you find yourself having to dump it sooner than you thought you would, you've turned yourself in the motivated seller.

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I appreciate everyone's comments.

The reason I want to plunge in is because I feel like so many people are afraid to take the first steps into doing something radical with their lives. Believe when I tell you that I am one of the pickiest people in the world when it comes to large purchases. I spend weeks researching my car, my pda, computer, etc... But there are some things where you can be book smart and know a lot but you can't apply it in the real world. Experience matters I think. In this case, I've read a few books but in no way shape or form do I believe I'm any higher than novice. I'm till definately green behind the ears but I believe making my first purchase is the only way to learn. I'm not in such a tight financial situation that if I make a mistake I could ruin my life. I have little debt (my creditcard), and the worst case scenario (that's reasonable) is that I buy a property and it doesn't quite appreciate as fast as I wanted or something to that effect. I could always sell at a later date which means basically I lost out on closing costs and whatever costs associated with selling. I can live with that if I can learn about the whole process of buying and selling better. And if I get screwed somewhere in the process, I get to learn from it when we're talking small money amounts as opposed to a bigger deal (hopefully) later on.

That's just my thought process.

[Mike L.]

My best advice would be to find a partner that's making money in your area and offer your cash/credit in exchange for his experience and split the profit 50/50. Half of a profit would be better than taking a loss.