Financial advise needed with path to REI

[Brandon Johnson]

Hello All, I am looking forward to entering the world of real estate investing and I'm reaching out to the BP community for advice on how to work through a financial dilemma. I have plans on purchasing my first turnkey or near turnkey flip somewhere in the area of $100k. The home that I live in i have a mortgage balance of $155k at 4.5% on a 30 yr. fixed No 2nd mtg or other debt attached to property.I purchased at $216k comps in the area (zestimates) are running between $220k and $240k for identical structures. I need to pay off about $27k in personal debt (credit cards & personal loans). I have met and continue to meet all financial obligations (no late payments). I have an annual income of $65k - $70k per year. I would love to get started and would appreciate all positive input with helping me map the course. Thanks,

[Jason V.]

Welcome to BP @Brandon Johnson!

Couple of questions: 

1. How much money are you able to save every year right now? No matter what path you take in Real Estate, having your own cash will make things so much easier. Long-term buy and hold becomes a pretty simple thing when you can save up 25% down payments. 

2. What are your goals with investing in Real Estate? Short-term cashflow? Long-term cashflow? Long-term wealth creation? Buying TK properties is most often a short-term cashflow strategy, because you are paying someone else to do all the work, in a sense. Even if you were to find the property on your own, and pay your own contractors to do the rehab, you'll still wind up ahead on the equity side. Even better if you manage it yourself. (I'm a big believer that a person's first investment should not be a TK property.) North Carolina has some awesome markets that are well within the price range for new investors - why bother with TK at all? The best choice for me (aggressive investment in small MF properties that cashflow well) might not be the best choice for you. Maybe you want to invest in SFRs on 15 year notes (which won't cashflow much without bigger down payments) so that you'll have paid-off properties that pay you (how ever much houses rent for in your market) every month during retirement. That's your call. 

I would give some serious thought to getting out of consumer debt before starting to invest in Real Estate, or at the very least, getting on a committed and formalized plan to have it paid off by 'X' Date. This will make your credit score a lot better, which makes getting loans a whole lot easier. And one of the best strategies for B&H investors is to use conventional mortgages for the first 4-10 properties. Additionally, investing in real estate takes long-term consistency and patience. Don't take this the wrong way, but the mentality that gets people into $25k+ of consumer debt is often not a successful one when it comes to Real Estate. Getting out of debt represents a mental change that, to me, is very important. 

Often the best strategy for newer investors is to find a job/second job somewhere in the RE industry. This will help them to pay off debt, save up money for down payments, and maybe most importantly: teaches them about the industry. All businesses are people business, but especially so with Real Estate. 

While all of this is going on, start reading your way through BP's list of the best books on RE (https://www.biggerpockets.com/renewsblog/wp-conten...), and listen to podcasts whenever you're in the car. It will help keep you motivated and focused, on top of learning all sorts of useful stuff.

In any event, you've taken the first step - now don't let up!