Starting out, in search of advice

[Kole Kingslien]

Hello there,

I am writing this post in search of some advise to help get me started in real estate investing. A little about myself and situation.

I am 22, and my wife is 20 years old, we have about $16,000 saved up, and would like to start investing in real estate, to build wealth for us now, and for our future. I have been doing a lot of reading and researching (on biggerpockets and else wear), but feel stuck/nervous about getting into my first investment. Due to our limited funds, we want to figure out how to get a great deal, with as little of our cash in the game as possible, to allow a "safety net" of sorts. I work in Madison WI, we are hoping to find something in/around that market, I don't know if it's just me, but I feel like I can't find very good deals. Our goal is to obviously have good positive cash flow, to allow us to re-invest in more property for a "snowball" effect.

We want to find an owner occupied opportunity. We have been to a lender, and shouldn't have a problem getting an FHA loan, up to 4 units. I just feel like I can't find any good deals in my area, the numbers just haven't been adding up very well. Not sure what to do, every property I seem to check, has a decent negative cash flow. Should I take negative cash flow, or hold out?

From my analysis, I would be receiving only about 100-300 cash flow with all units rented (-550 to -250 When living there). that doesn't account for vacancies, or capital expenditures. Is this a good deal? My goal is to then invest in another within about a year, with this small of a return, I would not have the cash to do that. You see my predicament? I want to get started, but I want it to speed up my investing ability, not slow it down. I'm not sure if I have unrealistic expectations or not.

Also, in regards to negotiating a deal, I want my first offer to be low enough to allow room to negotiate up to my desired price, but I don't want to be so low as to cause offense, how much give is there when negotiating? The price that would make the numbers work is about $280,000 (lower would be better obviously). Asking price is $325,000. The fair market value, and the price it was assessed at for taxes, is $236,000 (according to the city records). Would it be absurd to offer below the fair market value?

Thanks guys,

Kole

[Luke Aubut]

Hey Kole, welcome to BP and don't get discouraged!

How long would you say you've been looking for a property? 

I agree with you that it seems hard to find a good deal in or around Madison. One idea that comes to mind is to find a property where you can add appreciation by making improvements to the units or property. For example a fourplex; one tenant moves out at end of his/her lease, now you can go in there, revamp the place and raise the rent for the next tenant (obviously depending on market demands and similar rents in the area.) Maybe another tenant vacates, do the same thing. The unit you would personally live in, how can you improve it so when you want to move out it can demand a good monthly rent?  So of course your cash flow could increase if you find this type of property. Plus by adding appreciation to the property you could then consider refinancing to lower your payments, in turn more cash flow - or even sell it. My apologies if you have already investigated of this idea. This is what many, many people here on BP have done, especially to get started.

In your situation, it sounds like you need to find a property where you can force appreciation into it. And I say this because you stated you want to invest in another within a year and "build wealth for us now and for our future." So if you put your 16K, 10K or whatever it is into an already updated, up to date, turnkey rental property, which could also be cash flow positive (or neg I guess), your money will be tied up until it appreciates on its own, or general market rents appreciate over time. If you want equity or return of your investment in order to reinvest in a year, it sounds like this is your option, at least for the Madison market. I'm not an expert however, take what I say with a grain of salt.