Advice Please. What would you recommend for a beginner?

Question

Hello BP Community. I'm completely new to Real Estate Investing and have been reading, listening and watching on BP for hours a day since learning of it a week ago. My title pretty much says it all. Although I have gotten a tremendous amount of information I'm looking for some advice on how to start my journey; what you wish you would've done, or have learned from, how to start quickly, etc.

I want to get in to rental properties and my biggest concern is capital. The lender I'm currently working with said 20% down and 25% on multifamily. My thought as of right now is I can buy 1 or 2 rental properties but then what? How do I continue to accrue more properties? I know there's information and calculations I'm missing. Are 1 or 2 houses better or is a four-plex better? I know that like so many things will "depend" but I'm just curious. Since I'm just starting out should I even THINK about looking out of state for a multi-family and hire a property manager?

A little back story to make things more interesting; I do have equity in my home available. My credit score is "good-great". My income-to debt ratio is good and my (current) lender so money won't be a problem other than the 20% down which in my opinion is a huge problem! I have liquid money but would like to not rely on (or use) that too heavily in the case of vacancies, unforeseen repairs and things like that until I can save for those types of events. Am I looking at it wrong? And the icing on the cake, I work at a coal-fired power plant and will be out of a job in 4 years due to the shutdown. I 100% KNOW that this is not a "get rich quick" game, I realize that, but is it completely crazy to think I can accrue enough rentals in 4 years to not have to get another job with this type of salary?

Thanks in advance for your responses, ideas and all the information this community is so willing to share.

Account Closed · Answer

If you work with a hard money lender you will be require to put 25% down but some of them dont charge points and it can be interest only payments for 12 months and then you refinance into a conventional mortgage. If your not putting a 20-30% DOWN you will see higher rates and more points with a hard money loan.

Will G. · Answer

The most important thing to learn and understand is the r.e. cycle! Work against it at your peril.

Thomas S. · Answer

Target multi units. SFH prices are driven by home buyers and are as a result too high to produce cash flow. Expenses are also too high on SFHs and a vacancy is a 100% loss of income. Multi units are much safer to invest in and produce higher positive cash flow. As a purpose built rental the price is generally driven by the rental income not the emotions of buyers.Pull your home equity to invest but do not expect to be reliant on the income when you are unemployed in 4 years. You will require another job to insure you continue to qualify for future financing and support your lifestyle. There is no reason for a smart investor to not have a employment income as well.

Mark Gibbs · Answer

Derek- Great question and I’ll tell you what I would do. Establish relationships and look for a small multi, 3-4 units. Maybe one that needs a bit of work that you can get a HUD loan on with a lower upfront down payment. Consider that as a primary home and rent out your existing home. That’s a tough bit for some people to swallow but if it gives you positive cash flow it will put a little extra money in your pocket as you are rehabbing the new property.The thing about your posting that really struck me was your comment about being out of a job in the next few years. Your situation is a classic example of vertical vs. horizontal income streams. As soon as your job goes away so does that vertical income. Strive now to develop your horizontal income stream to put yourself on better financial footing for your future. This is a prime reason that all of us invest in real estate, we know it and can control it. You never know when some outside force is going to make that vertical income stream disappear.

Rachel H. · Answer

@Derek Bailey The best thing to do is start out small and go from there. Regarding lenders, you may want to talk to a few different ones to weigh your options. Visit your local real estate investment club for a few referrals. After you buy and fill your first property, you'll get the experience you need to see if this business is right for you. Personally, it took me awhile to find my niche. I did a lot of different things before settling on my niche of mobile home investing. You may run into some bumps in the road before you find something that works well with your personality. Take it all as a learning experience. And move on when you make mistakes. Hope that helps!

Michael Lee · Answer

Hello Derek! I'll do my best to answer your question. The first you should realize, If you have not figured out, that there are other lenders that will require less down payment other than a Bank. You can get loans from other people, if you haven't figured this out yet, there are several options other than a Bank. There might be owner financing that is available. It usually helps when you show them on paper how they will usually make more money and how it can spread out their income and pay less taxes over the length of the loan. It may be one of the most negotiable loans.Another way to get a loan might be Private Lenders. Again, they tend to be more negotiable with you more than a Bank and look more at the project than you. They usually will require less of a down payment and usually loan a higher percentage and allow you to loan 100% of the price plus the repair/rehab costs. Private Lenders tend to be a short term loan of about 12 months so you will have to refinance for a long term loan after all construction is done and hopefully that increases the value.Those two will usually charge you more interest for a loan but it usually does not kill a project. Another Lender option is the "Hard Money Lender" which is usually the last choice, charges higher interest and points, and is usually short term. Another way would be to involve a "cash rich" Partner. You might have to give part of any profit on the subject deal with the Partner. Part of something is usually better than nothing.Who am I and why you should respect my answers? I'm 61 years old now and was born and raised in Dallas, Texas. I was a construction manager for about 30 years plus I was a real estate broker for about 30 years and I've been a member of BP for about 4 years. I have spent those years learning about real estate investing full time, 7 days per week, since I am now bedridden and do not work. I am also a college graduate with honors in business that emphasized real estate.Consider buying apartment complexes and could give you more units in 4 years. The saying that says you need experience first is a myth. It can earn you more money by adding value than you'll receive with a SFH of 4 units or less. If you think that I can help you in any way, please contact me through this site. Good luck to you!