A beginner's game plan

[Jason Ines]

Hello BiggerPockets Community!

Looking for some guidance here.

So I've been preparing to enter the real estate game for a while now and have been studying what my best options are for what I want to accomplish. Here are my thoughts and game plan, please let me know if you've done this, have ideas on if this is a good route to take, or any opinions and input would be greatly appreciated.

To start out I've been saving money for a down payment for an FHA loan, just so I can get some skin in the game using traditional financing. I've been looking at some duplexes/triplexes near Corona, CA and the closest affordable duplex/triplex I can find are located in Long Beach, CA. The range would most likely be the lowest around 400k since it would be closer to what I can afford. I've been reading about wholesaling and was thinking maybe there's a creative way to acquire property for a buy and hold strategy, using wholesaling. My understanding is that wholesalers purchase properties at a discounted price because it's a distressed property, or the wholesaler found a deal through probate, tax liens, motivated seller, etc. Then the investor comes in and buys the property for a little bit more 5-10k for example so the wholesaler gets commission and the investor can still make a profit.

From what I've heard, traditional financing lenders typically do not allow their loans to be used for a wholesale transaction because of the state of the property etc. Is there a way to still get a good deal on a property through a traditional loan such as a FHA loan?

I was thinking, if I could buy a multifamily from a wholesaler through traditional financing, I could afford a multifamily, fix it up to be a decent place, live in one of the units, and collect rent to supplement my mortgage, all the while building equity into the property. Then do a 1031 exchange for a nicer property with more units into a nicer area with higher rents. Doing this progressively building equity along the way to hopefully build enough equity to sign another financing deal using the equity built up from my first multifamily and start all over again.

Rinse, and Repeat.

I know there are other ways of acquiring financing like hard money lenders, private loans and what not but traditional financing at a low rate seems more feasible for me at this time. I still have a lot of saving to do but this will allow me to learn more before I get there.

With a property of around 400k I think I'd need to save around 40k to cover all my expenses to get started. 3.5% down, closing costs, etc. Then the mortgage would be about a 1900 dollars a month give or take. Rental units are ranging around 1200-1600 on a 1 bed 1 bath and 1400-2100 on a 2 bed 1 bath. The duplex i found has one of each. If i live in the 1 bed 1 bath I could rent out the other unit for let's say 1600. Leaving my monthly mortgage being 300 dollars a month because of the supplemental rent coming in and going towards my mortgage from the renter. So for every 300 dollars I put towards my mortgage, the renter will be paying 1600 which is basically a 500% ROI every month. Let me tell you, these types of numbers get me excited. And I'm looking forward to hearing what you all have to say.

Cheers!

Jason Ines