Here's my REI strategy...please let me know your thoughts

Starting Out
13yFollow

Here's my REI strategy...please let me know your thoughts

Nicole Pettis
Flipper/Rehabber · St. Louis, MO · Member since 2008 · 489 posts · 300 votes

Hello!

After talking to many and researching much, I feel I have decided on the strategy that I want to move forward with. However I am unsure on a few things, so please let me know your thoughts or how you would proceed.

1.) First things first, find a foreclosure that we can fix up and live in(we currently rent)

2.) After that house is finished find another foreclosure/distressed property to buy & flip

3.) My goal is to buy & flip 4 homes in a year (I know that may seem low, but both my husband & I work full time) So I don't want to take on too much.

4.) Then eventually purchase some buy & holds to rent & continue to flip

This is where it gets sticky. My sister who works for a bank & my brother who is a mortgage broker have both suggested I use the HELOC from our new house to purchase the next. However, I don't feel comfortable doing that, because if something happens with the secondary investment property, I don't want it to take our home with it as well.

I would rather just get a new loan for second property and go that route.

Suggestions? Thoughts?

Thank you!

Nicole P

0Reply
22 views

Most Popular Reply

Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
13y
Originally posted by Nicole Pettis:
1.) First things first, find a foreclosure that we can fix up and live in(we currently rent)

Buying a home to live in is a great investment but avoid the pitfall of buying the largest you can afford. You are probably better off buying the cheapest you can tolerate and saving the difference.

No that is not a low number. Newbies who have a goal to do 10+ deals in a year are often setting themselves up for failure. A banker friend once said it scared him when newbies came in and said we plan to do 12 deals this year. Get the first deal done and then move on from that.

If you are not 100% sure that the deal you are doing will be successful you shouldn't do it at all. I am not saying you should take out a HELOC, that is a personal decision. However if i is becuase you are afraid of losing your house it could be a gap in your real estate knowledge that generates that fear.


Keep in mind that is substantially harder than getting a HELOC.

You've got a good plan, Get educated and move forward a step at a time and adjust as you go. Good luck - Ned

2Reply
See this reply in the discussion

12 Replies

Jump to latestLatest
  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    13y

    Nicole Pettis Welcome to BP! You are very aggressive..

    Year 1 - find a hole to live in
    Year 2 - flip one
    Year 3 flip 3 and 4

    Good luck!

    0Reply
  • Chris Riggins
    Huntington Beach, CA · Member since 2013 · 17 posts · 5 votes
    13y

    Hi Nicole, first of all Welcome!! Im a newbie too. Im a general contractor in Orange county CA. I think could be on the right track, living in the house your going to flip can be a smart idea in my opinion, as long as time is not a huge issue for you but Remember moving in and out is a lot of work and the market can change in the months ahead. I had a problem with this with a house I flipped and learned that getting in and out on budget is key. Another thought may be to find a referable contractor who can get in and out (as long as its in your budget). Just a view from a builders standpoint. Good Luck and feel free to ask me any questions you have. Chris Riggins

    1Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    13y
    Originally posted by Nicole Pettis:
    1.) First things first, find a foreclosure that we can fix up and live in(we currently rent)

    Buying a home to live in is a great investment but avoid the pitfall of buying the largest you can afford. You are probably better off buying the cheapest you can tolerate and saving the difference.

    No that is not a low number. Newbies who have a goal to do 10+ deals in a year are often setting themselves up for failure. A banker friend once said it scared him when newbies came in and said we plan to do 12 deals this year. Get the first deal done and then move on from that.

    If you are not 100% sure that the deal you are doing will be successful you shouldn't do it at all. I am not saying you should take out a HELOC, that is a personal decision. However if i is becuase you are afraid of losing your house it could be a gap in your real estate knowledge that generates that fear.


    Keep in mind that is substantially harder than getting a HELOC.

    You've got a good plan, Get educated and move forward a step at a time and adjust as you go. Good luck - Ned

    2Reply
  • Shawn S.
    Rental Property Investor · Kansas City MO · Member since 2013 · 147 posts · 9 votes
    13y

    Are you putting 20 percent down on each place? I ask because I thought you had to live there for a year if you put little down.

    0Reply
  • Nicole Pettis
    OP
    Flipper/Rehabber · St. Louis, MO · Member since 2008 · 489 posts · 300 votes
    13y

    Thank you everyone for your quick replies!

    Ben Leybovich...maybe I am just a tad. 4 flips in a year is my goal, however if I only do one or two, I would be happy as well.

    Chris Riggins, Thank you! My goal is to get in & out. With our future house, get the major things done by a contractor(i.e. kitchen, flooring & bathrooms) move in and then finish the rest through DIY. I will definitely be in touch if I have any questions.

    Ned Carey..Yes! Absolutely! We are looking for the cheapest. Waaaay back in the day before we understood real estate, we bought at the top & lost at the bottom. Never do that again! So I am going cheap.

    Baby steps...got that. I do get a little scared, because I have never done this before. I understand the 70% formula, I know how to design a house to sell & I know how to budget, but there is still that little voice of doubt in the back of my head. I guess it will slowly go away once i get one done & sold.

    Shawn Sorter..kind of confused by your question. For our house to live in we will have money to put down/closing cost, just not 20%. Then to purchase the next it will depend on how much it is...I have been looking at foreclosures in the $40k - $60k price range.

    0Reply
  • Shawn S.
    Rental Property Investor · Kansas City MO · Member since 2013 · 147 posts · 9 votes
    13y

    I think I see why I was confused. Another poster suggested you were going to be moving a lot. I had the impression you were planning to move each time you got another property:). My bad.

    I think your plan looks solid.

    1Reply
  • Nicole Pettis
    OP
    Flipper/Rehabber · St. Louis, MO · Member since 2008 · 489 posts · 300 votes
    13y

    Shawn Sorter..haha...no way! not with a toddler & two dogs. That's way too much moving:)

    thank you!

    0Reply
  • Chad Clanton
    Contractor · San Antonio, TX · Member since 2013 · 647 posts · 205 votes
    13y

    Hi Nicole, welcome! I'm a newbie in VA, and just attempted essentially the same thing, insofar as using the HELOC goes (though we ended up getting a personal loan instead, with a payment we knew we could make without it hurting us too badly). Someone else ended up getting the property, but hey, maybe next time :-)

    The plan was for the HELOC on our current house to cover holding costs until we got out from under said current house (trying to free up some more capital), not for downpayment or anything. That way, the payments on the HELOC would be scaled to the term the property was held, rather than using and then paying a large portion monthly for some type of downpayment. That said, we were going to go the 203k loan route, which was significantly better than the commercial loan options I found at my local banks.

    I forget who said it (it was probably in one of the podcasts, maybe J Scott?), but something I've found true my entire adult life is that you don't have to know everything, just know the next step and who needs to be involved in that step (or some variation on that paraphrase). I know, especially after hearing that and looking back, I'd never have gotten anything done if I'd relied on myself to figure out everything. Keep on looking around, and be creative! There are always options, we've just got to figure them out. Good luck!

    1Reply
  • Adam Johnson
    Rental Property Investor · Holley, NY · Member since 2011 · 507 posts · 347 votes
    13y

    Nicole Pettis - here is a challenge for you that will be much easier said than done, but will help prepare you for great success in the future.

    For your first deal (the one where you will live), set a budget before you start it. Stick to it. Because you will be living there, this will be even harder to do. That is where the challenge comes in. You will be tempted to spend a little more on finishes because it will be your house, but go for "adequate" instead of "perfect". It sounds like you are either starting out or starting out again, so my assumption is that your first property is not one you plan on living in forever. Keep that in mind to avoid overspending.

    This challenge will need to be tackled on every deal after that. If you can do it on the first one, you will be way ahead of me! I blew the budget on the first one, hit it on the second one, REALLY blew it on the third one. Don't get cocky, this is a challenge on every single deal you do but a key success factor.

    I will second the comments made by Ned Carey, if you are questioning whether things will work out on a deal, don't do it. From experience, I ALWAYS, ALWAYS, ALWAYS have multiple exit plans. If I buy to flip, it had better make sense as a rental too in case it doesn't sell. If I buy it to hold, then it better work if I had to all of a sudden sell tomorrow too. Did I say that I ALWAYS do that? This advice comes from a guy that ended up trapped upside down in a horrible investment (see my comment above about the 3rd property that I REALLY blew the budget on).

    Good luck! Final tidbit - don't force deals through just to meet a goal of how many deals to do. Goals are good to have indeed, but don't be blinded by them. I have been frustrated at times when I can't find a deal that fits for quite a while, patience is not one of my strengths. But by waiting I have found and been ready to act on some very attractive deals.

    0Reply
  • Mehran K.
    Investor · Wichita Falls, TX · Member since 2010 · 3k+ posts · 603 votes
    13y

    Nicole Pettis I like your overall plan and I think it is a good one.

    I use funds from my HELOC for all my REI activity right now. My rate is 3.99% and that is cheap money to me! Look around for an interest only HELOC and just make sure you can make the minimum payments on whatever you borrow. This way you won't have the worry of losing your house if you don't make $.

    0Reply
  • Jimmy Hong
    Flipper · Irvine, CA · Member since 2013 · 349 posts · 45 votes
    13y

    Welcome Nicole Pettis, everyone is giving great suggestions. I'm not sure where you are at but in my area, getting foreclosed homes require full amount in cash purchase. How do you plan on getting a new loan for a foreclosed property?

    0Reply
  • Shawn S.
    Rental Property Investor · Kansas City MO · Member since 2013 · 147 posts · 9 votes
    13y

    Mehran Kamari Is your Heloc from your personal residence or one of your investment properties? I'm curious for more info on how you go about financing that way as we look for our 2nd property.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free