Taking the first (maybe second) step! All experienced RE investors how is this done?

Question

Just purchased my first home, small investment property with the goal of flipping or renting in mind. Got into the home for as cheap as possible, in order to save cash for property number two. After all the paperwork is done we have 11,000 left, not enough to buy another rental yet. About to be a single income family of four, even with a six figure job saving is not easy when providing for a family.

My question for all the pros out there is what are some actual concrete proven ways I can get another ten grand quick without saving for another year and a half?

I.E. how do I get into the next property fastest?

My question for all the pros out there is what are some actual concrete proven ways I can get another ten grand quick without saving for another year and a half?

I.E. how do I get into the next property fastest?

Derek T. · Answer

Cory is this a personal house you bought and have $11k left over? It sounds like it is an OO house that you are going to live in for a while and then look to sell or rent out at some point. Like Jennifer stated,  I wouldn't be in a rush.   Is this $11k all that's left? You need to have money set aside of emergencies and just life in general so I wouldn't look to tie it up and over extend yourself. You mentioned you don't want to pass on the next great deal.  Well real estate deals are a time a dozen and believe me there will always be another one when you're ready to buy again with more significant cash reserves.

With that being said you need to figure out this exit strategy first. When I buy an investment property I don't say I'll buy and figure our the exit strategy as I go.   Are any improvements needed? Will that $11k have to go towards that?  How much equity do you have now and is that enough partnered with reno to make it a worthwhile flip? I would take a step back and figure this one out before I try to buy another one as quickly as possible.

Jennifer Lee · Answer

Since this is your first investment, my advise is DO NOT RUSH IT!!!!!!

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I say this to my newbie clients all the time, and they do NOT listen until it's too late!!

BELIEVE IT or NOT, Buying Real Estate is the "EASY" part, especially if the deal went smoothly!

all of the sudden my newbies feel like superman, and want to get another ASAP!

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You said you just bought it with Flipping or Renting in mind. I would suggest you go through the process. Flipping means you have to put $$$ into this unit. Being that's its your first you may not have the necessary experience to flip.

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I have a newbie "client" that read a lot of books, and listened to a lot of youtube REI videos. I also gave her all kinds of advise. I ended up not being her agent bc she found properties prior to meeting me, (investors are not LOYAL, i don't have issues with it).

And she ended up making classic newbie mistakes on renovations on 2 back to back purchase.  Not devastating but enough for her to say, darn not as EASY as the "guru" says.  And now she is learning to become a landlord. And she realized my advise against buying in that area was good advise, poor tenant pool. So she had to wait a few months to find a "qualified tenants"

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I have another newbie client earlier in my realtor career, had such an "easy" time buying real estate, she bought 3 against my advise with me. My brokerage at the time was of the mind set, CUSTOMER IS ALWAYS RIGHT! I have since left said agency.

Then she went and bought on her own, and with other agents without me knowing, see no LOYALTY, hahaha

GUESS WHAT, she had 6 vacancy!!!! b/c she bought in "warzone", had to learn eviction process. She is now more of an expert than me, but she has a ton of headache!  And guess who gets the priviledge to hold her hands through all of it!

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Go through this process FIRST, see if you have the knack for Flipping or Renting, then proceed.

Use this house to build your NETWORK! Once you have it, you can do multiple projects at a time.

Jennifer Lee · Answer

Have you considered a HELOC (home equity line of credit)

Here is my story:

We have a condo in boston, when we found out we were moving for promotion, we quickly got a HELOC bc it was our primary home. we NEVER DREW any money out so we had a zero balance.

When we left, we put in a tenant at almost cost! almost no cash flow, but the tenant paid for the condo, zero $$$ from our pocket.

my story is a little long, but with the promotion and "rent" we were able to buy 2 more properties @ 20% down-payment. a LIVE in FLIP and a commercial Triple Net Lease.

By the time we moved again for job promotion, this is now yr 10. We sold the Live in FLIP to buy our current primary @20% Down. My condo rental rates increased, we SOLD the Commercial Triple Net Lease due to distance.

We bought a replacement Commercial at 10% Cap rate with the cash, and FINALLY TAPPED into the HELOC.

we pay it down as fast as we can, and pay only the min balance required

Very long story short, we repeated this 3 more times using the HELOC to buy a Flip, mix used 5 unit buy hold, and a duplex.

We just sold the boston condo a 100% appreciation this wk after 15yr. This one condo bought us 6 properties. and now with the proceeds I hope for it to continue when I find a replacement ;p

Cory Shannon · Answer

Thank you Jennifer Lee for the sound advise.

My plan on the recent home purchase is to live in for some time and keep an eye on the market. The area I live in is really hot now so I figured sitting on it, and keeping an eye on how things progress was a better idea for my home. It was not an easy process. In fact it was our 7th offer. So I've learned a lot in the process. A second buy and hold property would be to me, the investment to decide whether we enjoy it or not. I've lived in the area for twenty years, and know the good and bad locations. I can definetly wait for a location, but don't want to pass one up because I don't have the funds.

Account Closed · Answer

Cory,

Of course there is a way. If you can buy properties at a discount, you can do it over and over. Say you buy a property for $50k that needs $25k in rehab costs. It has a FMV of $100k after rehabbed, then you can refinance at 75% LTV and reuse your capital on your next deal.

Here are some minor bumps along the way that I have encountered. Hope you can learn from my experience and not repeat them.

1) you can only do cash-out refinance up to 4 properties including your primary mortgage. On the 5th+ mortgage, you will have to find a portfolio lender to give you a cash-out refinance. Our portfolio lender will only do up to 65% LTV on cash-out. The lending criteria vary from lender to lender and state to state so check with your local lenders.  Unless you can find deals at 65% ARV, you're essentially tying up 10% of your capital on deal 5+.

2) if your spouse is working, you can do cash-out up to 4 mortgages under her sole name. So 4 under your sole name and 4 under her sole name. As your spouse is not working, it's not applicable to your situation........yet. However, a partner or partners can help you achieve the same goal. The partner's name is solely on the loan while both names are on title as TIC. 50% of something is better than 100% of nothing wouldn't you agree?

3) in the multi-unit arena (5+ units), you can obtain 75% cash-out refinance, but that's another topic. We'll worry about it when you get there.

Real estate is a very rewarding journey. Just look at it as problem solving. The more problems you can solve, the more assets you can add to your net worth.

Best of luck.

Derek T. · Answer

Cory see my last post.... It gives you 4 options where you don't have to bring another 20% down or where you can get the 20%.  Another is owner financing with terms that are acceptable to you.   So there are ways; these are just a few.   Hope this helps.

Derek T. · Answer

And Cory I failed to answer your exact question (although I wouldn't recommend trying to buy another one now).   To buy another one as quickly as possible let the house season and refi to get your only back out if you bought with cash.  If you have a lot of equity you can get a loan again that.  Find a hml to finance your second purchase and refi out of hml although $11k reserves probably won't be enough for them. Lastly find a joint partner who can bring cash or a loan with the down payment to the table after you find a deal.  Maybe you can structure something with them and split proceeds in some fashion. Just a few ideas....

Jennifer Lee · Answer

im the most risk averse investor. I try to buy with the least amount of debt! cash if I can. Heloc was 2% lol!

we put 10-20% of our own cash and finance the rest still the heloc.

or buy the unit and then used heloc to finance the renov.

I had 4 properties servicing 1 debt that was 2% interest ;) min payment was $500.00/mo

but we would pay down the loan whenever we could.

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no by no means mine is not the only way. I was just on the phone with a fellow investor, she used 100% other ppls money

Cory Shannon · Answer

I guess I should have asked a different question. Is the only way to buy your first rental property to save save save, and put the 20% cash down%? Or are there other options?

Thanks for the info so far, there will be no rushing, my family comes first. That being said they're also why I want to get started in this adventure.

Taking the first (maybe second) step! All experienced RE investors how is this done?

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