Saving money and getting started in RE

[Oscar Contreras]

Hello BiggerPockets,

This is essentially my introduction. I am brand new to this and I am trying to learn as much as I can before I get started. A little bit about myself, I am 23 years old, active duty in the military. I am married and my wife is just as eager to start investing in RE as I am. Our goal is to have a portfolio of rental properties.

I have a few questions, what was your first step in starting real estate specifically rental properties? My wife and I are very close to getting our 6 month emergency fund fully funded. Is an emergency fund essential before getting started? After our emergency fund, we should have a savings rate of about $1,400 a month. Should we continue saving for a 20% down payment or is that just playing it too slow? I know we qualify for a 0% down VA loan but is too much leverage too risky?

Thank you!

Regards,

Oscar c

[Kerry Baird]

We started off buying a house in the UK while stationed there, mil to mil.  We improved it over the 5 yrs we were there, and when we PCSd we sold that.  Once I got out of service (6 yrs active, 4 reserve) I set acquisition goals to make up my salary, while I took care of little ones.  I'm the investor in our family: my husband earns money and my goal is to multiply it.  

We next PCSd to Arizona, and did a lot of fix and flip houses, and would buy a long term hold every 3 flips or so.  A different strategy is to occupy a house for at least 2 years, while adding value; sell...military has better tax benefits...can exclude capital gains taxes over 10 years of holding.  We are still living in fixers and improving them, only now I'm blogging about the after-repaired-value $1M beachside fixer we are renovating.

Yes, we used the Baby Steps and Yes you do want to have an emergency fund. As we bought more houses, we needed "reserves" of the principal-interest-taxes-insurance for each property. This can be in retirement funds (TSP included). We bought our properties using our savings and didn't use the VA until very late in the game, some 30 houses. And we actually have a VA on the fixer I mentioned earlier, but ony the first $450k of it.

You are in a great market for buying rentals, and simply need to establish criteria that you stick to, so you know a deal when you see one. We have used a couple of strategies: we lived on our lower rank income and saved the rest. We used any bonus or tax free funds from deployments and that went towards down payments. I got a small inheritance when my grandmother passed away, and bought a house with that. We have also borrowed against our TSP to buy a house.

As for criteria, we look at the areas that are in demand by young families near base. I ask at the Housing Office regarding demand. I look online at the BAH that a SSgt earns. I look to buy houses that will provide over $200 a month between that BAH figure and the mortgage payment (PITI). And I prefer newer houses for maintenance reasons. I have done direct mail to find houses, worked with probates and foreclosures, bought FSBO properties...a variety of methods.

We managed the first few rentals, but were posted back to the UK, so we hired a property manager.  Additionally, we have used an Enrolled Agent CPA, who can stand in our shoes if we were ever audited by the IRS.

My houses are in my profile so you can see how we have progressed.  I like buying near AF bases, but we don't rent exclusively to them.  It just gives me a good starting point for finding my own specific critiera, the type of house I like to own.  We also began to buy houses that are brick, so we don't have to paint the exterior.  Questions?