Time to take action - what would you do?

Question

Hi BP community,

I'm finally ready to take my first step and purchase a buy & hold rental property.

The thing is, there are so many different options and I'm pretty serious about efficiency. While I want to maximize the experience, I also don't want to be stuck in analysis mode. So I'd love to hear your opinions on the following options:

-My goal is to purchase a value add property. I've saved up a little over 100k at this point, and don't qualify for conventional financing (yet). I have an s-corp and it will hit the two-year mark of solid tax returns this upcoming year. Would you recommend that I purchase a property (cash) somewhere in the midwest, fix it up, and then refinance it when I qualify this upcoming year? Or would you recommend that I wait until next tax season? I'm a bit uncomfortable with using private lenders for my first property. And I don't really want to wait until 2019 - I'd like to be purchasing my second property by the beginning of 2019.

I've been searching around Kansas City for properties, and it seems like a great location for me to purchase a property in cash. I'm also open to looking around Jacksonville, FL as it's just a few hours north of me in Melbourne, FL. Any thoughts?

Account Closed · Answer

I would stay in your local area research analyze and found a property that meets your goals BP is littered with regrets of those who make hasty out of state buys without  the resources of trusted boots on the ground

Danyal L. · Answer

I agree with Account Closed Just continue to learn the market here in Florida. You will find something.

Thomas S. · Answer

Buy locally, stop looking at a calendar as a time line for investing. You buy when the right property comes along not when banks and businesses start giving out new calendars.

Nail down your financing first with your mortgage broker team member.

Darrin Gross · Answer

Samantha, congrats on saving up $100k to start with.  That puts way ahead of where I started.

A couple of thoughts for what it's worth:

Don't be so anxious to spend your money.  A bad deal takes years to recover from .  A good deal cash flows from day one.  Buy a cash flowing deal!

I totally agree with the "start local" conversation.  Why?  Because you know the local market.  I would put a known market miles ahead of any unknown.  Are there jobs in Melbourne?  What do the jobs pay, and how much can people afford to pay?  What's the cost to buy versus rent?  What's being built and how much supply is there in the market?  Who has a good reputation?

How many horror stories have  you heard where a good deal in some far away place turned into a disaster?  Think about it.  What are you going to do when your property manager, painter, landscaper, contractor, etc craps out on you far away versus in your town.  If it's local, you can easily check references, meet face to face and monitor the situation.  You can take action easily if needed.  You can create your own team.  You can even create your own marketing, waiting list, etc.

I would encourage you to look for 5 plus units and talk with a commercial bank.  Like it's been said, I find commercial lending is much easier to deal with.  The lender looks at the property's ability to cover the expenses, not the borrower.  I think you would be surprised by how a commercial lender would be willing to do if you find the right property and present a well thought out proposal with numbers that make it easy for the bank to say yes.  They will not lend more than the property can support and typically underwrite to a 1.25 cover ratio.

Find a willing seller.  What if you found a seller who is tired.  They own a 5 unit that has been for sale for a while, is under rented, and needs some minor fixing.  These are in every town, you just have to find them.  You can put a little down, get a loan and if needed get the seller to carry a 2nd.

Other Peoples Money: Don't put all of your money into the deal.  You will need some for the unexpected, trust me.

Good luck and I look forward to reading more about what you find.

Lee Ripma · Answer

I own long-distance rentals in KC and agree that if you can do your first one within driving distance then do it. I also wouldn’t wait until next year, I would do it this year. If you can find a market where you can acquire and fix up a property then you could do a cash out refi commercial loan, even if the property is less than 5 units. If you have trouble getting conventional loans this is a good route and commercial banks will be happy to lend on a stabilized property. Just underwrite with 6% interest and a 20 year am.

Samantha A. · Answer

Account Closed   Great idea - I'll talk to an investor-friendly lender about this particular situation. This would help curb a lot of the pressure associated with this first investment, as having a solid game plan (for every step of the process) will definitely reassure me. Especially when it comes to refinancing and getting my cash back out. I'm so determined to build a portfolio of buy and holds, but the initial learning curve is really straining my mind. I'm also very excited to learn from this first experience, too.

Samantha A. · Answer

@Darrin Gross Thank you so much for the detailed response. You're right, it's totally worth it to take my time with finding a good property. This thread is so full of useful information, and I really had no idea that I would be able to work with a commercial bank so soon. I'll start searching for some multi-family homes and send out some direct mail to the off-market ones, too.

@Scott Schuetz Sounds great - I'll send you a message now.

Scott Schuetz · Answer

@Samantha W. if you haven't found a property yet, we're thinking of selling one of our Melbourne properties. Contact me if you're interested and I'll give you the details.

Vinay H. · Answer

Your profile says wood worker, so as you can attest, you are probably benefitting from the construction/renovation/flip boom via your S-corp income. Advice is to partner up with a GC or architect or other Realtor and make a deal.

Robin Hunter · Answer

Hi Samantha, if you do decide to purchase in Kansas City, I can be your boots on the ground. I have helped other out of state investors find quality properties. I stay away from high crime areas. Hit me up if you want to chat.

Time to take action - what would you do?

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