Newbie Advice on Getting Started

[Aadejoke Jagunna]

Hi Everyone,

Newbie future real estate investor here. I’ve spent the last month or so reading, listening to podcasts and doing as much research as I can. I am working on defining my strategy as i get more involved and I have at least settled on buying rental property to hold and generate steady stream of income. Ideally i would like to buy either a single family home or a multi-family unit in one of the upcoming neighborhoods in my city, Houston. I’ve been shopping around, playing with the numbers as best as i know how but I’m starting to question if I am in the right place to make this sort of investment.

Background story, I just bought my first house November of 2017 (bought at 15K less than the asking price and about 45K less than the appraisal value). I did not know about house hacking at the time, so I just bought the property I liked and plan to live in for a while. I got a conventional loan that allowed me put down only 3% down, and so far things are going well. I have a decent savings that covers 3 months of house expenses (I’m working on getting this to about 5 months cushion)

Here is where I am uncertain:

1. should I be focused on buying rental property now? Or should I be more focused on building more equity in my house. My brother and dad plan to invest with me so we will collectively come up with the money for the 20% I assume a conventional loan will qualify but I’m concerned the banks will not see me as a viable candidate for a loan since I still owe so much on the house I just bought (my brother also bought a house August of 2017)
2. Are there any other loans other than conventional I should be looking into?
3. Should I focus on just securing funds for the down payment and closing costs or should I be concerned about creating some sort of reserves for said rental property (to account for any vacancies and expenses)
4. I assume I need to make sure that in the event I cannot rent out the property we are able to cover the expenses relating to this house in additional to our own personal mortgages but I’m not too worried about this (please let me know if I should be worried)
5. Outside of my mortgage and some credit card debt which will be paid off by the end of this month I do not have any other debt.
6. Are there other factors that I should be considering? Am i asking the right questions?

Please forgive me if I am not using the correct terms I am still very new to all of this. I appreciate all advice 

[Ned Carey]

@Aadejoke Jagunna first off let  me say you seem to have a good head on your shoulders and you seem to be making good choices. While you have a ton of questions spinning in your head it will become more clear over time. (this applies to you to @Jamil Hopkins) 

 I'll try to answer you questions in order

1. Banks aren't going to look at how much equity you have, just mainly your debt to income ratio. Given that you plan on having significant cash reserves I don't see much benefit for you to paying down your mortgage.
2. Yes look into any kind of loan you can get. Short term there are hard money loans. They are very high rates but if it allows you to do a deal you couldn't otherwise do it can be worth it. The idea is you refinance once a property is renovated and up and running.   Also private lenders can be great. Friends family and associates that know and trust you may be very happy to lend at 6% when they are earning 3% in a bank CD. 
3. Ultimately yes you want reserves but ask your lenders what they expect up front. 
4. Yes this is why you want reserves
5. Good for you that will help. 
6. Yes you are asking good questions. DOn't worry you will think of lots more.