Starting Out
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback
J Scott's Starting Out FAQ
In another thread, Josh suggested creating FAQs of topics that are often discussed/asked by newer investors on the site. While this isn't inclusive of the awesome contributions by hundreds of other contributors here (I'll try to compile something bigger when I have the time), here are some of the topics that I've discussed in the past -- both blog posts I've written and forum posts I've started -- that seem to get brought up over and over.
Don't know if this will be helpful or not, but thought I'd post it just in case...
How do I determine if a property would make a good flip deal?
http://www.biggerpockets.com/renewsblog/2010/03/10/determining-maximum-purchase-price-mpp/
Can someone provide an overview of how to analyze a buy-and-hold investment deal?
http://www.biggerpockets.com/forums/88/topics/51836-the-basics-of-real-estate-investment-deal-analysis
Does someone have an example Rehab Analysis Spreadsheet?
http://www.biggerpockets.com/forums/67/topics/51045-basic-rehab-analysis-spreadsheet
Does someone have an example Rental Analysis Spreadsheet?
http://www.biggerpockets.com/forums/88/topics/51334-sfh-rental-analysis-spreadsheet-
How do I estimate ARV?
http://www.biggerpockets.com/forums/311/topics/73160-primer---estimating-arv
Does someone have a video tutorial for explaining "The 50% Rule"?
http://www.biggerpockets.com/forums/311/topics/72246-the-50-rule-video-tutorial
Any suggestions on making sure I do well on my upcoming appraisal?
http://www.biggerpockets.com/renewsblog/2011/01/19/controlling-and-conquering-your-appraisals/
http://www.biggerpockets.com/forums/312/topics/55307-controlling-your-appraisals
Should I get my real estate license?
http://www.biggerpockets.com/renewsblog/2010/02/24/should-you-get-your-real-estate-license-investors/
What should I look for in a real estate agent?
http://www.biggerpockets.com/renewsblog/2010/03/03/traits-of-a-great-real-estate-agent/
http://www.biggerpockets.com/renewsblog/2010/08/11/is-your-agent-a-great-agent/
Anyone have a sample contract for their contractors?
http://www.biggerpockets.com/renewsblog/2010/02/17/whats-in-a-contract-contractors-rehabbing-real-estate/
Any advice on managing contractors?
http://www.biggerpockets.com/renewsblog/2010/04/14/6-rules-for-managing-your-contractors/
What is Internal Rate of Return (IRR) and how do I calculate it?
http://www.biggerpockets.com/renewsblog/2010/09/02/introduction-to-internal-rate-of-return-irr/
Originally posted by J Scott:
In another thread, Josh suggested creating FAQs of topics that are often discussed/asked by newer investors on the site. While this isn't inclusive of the awesome contributions by hundreds of other contributors here (I'll try to compile something bigger when I have the time), here are some of the topics that I've discussed in the past -- both blog posts I've written and forum posts I've started -- that seem to get brought up over and over.
Don't know if this will be helpful or not, but thought I'd post it just in case...
Over a year later and still providing tremendous value - thank you!
thanks. Scott. Great information here.
Thank you J
J Scott I just bought your house flipping book and I've just made it to the section on finding a good real estate agent. I'm getting a lot out of it so far. In going through the forums, there are a lot of threads that discuss techniques to use once you're rolling in REI, but do you have any articles on breaking into flipping/rehabbing for the first time?
Luis A. posted a couple of the same questions I have. Essentially, how does somebody transition from renting an apartment earning an average salary, to buying their first investment property? Is the first step saving X amount ($25k) to put down on a loan from a portfolio lender? Or is it better to buy your own home first, then wait until you have enough equity to do a HELOC for an investment property?
Everybody on here talks about hunting down the best deals, but your book addresses financing before anything else. Is a financing deal for a property typically like a standing offer, where you find a lender willing to lend up to X amount, so when you find the property you want (via MLS, auction, wholesaler) you just go back to the lender and say "Here's the one!"
I'm trying to look at where I am, where I would like to be eventually, and then break down the difference into achievable steps. But I'm not sure what the best move to get everything moving would be.
@Jay Willems being that I just went through this process. I can share a little insight with you.
My husband and I had been renting for the past four years to work on paying off debt, which we did successfully. And I was getting to a place where I was ready to make a career change and I've been wanting to do real estate investment for the past 10 years. So I got back on bigger pockets and started to educate myself again. I had the same questions you did...how do I get from A to B. Well I knew, no portfolio lender was going to lend to me/us without experience and a business plan. And how can you do either without taking that first step of being a home owner.
So that was our first step. To buy a foreclosure, live in it and flip it. So in order to do that:
• We saved every nickel, dime and penny that we could to get our down payment together
• Then we got pre-approved for an FHA with a 203k reno loan.
• Then we found a go-getter real estate agent and I gave him our criteria for (i.e 3 bdrm 2 bath single family home in foreclosure, short sale or had a substantial amount of equity in it) in the neighborhoods that appealed to us.
And when we finally found the one that fit our needs we used the 70% flip formula and put in our offer and after a little back and forth it was accepted. So now we are in our house and we are working on fixing it up to flip.
In the meantime while we are working on the house, we are also saving more money for the next property and I am working on getting my real estate license. So we have the freedom to go look at properties and have access to impertinent information about the homes to help us make solid decisions.
Also I am networking and trying to find a private lender that I can partner with to get experience and once I have 2 to 3 flip properties under my belt, then I will go talk to portfolio lenders, with my plan in hand and numbers to show my experience.
Hope this helps! Good luck!
@Nicole Pettis Thank you for sharing your experience here! This is great for me to see in terms of step A to B to C. I have considered the possibility of pursuing a 203k to find a "fixer" and make some improvements to it. This would give me a lot of good practice for different kinds of repairs/maintenance, and may let us find a better deal too. I have heard mixed opinions as far as working with a 203k loan, but it sounds like your experience has been fairly positive.
@Jay Willems Absolutely! You're welcome!
Overall the process was fairly smooth on our end, although its a little rough on the lender because of all the paperwork. The biggest issue for me was finding a contractor that was willing to work with a 203k loan & you have to use a general contractor for it. You can't do stuff yourself(unless its outside the scope of work for the reno loan). I actually found my contractor here on bigger pockets, they are a part of our networking group. So it was already someone I had a relationship with that I could trust. They also have a lot of paperwork that they have to fill out as well, but in the end they are making decent, guaranteed money.
The closing does take a little longer than normal(ours was 40 days) & when you close your estimate has to come in at the exact number that your 203k reno loan was approved for. There are two different kinds of 203k's the streamline and the standard. The streamline is for $35k and under and the standard is for $35k and over. If you can stick with the streamline, I would, because its less bureaucracy.
Anyway, if you have any more questions about it, feel free to contact me. I will give you all the info I have.
Take care!
Originally posted by @Jay Willems:
J Scott I just bought your house flipping book and I've just made it to the section on finding a good real estate agent. I'm getting a lot out of it so far. In going through the forums, there are a lot of threads that discuss techniques to use once you're rolling in REI, but do you have any articles on breaking into flipping/rehabbing for the first time?
....
Everybody on here talks about hunting down the best deals, but your book addresses financing before anything else. Is a financing deal for a property typically like a standing offer, where you find a lender willing to lend up to X amount, so when you find the property you want (via MLS, auction, wholesaler) you just go back to the lender and say "Here's the one!"
Nicole clearly has more 203k experience/knowledge than I do, so definitely listen to her (and thanks for the info, Nicole!)...
But, in general, I've organized the book in a step-by-step fashion for how I believe a new investor should approach their first deals. Your question about sorting out financing as one of the very first steps is something I get a lot of questions about, and I 100% stand behind my belief that financing should be addressed before nearly any other step in the process.
The reason for this is two-fold:
1. You're going to need proof of financing ability to accomplish the next few steps. For example, most good real estate agents aren't going to show you properties unless you can prove you can buy them. Additionally, most sellers aren't going to take your offers seriously without a proof of funds or pre-qualification letter.
2. Once you get to the point where financing is needed (i.e., you have a property under contract), you're not going to have the time to start the process of figuring out where the money is going to come from. For many new investors, it takes weeks/months to figure out how they'll finance their first deal, and most sellers aren't going to wait months while you figure it out.
By figuring out the financing piece upfront, you're going to find that the rest of the process goes much more smoothly and is much less stressful.
Now, as to how you deal with lenders before you have a property, it's a bit of a chicken and egg problem. While a lender won't commit to you until you have a property under contract, you should be able to provide the lender with enough information about your financial situation, your experience and your business plan that the lender can say to you: "If you bring me a deal like X, I should be able to provide you the funding you're looking for."
That's the level of commitment you want prior to actually getting a deal under contract. If you then focus on finding a deal like X, you should have no problem going back to the lender and saying, "Here's the one!"
@Nicole Pettis Thank you so much for sharing your story. Please keep us updated on your renovation. Is the 203K only for owner occupied? (I have lived in my current house for 13 years so I don't think that program is for me). I admire your plan and sacrafice. Good Luck.
@J Scott , I have ordered your books and just started skimming thru them. Agree that figuring out the financing piece upfront will make the process smoother. Do you suggest completing a business plan first or going to the bank and giving them information on my financials and inquiring what programs I may qualify for?
-
Broker North Carolina (#316705)
- Spine Properties, LLC
@Michael Spine You're welcome! Yes, it is only for owner/occupant. However fannie mae offers homepath reno loans to investors on some of their properties.
I plan on doing a blog when we really get going. Majority of the work that will be done with the 203k is exterior and the winter here in Milwaukee has not been kind. So we have been on hold:)
@J Scott You're welcome! Thank you for all of your amazing insight and sharing all of your knowledge! I am such an artist at heart and not a numbers person so all the forms you have on your blog are an amazing help for people like me!
Originally posted by @Michael Spine:
@J Scott , I have ordered your books and just started skimming thru them. Agree that figuring out the financing piece upfront will make the process smoother. Do you suggest completing a business plan first or going to the bank and giving them information on my financials and inquiring what programs I may qualify for?
I'm a big believer in doing a business plan for YOURSELF, not for others. While there are times when you'll want a business plan for others, this isn't typical, especially in real estate. Instead, you'll want to focus on being able to discuss your plans with lenders, not just hand them a document.
So, the value of the business plan is that you'll have a good idea in your head when they start asking you questions about your plan...
A ton of great info, thank you.
@Nicole Pettis Thanks again for all the info! I didn't realize all the work would need to be handled by a general contractor. Definitely something to be aware of upfront.
@J Scott Thanks for your great response! I'm getting a lot out of the book but it did seem like a sort of "chicken or egg" first scenario. I understand the process a lot better now.
Thanks for the post, the blog entry Should I get my real estate license? confirms my plan good reading.
Want an introduction to property analysis?
For Rental Properties:
http://www.biggerpockets.com/renewsblog/2010/06/30/introduction-to-real-estate-analysis-investing/
For Rehabbing:
http://www.biggerpockets.com/renewsblog/2010/03/10/determining-maximum-purchase-price-mpp/
Looking for case studies (from a non-expert :)?
New Construction Build:
https://www.biggerpockets.com/forums/48/topics/114347
Rental Property:
What are the documents needed to create a secured loan against a piece of real estate?
Those are definitely good tips to get started. One thing to keep in mind about the real estate business is to stay educated on everything going on around you.
J Scott thanks you very much for all your information in this forum it's actually cleared up a lot of stuff that most consider "basic" and puts everything into perspective. Looking forward to reading more of your stuff
Thank you very much J Scott for so many invaluable articles and information!
I've read several books (yours is next) and watched many free educational videos about real estate investing. One thing they all emphasize is to always try to use someone else's money for your deals. I thought this was because most people starting out don't have the cash, but one of these, James Ingersoll, says you should try to not use your own money even if you have it. I am wondering why this would be when you can save a lot of interest or equity sharing by using your own. I have enough to buy, fix and if necessary, carry a flip here in the greater Phoenix area. I am still studying the steps in the process, but I am wondering why I should try not to use my own money?
Originally posted by @Kirsten Walstedt:
I thought this was because most people starting out don't have the cash, but one of these, James Ingersoll, says you should try to not use your own money even if you have it. I am wondering why this would be when you can save a lot of interest or equity sharing by using your own. I have enough to buy, fix and if necessary, carry a flip here in the greater Phoenix area. I am still studying the steps in the process, but I am wondering why I should try not to use my own money?
Hi Kirsten -
I'm not against using my own money, but I certainly see *some* value in not using your own money all the time. Here are some things to think about:
- First, you don't want to use all your money at once. What if an amazing deal comes along and the seller is demanding a quick close and proof that you can do the deal? If all your cash is tied up, you can't provide that. So, always hold back some cash for "emergencies."
- Second, you can use other people's money to increase your returns. Let's say you have $100K in cash. While you could do one deal for $100K, you'd likely make more money by doing two simultaneous deals with $50K each, while borrowing the other $50K for each of the other two deals. Sure, you'll pay a bit in interest/fees, but the extra profit from the second deal should more than cover that (if it doesn't, then it wasn't a good enough deal). Now, let's say you do five simultaneous deals, each with $20K of your own cash and borrow $80K for each of the five deals. Now you can increase your profits even more, with the same amount of your own cash. This is called leverage -- too much leverage is very risky, but a reasonable amount of leverage (for example, two or three deals each using 30-50% of your own money and 50-70% of borrowed money) can greatly increase your returns without adding too much risk.
- Third, it's always good to build relationships with lenders. While you might not need Bob The Lender for the deal you're doing tomorrow, you may need him for the deal you do three months from now. If you use him on tomorrow's deal, you now have a track record with him, and when you really need him (in three months), he's more likely to be there for you. I sometimes borrow money just to keep my lenders happy because one day I'm going to ask them to return the favor.
Thanks, J Scott! Really good points.