New investor to new to get financed?

Question

Hello Everyone from Cleveland Ohio!

My name is Adam - I am 23 and I want to become a successful real estate investor.

I graduated from Kent State in 2010 and instead of doing finance, I started my own internet business.

I have been fortunate enough to experience incredible success in my business and will clear six figures this year.

With that said - I have a lot of expendable income that I want to invest in real estate.

I have been reading and educating myself and will try and soak up the forums.

My question is - This is my first year in business and I have no tax returns to prove my income until 2012. Is there any way to get financing through different documents? (bank/cash flow statements).

Or do I need to wait until next spring.

Regards,
Adam

Adam

Scott Hubbard · Answer

I agree with Brian, you may find it difficult to get bank fianncing straightaway, but it is worth a try.

Finding a REALTOR is not a good idea becuase they many of them will not have the experience to know what is a good deal or not. REALTORS are trained to sell real estate and they will sell whether the market is dropping like a knife or shooting up like a rocket.

Instead, look for an investor who utilizes the fundamentals like the 50% rule to find good deals.  Some accomplished investors may also have a license or may recommend a good REALTOR.  Again, REALTOR's are not investing experts unless they hold a portfolio of RE investments and even then they cannot be completely unbaised.

More importantly, I think you should look to find other investors in your local market to learn from and possibly partner up. You can look here on BP and also places like meetup.com to see if there is any of them interested in meeting with you.  I started out partnering and continue to do so today as it has allowed me to network with investors all over the country.  Real Estate investing is not an individual sport and this is especially true starting out.

As far as your market goes, you should stick close to home in the beginning until you have the confidence to evaluate an investment properly.  Then, if you still have the desire, look to other markets.

I am a big opponent of PM's as I know how they operate first hand. I prefer to manage myself as there is nothing worse than having your investment held hostage by some crappy PM. You should also utilize your network of local investors to get good referrals if you cannot manage them yourself.  This is another reason I like partnering because you can have them manage instead.

Anyway, your ahead of the game at your age and I hope to hear about the completion your first deal.  Good Luck!

Bryan Hancock · Answer

Hi Adam...welcome to BP and congrats on your success.

My suspicion is that you will have trouble getting term loans because of your lack of W2 income and the need to do stated income loans.  You should contact some mortgage brokers in your area and have them tell you whether or not you are eligible for financing.  Lenders will likely want to see a few years of tax returns, but there may be money for you if you look in the right spots.

You can always look at creative techniques like purchasing subject-to if you can't get traditional financing.  You may also explore getting some credit lines with local banks if you have some collateral to put up.

What will you use the financing for?  Fix-and-flips, long-term holds, etc. all have different terms and rates.  Hard money would also be good for flips and is a lot more asset-based than balance sheet financing that is typical for long-term money.

Adam Craig · Answer

Thanks all.

To be completely honest - I am uncertain which investing route I will peruse.

From everything I have learned thus far - my aim is to own properties in growing markets with appreciation being my main goal. AKA - buy and hold and hire PM's.

Cash flow will be nice, but my business provides plenty of that for me so I am really concentrating on the future value with these investments.

I live in Cleveland - not where I want to build my real estate portfolio but I thought it would be a good place to start and learn.

First project idea - Split home for under 100K with 2-4 units. I want to manage it on my own to educate myself on being a landlord/repair costs/ tenant issues ect...

Right now, I spend roughly 70% of my cash flow on inventory for my internet business. I can get my hands on 20-30K (possibly more) but it would be in my best interest to obtain a loan because I make that money work for me.

I look at homes online/craigslist but have no idea how to spot a deal.

I have a slight grasp on running the numbers but have no idea on how to get these numbers - like expected rent/maintenance/repair/utilities for any given property.

Do you recommend I contact a Realtor to get access to more properties and have some guidance? Is there a trick to finding a good Realtor?

Thanks

Mark Updegraff · Answer

Welcome Adam!
    You've found the premier place to find RE investing advice :D Though as a disclaimer, mine probably sucks ;-)

I'm not sure about your lending question.  Lately I've found bankers to be anything but helpful, but every situation is different.  Since I recently transitioned from employed to self employed, I'll definitely monitor this topic.

I would say if you have cash to invest, why delay?  With a cash purchase you'll find better deals and you can then work on financing at your leisure.  If I were you, I would expend effort finding deals, the more you analyze, the better you will get at spotting gems, and grabbing them before someone else!  You'll be limited by your price range, but there are always deals.  Be patient, and keenly observant of your farm market.  If you get one you think is great, and later find a better one... Oh well!  Try to buy the better one too, and just keep rolling it as quickly as you can.  If your cashflowing while establishing benchmarks for your local farm market, expanding will be easy.

I would stick close to home for your first acquisition.

Good luck & happy shopping!
Mark

PS - why not some background on your internet business?  We're dying to hear more :D

Jon Holdman · Answer

"Real Estate Investor" is a pretty broad term.  What sort of investing do you want to do?  Do you have cash to put into a deal?

New investor to new to get financed?

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