How To Fund My First Deal

Question

Hello BP Forum!

I'm new to real estate but currently sprinting & hustling to the end of the year to find and buy my first property. I'm from Austin, TX and looking to purchase a BRRRR property in a 1.5-2 hour radius of Austin. Specifically the Waco, TX area.

I'm getting all the pieces of the puzzle put together like Property manager, narrow down the area, contractors, etc. but the final piece of the puzzle that I'm looking to get advice on is how to fund this first deal.

The type of house I'm looking to purchase and think I can acquire is purchasing a house for around $35k-40k with rehab costs of $10k-15k so i can be all in at around $50-55k. Expecting the ARV of the home to be around $80-100k and the property shoud rent for around $800-900/month

I have about $20-25k I can spend, but prefer to have as little cash in the deal as possible.

Does anyone have any stories or suggestions on what method to use for a first time rental property buyer? Open to any suggestions and open to starting a dialogue with any banks, loan officers, private lenders, etc.

Jake Russell · Answer

I have spent the last 10 years in waco and have been a real estate agent and investor for the last 6 years. The retail market is so strong right now that I dont think this is a good area to do what you are wanting to do. The City of Waco inspections has gotten much tighter on controls and they are really overworked with the amount of projects going on. Any home you can buy for that price, will require much more than 20k to be put into it to pass final inspection. There are many agent/investors in this town as well who tend to scoop up the best deals first. Unless you have a marketing system generating leads directly from owners you will not be able to get a good deal, much less a great one.

The other issue is contractors. The demand is so high that they are double and triple booking themselves and dragging out projects to try and get as much money as possible. Bids have gone up 20 and 30% in the last 2 years. I dont want to discourage you from investing but waco is not the sleepy little town it was 10 years ago. You need to understand the dynamics and have good people on the ground or the cost will skyrocket on you. I moved to NYC about a year ago so I am not angling for your business here, just trying to provide some context.

There are a couple pretty good meetup groups in waco that i would recommend attending and that may get you some connections with some wholesalers and there are a couple local hard money folks who attend those meetings as well.

Jarrod Covey · Answer

Hi @Caleb Godsey - sounds like you've been doing your homework and have really nailed down your sweet spot for investments! @Kyle Westbrook would be an excellent contact to connect with, his experience fits within your buying criteria and he's just an overall good guy.

Exavier Hamilton · Answer

If your looking into private money save them for completed projects.  Homes that are ready to be used for rentals right now with little deferred maintenance.  That will eliminate risk when dealing with lenders because your only as good as your contract when it comes to these fix and flips.  With Private Money you can get a quality rental now that will produce  cashflow to support your fix and flips.

Michael Shelton · Answer

Caleb, have you considered if the owner will finance? It's possible to work a deal with the owner where they will finance and you can put no money down by justifying that the improvements you will do to the property act as MORE than your down payment. That makes the current owner more comfortable with no money down because if you default, you have added value to their property.

I am a local and am interested in similar properties like the one you mentioned. If you need contractors, my W2 job is for a major international general contracting company and I am well connected with all the trades locally if you need introductions

Jack Inman · Answer

@Caleb Godsey There's a couple of routes that you can take. You can get some sort of construction loan from a bank; downside is that closing times will be extended and there's more paper work etc. Using a private lender/hard money lender might be your best bet. You can get a hard-money loan to act as a bridge loan of sorts to fund the project until it's time to complete the cash-out refinance.

Looks like you've got enough cash to fund about half of the total project. You shouldn't have trouble finding a PML to cover acquisition costs, and then you could pay renovation costs out of your personal cash. That'd probably be the easiest route.

Jake Russell · Answer

Waco has future appreciation potential but the last 2 years worth of appreciation have been huge because the market has been catching up from 20+ years of blah. I do not anticipate the strong appreciation to continue. Unless your location is amazing (around cameron park, lake waco, woodway park etc) i would not expect much from the appreciation.

My comment regarding city inspections was more focused on the cost of bringing a home to full passing grade vs livable. I was redoing a house and they wanted me to do injectable foam in all the walls and under the floor because I "broke the exterior envelope" as part of the remodel. The quote just for that was $7000. So just make sure you understand the difference between a remodel for looks/safety and one that meets actual city code. I fired one contractor because he was not following code so the contractors bids need to be spelled out as to how they will meet city code.

Linda Osborn · Answer

@Caleb Godsey I don't think you mentioned this, but should we assume you do not have a W2 JOB and are doing RE full time? Are the properties you are looking at inhabitable (even if they are not somewhere you personally would inhabit, would they qualify for a conventional loan?) I just want to make sure that before you go to private & hard money lenders, or unsecured loans, that you have taken a look at the conventional mortgage companies. If you have good credit, a JOB, and the property is inhabitable, you should be able to purchase an investment property for as little as 20% down. Maybe 15% if you don't care about PMI, but I always recommend 20% if it is possible. If you can do that for a property that costs $40k, that only uses up $8K of your money for the downpayment, plus another $1-2k for closing costs. That leaves $12-$15k for rehab, right?

Obviously, if the property is not livable, or you do not have a W2 income, none of this works. But I wanted to throw it out there, because it was not brought up in any of the previous posts. Obviously, if you can find property that is rent ready, as recommended by @Exavier Hamilton, that property would qualify for a conventional investment property loan.  And, as mentioned by @Michael Shelton, seller financing is a good option if the property does not qualify for a conventional loan and if you can find a seller willing to do it. [Note, a seller should be MORE WILLING to do this if his property does not qualify for a conventional loan, because that will limit the buyers who qualify to buy it.]

Also, if you have Lowes or Home Depot credit cards, sometimes these can be helpful in acquiring materials. Check into contractor pricing and rates and don't over do it.

Let me know if any of this is viable in your current situation.

Nathan Wankel · Answer

@Caleb Godsey

Always trust your Gut. If it seems to good to be true, it probably is. If all the math works out and you're confident in the investment then go for it.

How To Fund My First Deal

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