Help Me Take Next Step

[Michael Krassos]

Hi all, I am new to real estate investing and have been educating myself for the last 2-3 months. I feel ready to take the next step but want to confirm what my next steps should be.

I will start with a buy and hold strategy in Northern NJ, rent, and sell once the market peaks. Then with profits look to possibly buy notes, liens, or something else - I'll tackle that when ready.

Currently 2/3 Bedroom homes in my area are selling on MLS for 200-350,000. I have seen short-sales and other properties needing repair for 150,000. I believe there is potential appreciation to 400,000 or more in next 5+ years. This is a good area with great schools, etc.

I'm thinking I would buy for less than 200k, put 20% down, take a conventional loan for rest ($140,000). Taxes and insurance will be another $10,000 per year.

Am I above my head in this Northern NJ market?

If you agree there is money to be made I'm thinking to do the following next, please advise:

1. Talk to Mortgage Brokers to confirm conventional mortgage is a possibility.
2. Build relationships with Realtors in area to confirm demand for rentals, and to provide leads.

Any help, guidance much appreciated.

[Ned Carey]

Michael Krassos I see this is your first post, so welcome to BP!

Most people who buy rentals count on at least some cash flow. Given the high prices in your area, these properties may not cash flow after accounting for all the hidden costs like vacancy, repairs, turnover costs, reserves etc. If you are a high income earner and can carry negative cash flow this can be a legitimate strategy, as long as you do it with open eyes and understand the costs and risks.

You are counting on your profits coming form equity appreciation. What if out governments inept handling of the banking and housing situation causes a second shoe to drop and prices do not recover for another 10 years? Can you handle that?

My guess is there are areas withing driving distance that would be much better candidates for buy and hold investing. My suggestion is keep reading here about how to evaluate deals. Over time you will get a better idea of what makes a good deal and what strategy is best for you.

Good luck - Ned