So much info, where do I even start?

Question

Hi guys,

Im new to all this.  I've been reading these forums the last few days and I think I'm more confused now than before I started.  So many acronyms and topics discussed that I have no basic understanding to know what is being discussed.

Is there a book out there that talks about the different types of real estate investments that can be made and describes the basics of each?   I need some kind of foundation first so I can figure out which way I want to go.

Thanks,

Nick
Longview, TX

Jon Holdman · Answer

A major problem? No.  A minor problem, yes.  To hold rentals (the only true form of "investing" rather than a real estate related job, IMHO), you do need some cash.   I'd recommend that you have at least six months rent or $5000 in the bank when you buy your first rental.  That way you aren't put in a pinch by a major expense or a tenant flaking out on you.  Once you get to 10 houses, you probably don't need that much for each one.  The odds of a big bill on several all at once is pretty low.  OTOH, with 10 houses you can pretty much count on a multi-thousand dollar bill for something each and every year.

If you want to get conventional financing, you should expect to put 20% down.  If that's a problem, you'll need to get creative.  There are several ways to do that.  Owner financing is a good method.  That starts with straight out owner financing where the owner holds the note on a property they own free and clear.  That's how I bought my first house many, many years ago, down in Rosenberg, TX.  You can also "wrap" an existing note with a new one.  So, you pay on a new note while the owner is paying on their existing note.  You can do a land contract.  That's like a car loan where the lender (seller, in this case) holds the title (deed), but you make payments and have possession.  Or, you can do a lease option.

You can also buy subject to where you buy the property subject to an existing loan.  Basically you're "taking over the payments" and you start making the payment on their loan.  The loan stays in the seller's name.  That's not illegal, but does violate the due-on-sale clause in the note, giving the bank the right to call the note due.  If that happens, you'll need to refi quickly.  Probably low risk as long as interest rates remain fairly low and banks are busy with foreclosures.  But eventually they will catch up, and I think 10%+ interest rates are not out of the question in a few years.  In 1982 when I moved to Houston, rates for home loans were 16%.  If that happens again, you bet banks will call notes.

Another approach is to buy junkers with hard money, fix them up, get them rented, then refinance.  You still need some cash, but less than a 20% down payment plus the costs of rehab.

Lots of discussion here on all these approches.  Read the old posts, use the search function, and ask specific questions where its not clear.

I do believe in reading books.  No specific recommendations, since I think most writers have something useful to offer.  Read a dozen books on real estate and you'll have a pretty good understanding.

Get out and meet people.  Check our Texas REIA listing.  There are several in Dallas and Houston, though I don't see anything closer.

Michael Rossi · Answer

Nick,

Real estate investing isn't brain surgery.  There are really only 4 main strategies:

1. Birddogging - which means that you find deals for an investor and he pays you a LITTLE (typically a few hundred dollars) for doing so.  This strategy is more guru myth than reality and I would not recommend it.

2. Wholesaling - which means buying a property at a discount and selling it to an investor at a discount (typically making a few thousand dollars per deal).  In other words, buy low, sell low.  You can make money with this but it's really just a job.

3. Retailing - (often called flipping, although flipping can mean just about anything) which means buying a property at a discount, rehabbing it if necessary, and selling it to an end user (like a homeowner) at a retail price.

4. Rental Property (also called buy and hold) - which is buying property and renting it out to a tenant.

Those are the four main strategies.  All you have to do is determine which one you want to do (if any) and then start reading those forums.

Good Luck,

Mike

Nick Dunin · Answer

Thanks for the reply guys.  I think I'm leaning more towards rentals.  I live in a suburb town of a moderately sized city that has no apartment complexes and the schools have a very good reputation.  This town is growing rapidly with new construction, although the construction has slowed somewhat.

Im thinking rentals in this town would be a good idea.  I'm also looking at buying tracts of untouched land and hiring a dozer guy to come in, clean it up, make it look nice, maybe make a pad for a house or build a pond and resell for profit.

I gotta head to Books-a-Million in the morning...

Wife and I have steady jobs, excellent 780+ credit, 120k a year income, debt free (finally) except mortgage.  But not much cash to play with.  Is this a major problem?

Jim Wineinger · Answer

I understand where Nick is comming from James. If you do not understand anything, how can you pick one subject to decide to do if that one is not "up your alley"?

This is a delimea that most new people face. But if you think about it, what James is saying is that there is so much information here, but it is contained in "books" or subjects. You do not want to try to read all the books at the same time, that will confuse anybody. You must pick up one book at a time and learn about it.

With the knowledge within that book, the next book will make more sense to you. Then go back and reread the first book again and you will understand even more.

At some time though it will be time to put into practice at least one of the books that you have read.

James Hiddle · Answer

Figure out what you want to do. Do you want to wholesale,rehab,buy and hold,lease options,apartments,etc?
                    
                    Once you figure out what you want to do go to that specific forum and eat up all that info. Once you did that anymore questions you have ask them and we will answer them.

So much info, where do I even start?

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