Active Duty military trying to get into Real Estate

[Abraham Trevino]

Hello all,

I am 22 on active duty located in Houston, Texas. I purchased a home when I was 21 and have put a tenant into it to move closer to work. If possible I would like to try and BRRRR this house but I don't know where i'd go about rehabing it. My round trip drive was pushing 2 hours a day and I wasn't having it anymore. I now live in an apartment less than a mile from my job so I bike almost everyday. I am not married so this is all on a single income, I also have no car loan, no student debt and no credit card debt. I am fortunate to have the VA loan available to me so house hacking a multi family is definitely an option. I really would like to learn more and start using the BRRRR strategy. I'm probably approaching this the wrong way by saving up as much as I can and then dumping all of that into a place. I have around 10k to get into another property but finding something in this market isn't easy for me. I want to have at least five properties before I transition out which is in about two years. Overall I would like to purchase a cash flowing property by the end of the year. Any advice or where or how to get started would be appreciated.

Thank you in advance for your words of wisdom.

[Ben Zimmerman]

Greetings to a fellow vet.

Brrrr is a fantastic strategy in general, but it's not for everyone.  Are you particularly handy?  Could you do the renovations yourself or would you need to contract it out?  Would you have the time to do the work yourself while also holding down your military job?  Would you be willing to live in a home while it is under renovations, and if not where would you stay and how would you afford a second place to stay during the reno?  

Brrr is also more expensive upfront as you have noticed since you need both the downpayment and the reno funds.  There are loans such as the 203k loan that will wrap the cost of reno into the loan amount.  The downside is they generally require a lot of extra paperwork, you can't do the reno yourself and have to contract the work out, and the interest rates are much worse than a traditional 30yr loan and are usually roughly a full 1% higher.   That 1% interest rate makes a huge difference over the course of a loan and can easily add an extra $125 a month on a typical home worth 200k.  

Personally I would skip Brrr for now and stick to the VA loan and house hack it. Either buy a 3 or 4 bedroom single family home and find a couple of roommates, or go bold and buy up to a 4 unit complex and live in one and rent the others. I house hacked my first home I purchased and it really set the tone for my investing career. I had a 3 bed house and my mortgage was 800 a month, I rented the other two bedrooms for a flat $500 each so that covered my entire mortgage and most of the utilities allowing me to rapidly save up money for my next purchase.

My biggest concern is that you said you already have a rental but only have 10k to purchase your second place.  Does this mean you have 10k total, or 10k plus your reserve funds for your first rental.  Because if you only have 10k total then I would be extremely cautious about over extending yourself.  Hot water heaters break, HVAC units break, roofs need replaced.  If you did use that 10k to purchase a second place and the AC unit went out on your first rental how would you pay for it?  While I understand your desire to scale up rapidly, and most people when they are young think nothing bad in life will ever happen, but you can lose everything in the blink of an eye by not having enough funds in reserves for emergencies.  Investing is a marathon, not a sprint so make sure you have that reserve fund set up before you do anything else.