Checklist for getting started from scratch?

[Scott A Smith]

Newbie from Louisville, KY

Hi there. I'm 41 and my wife and I live in Louisville, Kentucky a rather hot RE market, where inventory is at 10+ year lows, and property # of sales are at all-time highs. This inflates the market significantly, and there are tons of properties here where they simply are worth about $30-40k less than what the market is asking right now. My wife and I have struggled since February to find a move-in ready property for our primary residence, and have been renting a house since we moved to Louisville in Jan 16. Since we couldn't find a move-in place, we started wondering about the REO/Foreclosure market to find a diamond in the rough property, but don't really know where to get started should we decide to just turn it into investment property and move forward with doing more property stuff on the side of our other jobs.

Our stats:

Me - age 41 - annual income from W2 job around $130k and only debts are $38k student loans and $22k unsecured car loan

Wife - age 29 - works FT from home - annual revenue between $55-75k and growing year/year. only debt is $19k student loans.

We're behind on retirement (I have about $75k between 401k and ROTH and wife has less than $10k in SEP and old 401k) due to my only other home ownership from my first wife where she filed CH7 BK and left me with the house in 2005. I rented it out from 2004-2006 and used a property manager who didn't manage it well (though I was paid on time almost every month), and I was too naive and uneducated about the process and didn't check on the welfare of the property, trusting him to do that.  He stated that the tenants would qualify for a mortgage to buy the house and when they failed to qualify in 2006, I got the house back, along with about $40k in rehab to just get the property to sell for what I bought it for in 2001 after 10 months on the market.  So, it took me awhile to pay off that debt, and I only just started making the 6-figure salary last year, so we're doing well now with a net worth around $80k combined and are wondering where the best place to get started would be.  We have about $20k liquid to start investing with if you don't count our emergency savings and retirement/brokerage accounts.

I've seen some potential properties on the Southern Indiana side, as a new bridge on the east end of the Metro area just opened in Dec 2016, providing shopping opportunities and a much shorter commute for people working at the local Ford plant nearby.

a) How do you structure yourself - LLC is best? Shell corp in FL or DE?

b) Since it's been over 7 years since either of us bought property, we'd qualify for new home buyer program - is there a way to take advantage of those things and turn it into a rental shortly after purchase?

c) How do you engage a realtor in the process? 

d) I've been looking at the calculators - I'm not really sure if we'd just flip or long-term hold most properties.  In a market that barely increases at the inflationary level (2-3% annually) with exception of the last 2-3 years where property values have shot up due to lack of new build inventory to meet demand, I can only imagine that there's a market correction coming once the general economy cools - I'm not sure if my current job will be a long-term place (i've only been there a year) and whether Louisville is our permanent home or not.  What should I be considering with that in mind and wanting to do property rentals?  That was my concern about buying a move-in ready house right now - I don't want to be under water in 4-5 years if I take a promotion elsewhere.

e) How do you get approved for a loan that would include a budget for rehab for a flip? Immediate 2nd mtg/HELOC if there's equity from the initial mortgage to appraised value?

e1) How do you approach lenders about mortgages for investment property - especially at auction?

I'm sure I have more questions, but this is a good start.  I grew up in Louisville, so I have some handyman/plumber connections I feel comfortable working with, but I'm more concerned about how to pick the right property and make sure that we don't harm our personal finances in the process.