Looking for advise in Real Estate investing

[Jason Dirks]

I really would love to get into some type of Real Estate investing, rental properties, flips, development, multi family, etc, but I don't really know where to start. I am a licensed General Contractor in San Diego that has worked flips, multi million dollar homes and everything in between. I am very driven and know that I can make something happen but need guidance on how to put the pieces together. Does a person look for partners? Look for cheaper markets than San Diego to get started?  I don't have a ton of money to just throw at deals, so... how much of my money do even want to use?  I got all the construction knowledge, now I need to blossom that into the next level. Any input would be appreciated. Thanks!

[Christina Labowicz]

Hi Jason, 

Have you utilized an FHA loan already?

FHA 3.5% down would be a good loan program to use so you can save any remaining capital on improvements.

In a general sense, flipping to raise capital to put into larger deals is a good path towards financial freedom. 

Investors in San Diego in the multifamily world used to do this by purchasing a property with under market rents, raising rents to market and rehabbing the units that move out. Because the owner raised the income, they simultaneously increased the value. They would do this until they have enough capital to put towards a larger deal and hold it for longer term, depending on their investment strategy, and return to "flipping" multifamily in order to save for their next big deal. 

With rent control and various other layers of law now in place, it has made this strategy more difficult, although not impossible. 

The simplest starting method for a person with little starting capital, from my perspective here in San Diego, is to utilize a 3.5% down FHA loan (and/or VA, if you have it), seek out properties that are slightly under market rent, give termination of tenancy to the unit with the biggest delta of rent vs. leading rent in the neighborhood, move into that unit while you renovate it, and then rent the unit at leading market rent a year or so when you move out. By this point, your property will have appreciated some, you've increased the income and increased the value. Maybe if you're lucky you were able to negotiate with the other tenants to get those units up to market rent as well, further pushing the value upwards (of which there are a few tricks, although the deal would need to make sense without this factor as it is not guaranteed. There is also an ordinance in place that prevents termination of tenancy for owner occupancy purposes until 60 days after the state of emergency has lifted, which is expected to be cleared within the year and would just need to work around this as well).

Once this is accomplished, you can then decide if its better to let it sit as is and generate its own appreciation and rent increases, or exchange the profit into something larger. We run 10 year projections on deals so you can tell which strategy would be a better play in the long run. 

Feel free to reach out for further inquiry or discussion!

Best,

Christina Labowicz, Apartment Advisor 

ACI Apartments