HELP! Analysis Paralysis

[Jason Burton]

BP,

I have been feeling a lot of indecisiveness lately. I almost closed on a deal in St. Louis on a SFR but had it fall through. I'm also in the process of getting a multifamily in Alabama only to be having second thoughts about it. I think I need to go back to the drawing board to determine what path I really want to take in REI but I'm not sure what to do. So here is my question to all the veteran investors. If you had $55K cash, excellent credit, no debt (except my mortgage on the condo I live in), lots of ambition, but didn't have a clue where or how to invest in today's market, what would you do? I have limited mobility due to my 9-5 (military) and am stationed in Hawaii. Any ideas or help or motivation?? I don't want to delay my entry into real estate much longer as I'm convinced I need to buy real estate and wait, not the other way around. Thanks guys!

[Russell Norgren]

Jason,

Your questions is going to be one that gets 10 different responses from 10 different people. It is hard to say what the best thing to do with you resources is unless you know what YOU want to do. Having said that..........

I have rental properties that are doing okay. I purchased them several years ago when you could get financing with little or nothing down and that has, to a certain degree, taught me a very valuable lesson. Do not buy a house for the easy financing. Buy a house for the deal and then find the financing. The main thing that you need to do is make sure that you are getting a property for a good deal. Then worry about the financing (or using cash) and the other things that follow. It does not matter if you plan on flipping, hold and rent, or any other plan that you decide you want to pursue. If you find a great deal then the financing will usually work itself out and the numbers will still work.

If you are planning to flip a house then I would try to find something that is a great deal and then try to find the financing for it. If you are not able to find the financing for it then you can always use your cash and take out a loan for the rehab. Before you use your personal cash, be sure to figure out the true reason that you are not able to secure financing on the deal. Is it because you "think" it is a good deal, because you did not have the motivation to hunt for the right financing, or is it because you have not overcome your "paralysis" and are afraid to move forward and wish to use the financing issue as an excuse?

If it is the motivation then you need to sit down, consider whether this is truly something that you want to be involved in, and then decide to dive in or stay on the side of the pool. Being an investor will take lots of motivation!

If it is the fear of moving forward then find someone, or a great site like BP, to get good and reliable advice and make a more informed decision which should help you with your fears. Be sure to get the property under contract and make sure to get advice during your inspection period, along with the other things that need to be done.

If you are considering a buy and hold/rent position and do not mind being an absentee owner, then you may be in a great position. Being in the Military (I thank you for your service), you have the luxury, or curse depending on your view, of being stationed in different places. You also have access to various loan types that other starting investors do not have.

Have you ever owned your own home? I ask because I know many Military personnel who rent because they move so often. If you do not, then consider buying a home for yourself, at a great price, and live in it until you are transferred to a new location. That will give you time to locate a great management company that can manage your rental when you become absentee, and you can do any work to it while you are living in it.

Assuming you have never owned a home, this will give you a good feel for being a home owner (which may help any fears) and an understanding of all the things that a tenant will be calling about (clogged toilets, leaky faucets, and believe it or not light bulbs that have gone out). All of these things are what a management company are paid for but it is always a good idea to understand as many aspects as you can. What better way than to live the experience?

As an owner occupant, you will have access to better financing (lower rates, lower down payment, etc) than if you were buying an investment property. The only thing you will have to be sure of before you make the purchase is that you don't mind living in the house for a year (or whatever the required period is), the loan type that you get will not hamper you/ or preclude you from getting a loan with the better terms when you are ready to purchase a home for you to stay in more permanently. FHA only allows one loan at a time if I remember correctly. I am not sure about any limitations for VA loans or any other Military loans.

No matter what path you choose, do everything you can to keep from using the money that you have (or as little as possible) to purchase an investment property. The money you worked for is your money and you want to keep it there for a rainy day. Of course, as with everything, there are exceptions to this but it has to be weighed against your comfort level. Just be SURE that you are getting a deal worth using your own money or using a low down payment / low interest mortgage for your purchase. If you are not getting a great deal then you may end putting your own money into it (rentals) if the market turns south again.

I do want to qualify my statements and thoughts by saying, I am not an expert and I do not play one on TV. I have experience with rental properties and have done a few flips in the last few years. I also have experience in losing personal money and that is an experience that you do not want to have to learn the hard way if you can help it. The good news about losing your personal money is that it will be a VERY valuable lesson, although expensive.