What to do with tax refund?

Question

Hello to everyone here at bp.com! i appreciate everyones great advice all through these forums. I have been trying to get into the real estate game for a long time now. I have finally gotten my familiy in financial place where we don't really need our tax refund for any immediate needs. I am looking to most likely get 4-6k back when its all said and done. Would i be better off to save that money or to invest in a property ranging from 20-25K? I would love to take on an investor to go larger since I have the time and the skill set to repair homes, just lack on the financials. I am mainly searching for properties in the area between Baltimore, MD and York,PA.

Basically, should I attempt to get a lower cost property on my own or attempt to bring in investors? Another option I've been considering is to simply take out a unsecured personal loan for the rest of the purchase price? Being my first time, I have reached a deadlock and I'm not sure what to do.

Thank you in advance for your advice! :D

Basically, should I attempt to get a lower cost property on my own or attempt to bring in investors? Another option I've been considering is to simply take out a unsecured personal loan for the rest of the purchase price?   Being my first time, I have reached a deadlock and I'm not sure what to do.

Thank you in advance for your advice! :D

Corey Smith · Answer

Wesley,

You have gotten some great advice from these two gentlemen. I would just like to add that in my opinion you should put your money up in the bank and become completely educated on the game of real estate first. Don't believe that the real estate game is as easy as these "gurus" try to make it seem.

The "gurus" tend to leave out all the small details within real estate investing that can cause a "good deal" to go bad. The key to this thing is that you want to become an investor not a gambler. Putting your hard earned money into something that you don't completely understand is gambling and definitely a recipe for disaster. Save your money and take the time to shadow and/or do work for a seasoned investor and you'll quickly learn  about all the minor details that are left out by "gurus" that want to sell books and seminars. Once you understand the game and pitfalls to avoid, then I would recommend that you invest your money.

Lastly, I would warn you to be careful when dealing with "experienced investors". Not all of them are out to help you, some are out to help themselves. You'd be amazed at how many newbie investors I talk to and they are turned off by real estate because they lost tons of money and messed up their credit because they thought an "experienced investor" was acting in their best interest.

There is a great deal of money to be made in real estate, but there's no rush. Get educated first and grab some free experience then jump in with both feet. Good Luck!

Jon Klaus · Answer

Hi Wesley.  Welcome to BiggerPockets.  I grew up in York on Hill St.  I wasn't into RE then, but some people I knew bought rentals that cash flowed pretty well in York.  Row houses in town, that in some cases had been divided into 2 or 3 family homes.

There are a number of ways you could go, but what do you think about buying another primary residence for you and converting your current one into a rental?  You would have favorable financing on both and be able to buy the new one with a few thousand down.  And perhaps your new home could be a 2 or 3 family, so you could rent out the other units.  Then in the future, buy another home for you and convert the unit you were in to a rental.

I'd be careful about spending all your savings on another home.  Keep saving and hold some in reserve.

I don't know of any York REI clubs, but you could try Baltimore or Harrisburg.

Wesley Adams · Answer

Should have been more specific.. any investors in that area who might be willing to mentor me?

Wesley Adams · Answer

Are there any investors in the Baltimore, MD/ York, PA area that anyone on here would recommend?  I would love to work on a few deals with a seasoned investor to better understand exactly how to put good deals and how to avoid common pitfalls.

Wesley Adams · Answer

Thanks Brandon for your response.  I have owned my own house since March of 2009 so #1 is a no go.  But I thank you for suggesting #2 the FHA Remodel Loan. I wasn't aware that FHA would back a loan for a property that didn't act as my primary residence.  I am having trouble finding a real estate investment club in my area (York,PA) to join.  Any ideas on where I should turn to locate one so that I can start the critical process of networking?

Brandon Turner · Answer

Hi,

First, if you do not own your own home, I'd use that money and get an FHA 203K Remodel loan on a home for yourself.  3.5% down payment would enable you to buy a $100,000 property and still pay for closing costs and take your family out to dinner and have a little left for emergencies.  Just make sure to research and buy the perfect deal.  You should be able to, at minimum, build $50,000 equity fairly easily after repairs are done, combined with the record low interest rates and tax benefits its a no brainer.

If you do already own your own home, you can still do a FHA Remodel loan to buy an investment property, but I believe the required down payment is higher, like 10% or 20%.  In that case, if you can find a house for 20-30k that is not a disaster in the "hood", then go for it.  But that is going to be a lot harder to find. However, with the low rates that are out there, it would be difficult not to cashflow on properties in that price range.

I don't recommend getting an unsecured personal loan. One, it would be almost impossible, and two - the interest rates would back you into a corner where you "have to sell", and this is not the time to sell.

If you can find another investor to work with, its not a bad idea. Making money in Real Estate is hard work, mainly because of all the little problems you don't expect.  Working with a seasoned investor would allow you learn from their past mistakes, and that is invaluable. But - partnerships are hard work too.   Another option - stick that money in a bank account for emergencies. Then find a seasoned investor and ask to be his shadow for 6 months. Learn all you can, without risking your money. Then jump into the game.

So to sum up - 1st choice - Buy your own house and hold. 2nd- Buy a low-down cheap rental and hold (or offer it as a "Rent to own" to the renters and maybe sell. 3rd - find a mentor to work with.

Good luck! Keep us posted with what you decide to do.

What to do with tax refund?

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