In need of some advice (beginner trying to start)

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In need of some advice (beginner trying to start)

Kyle Ferguson
Fords, NJ · Member since 2018 · 12 posts · 7 votes

Hi Guys,

I'm in desperate need of some advice here. I'm a prospective investor and I've been studying real estate for probably 3 months now. From everything I've read or listened to everyone's biggest piece of advice is to just "get started"..One article I read mentioned for beginners 3 months is that maximum time you should wait before jumping in. My thought process has been like this so far: First learn learn learn, read books, listen to podcasts, hit up my local REIA (which I just found and just need to attend), network, talk to a bank, etc. That part is fine, I get that part. Here is where I start having problems: raising capital. I work a standard 40 hour work week plus some OT and honestly, I save a lot each month.

The problem I'm facing is how to finance this first deal once I find it. From what I've seen, traditional financing through a small bank/credit union is probably my best bet. The only problem is I don't have that much to get started with right now and I live in NJ...On top of that, I'm also saving for a new car within the next 2 years (will just buy something reliable and used to save as much $$$ as possible...mine has 187K miles on it right now), a wedding within the next 5, and I have my monthly student loan payment...so how am I supposed to save enough to still have enough for at least a 20-25% minimum down payment plus reserves for rehab. Just from eye-balling this it could take me years to save enough for a down payment for that first property..I'm lost at how to get started in this.

My idea for my first property was to buy a duplex, fix it up a bit, and house hack it. That way I live rent-free and cash flow some extra pocket change each month. I know I can make it work...I'm just trying to find the most realistic/effective strategy. Thoughts? Thanks guys!

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Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
8y
Originally posted by @Kyle Ferguson:
Originally posted by @Brent Coombs:

@Kyle Ferguson, even in NJ, 3.5% deposit shouldn't be that hard to save, right? Good luck...

 Can elaborate on that a bit more?

FHA-approved low deposit owner-occupier loans can even be for a fourplex! Cheers!

4Reply
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  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    8y

    @Kyle Ferguson, even in NJ, 3.5% deposit shouldn't be that hard to save, right? Good luck...

    1Reply
  • Kyle Ferguson
    OP
    Fords, NJ · Member since 2018 · 12 posts · 7 votes
    8y
    Originally posted by @Brent Coombs:

    @Kyle Ferguson, even in NJ, 3.5% deposit shouldn't be that hard to save, right? Good luck...

     Can elaborate on that a bit more?

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    8y
    Originally posted by @Kyle Ferguson:
    Originally posted by @Brent Coombs:

    @Kyle Ferguson, even in NJ, 3.5% deposit shouldn't be that hard to save, right? Good luck...

     Can elaborate on that a bit more?

    FHA-approved low deposit owner-occupier loans can even be for a fourplex! Cheers!

    4Reply
  • Kyle Ferguson
    OP
    Fords, NJ · Member since 2018 · 12 posts · 7 votes
    8y
    Originally posted by @Brent Coombs:
    Originally posted by @Kyle Ferguson:
    Originally posted by @Brent Coombs:

    @Kyle Ferguson, even in NJ, 3.5% deposit shouldn't be that hard to save, right? Good luck...

     Can elaborate on that a bit more?

    FHA-approved low deposit owner-occupier loans can include purchasing up to a fourplex! Cheers!

    Yeah I think FHA sounds sweet so that works if I elect to go that route, thanks!

    0Reply
  • Fradel Schaechter
    lakewood, NJ · Member since 2017 · 282 posts · 156 votes
    8y

    @Kyle Ferguson an FHA loan can help you get there sooner, also you can take a look at your income expenses and see what can be done there to save more.

    Good luck!

    1Reply
  • Bill F.
    Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
    8y

    @Kyle Ferguson If financing is your issue, network with a successful mortgage broker who can is knowledgeable about the various products available to you in your area.

    2Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    8y

    You are one step ahead of most that come on looking for advice. Most can't save a dime and are looking toward real estate to improve their lives. It obviously does not work that way. You need money to make money, and it takes time to achieve.

    If you are now saving then you should be able to save more. As planed buy a inexpensive used car that will get you from A to B. Save to pay off your student loans, don't get married just live together and share expenses. Make saving, clearing debt and wealth growth your priority. Finding a partner that will share that plan and contribute financially going forward will be your smartest move. Steer clear of financially irresponsible people that have debt, choose your partner wisely and they will be a attribute.

    You are correct it could take years, wealth growth is a life long process. If you start house hacking a 3-4 plex you can get in with a 3.5% down mortgage. Buy one that needs some work, fix it up, move o to th enext one.

    3Reply
  • Derek Luttrell
    Chicago, IL · Member since 2017 · 231 posts · 124 votes
    8y

    @Kyle Ferguson @Thomas S. is spot on about making saving, clearing debt and growing your wealth a priority with your significant other. My girlfriend of five years (we're 26 now) was the one who introduced me to BP, and she is the one who suggested we start house-hacking, so we have been doing so for almost a year now. 

    We went from each paying $1,000/month for rent in Chicago to each paying $250/month in the house hack. She had the drive to better our situation, and the smarts to use my higher income to get it done. The next place we move into will be on her dime, since we're both able to save so much more now than ever. 

    3Reply
  • Rachel H.
    San Antonio, TX · Member since 2009 · 3k+ posts · 1k+ votes
    8y

    @Kyle Ferguson If you're not ready to buy and hold, you'll have to build up cash first. Finding deals for other real estate investors by bird dogging and wholesaling are other avenues you may want to pursue. Once you have enough cash, then you can start buying. If you're low on funds and still want to buy and hold, you may want to look into mobile home investing which requires less money out of pocket in general (versus other property types) and the route I took. Good luck! 

    2Reply
  • Stephen Herbert
    Lender · Sacramento, CA · Member since 2016 · 61 posts · 84 votes
    8y

    Hi Kyle - 

    It can be a daunting task to set aside the funds each month to save up for a property, no doubt. If you're able to save quite a bit using the "pay yourself first" mentality, then you're doing the right thing. It's easy in today's market of crypto-millionaires and fast-action TV shows to feel like you're missing out on a craze, but the worst thing to do is get yourself into a property without knowing the numbers behind it, resulting in sleepless nights, unpaid mechanics liens and potential foreclosure due to hasty decision making. 

    Take your time and be sure you know what you're getting into before signing a contract (and be sure to read the contract!). Making a quick decision based on FOMO may very well only set your further back over time.  

    2Reply
  • Jason Orr
    Yankton, SD · Member since 2013 · 15 posts · 10 votes
    8y
    I would focus hard on the first deal. Once you go through the process of the first deal you will gain a large amount of experience and knowledge to build on. Don’t be afraid one bit to speak with the bank your most familiar with to learn your position and buying power. The mortgage lender is harder to get a loan from than the commercial lender. I started with a few residential mortgage loans then wouldn’t qualify anymore so had to do the last few through a commercial lender in the same bank. Learn your area well and find something you have interest in buying. Then go to the lender and ask how the loan and terms would look on you buying that property (that will open up the conversation) Be very honest with all finances and facts pro forma as they will know if you more forward. The lenders will easily tell you what area your good and what area your lacking in. It could be low on reserves, credit rating, consumer debt, income- good or bad in any category they will tell you what they need to see. They could also have recommendations how to help going forward. HELOC on my primary was a great help for me. I’m from South Dakota and a first single family house can be the 50k range and I’m guessing you can’t find that price range there. That’s my advice from what I have been through and hope it helps.
    1Reply
  • Mark Hughes
    Rental Property Investor · Aurora, CO · Member since 2018 · 288 posts · 117 votes
    8y
    Where there is a will there is a way. I did a FHA owner occupancy loan for 3.5% down on my first home which I converted to a rental a few years later and still have it today. Once you start cash flowing the rest is history.
    1Reply
  • Vaughn Smith
    Property Manager · NJ · Member since 2017 · 786 posts · 396 votes
    8y

    Hello @Kyle Ferguson. I think you may want to pay down debt and save up a sizable downpayment first as it sounds like you may be stretched thin. An option to get you into your first investment faster is  for you both to get a second (and maybe a third) stream of income. There are low cost low down payment options to finance your purchase but if you are over extended this may not be the way to go. 

    1Reply
  • Kyle Ferguson
    OP
    Fords, NJ · Member since 2018 · 12 posts · 7 votes
    8y
    Thanks everyone, fantastic suggestions! I think this solidified it: continue to live within my means and FHA it is! Luckily the GF is very on board and will be heading with me to our local REIA soon!
    0Reply
  • Alan Pederson
    Investor · Kennedale, TX · Member since 2016 · 219 posts · 349 votes
    8y

    It took me and my wife years to save up the money to buy the first rental but it can be done.

    1Reply
  • John Peine
    Rogers, AR · Member since 2017 · 49 posts · 18 votes
    8y

    My 2 cents, how I did my first deal basically living hand to mouth.

    I had a 401k option to take out a loan through the 401k and it wouldn't count as a withdraw.  It was $50 to start it and $6.25 quarterly to keep this loan going.  My loan is 5% interest but I am paying myself that interest.

    Got an FHA loan on a SFR then I moved in two people. I took the smallest room.

    If you have a 401k look for a similar deal?

    If I were you I would also consider vastly downgrade your big ticket purchases.  

    For the car purchase you have 2ish years to look time is really on your side.  Last vehicle I bought was a 1996 Ford Ranger new engine and clutch with 125k miles on itfor $2000 dollars.  Second best investment in my life.

    As for the wedding I hate to say it but all you need is a ring and a judge, I know a lot of people have to have their special day be extravagant. However that and funeral services are the biggest money sink the average American has. Its great your GF thinks REI is a great idea. Perhaps pointing out if you guys don't spend $20K on services and instead save that and get compound interest. In three to 5 years you guys can renew your vows with the money you have earned now you can spend double that much on a service and probably even have a nice honeymoon somewhere for a few weeks, maybe a month depending on where you want to go.

    1Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Kyle Ferguson how much student loans do you have? The first purchase is the hardest. They get easier with each one. Since you live in NJ, a high cost and high property tax area your other option would be to buy out of state. There are many markets in the US where you can get a nice house for 75-100k. These can rent for 800-1200 a month. I’ve seen countless deals like this over the last year. I live in Raleigh, which is expensive but not nearly as much as NJ. The Midwest and south east can be much cheaper.
    2Reply
  • Kyle Ferguson
    OP
    Fords, NJ · Member since 2018 · 12 posts · 7 votes
    8y

    @Caleb Heimsoth Came out with 30K paid it down to about 25K and am back in school getting my MBA now...about halfway done and I'm back at like 31K lol (I'm not super worried because luckily my MBA program is very cheap and the ROI will be great given it's an MBA). Plus my company is going to pay for the rest of it.

    0Reply
  • Kyle Ferguson
    OP
    Fords, NJ · Member since 2018 · 12 posts · 7 votes
    8y

    @John Peine 100% agree on the car aspect...that is what I'm looking to do. Drop cash on a used yet reliable vehicle like a Toyota or Honda. As for the wedding I realistically am looking at another 5 years or so...I'm 24 and we are not in a rush...but I'm a planner. As for the wedding itself I don't want an extravagant 30K fairy-tale wedding and she doesn't either. I really want to just have our immediate family and honestly do a destination somewhere like Thailand where we get an unreal experience for about a 3rd (or less) than what you'd get in the U.S....

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    @Kyle Ferguson that’s not to bad.  I’m about to start my masters in engineering myself.  Working full time, building a real estate business’s and doing school.  I like life on hard mode lol.

    What’s your mba focus?  I’ve got some family members who have one.

    1Reply
  • John Peine
    Rogers, AR · Member since 2017 · 49 posts · 18 votes
    8y

    @Caleb Heimsoth that is why I like the Ozarks. In SW, MO/NW, AR I bought my house for 95k. And I am making $900 a month with my roommates paying $600 and me paying myself $300. And this deal is just meh. I find it hard to get bank/FHA approved for a deal around here. Local distressed properties are easy $35-60k and rent for at least $800.

    2Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    @John Peine that sounds like my kind of deal.  So far I’ve bought what you described and a couple of newly renovated properties as well.  Those cost more and rent for less but they’re completely updated and essentially all the big items are new. 

    0Reply
  • Kyle Ferguson
    OP
    Fords, NJ · Member since 2018 · 12 posts · 7 votes
    8y

    @Caleb Heimsoth my emphasis is in Aerospace Logistics since I work in Aviation right now. The great thing about it though is you can apply it to nearly everything in work life...whether it be actual business or strictly management. Definitely worth the investment. And I 100% back that mentality...I work mandatory OT every week on the graveyard shift while simultaneously learning real estate and going to school lol

    2Reply
  • Kristopher Gomez
    Flipper/Rehabber · Riverside, CA · Member since 2016 · 130 posts · 105 votes
    8y
    Get into wholesaling, use wholesale profits to buy rentals...eventually you’ll make contacts and meet people with money and then you can wholesale/fix an flip and use profits to buy rentals...that’s what worked for me Good luck
    1Reply
  • John Peine
    Rogers, AR · Member since 2017 · 49 posts · 18 votes
    8y

    If it is legal you should always be wholesaling any deal lead you get.  However check your state laws.  Currently in Arkansas wholesaling by definition is illegal, or it in a legal gray area that is currently darker than my business model can handle.

    0Reply
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