First timer looking to get started on my multi-family home empire

[Jesse E.]

Hi,

I am Jesse and I am brand new to investing in real estate. From all the info I have gathered thus far, it seems as though a multi-family property is the best seed for what I am looking to do. What I have found though is that everyone I talk to always seems to think they know the best way to go about it and that previous info I have received is not the best. Also, I have realized most people I discuss this with seem to end up telling me a path that may be right for them, but completely disregards what my end goal is here. Anyways, on to it...

What I am looking to do is build up a portfolio over say the next 10-15 years or so that will put me in a spot where I can have the portfolio kick me off enough passive income where I won't need to feel the stress of needing to work full time. Currently at 25, I have saved up a decent amount of money considering my age. My hope was to be able to get in to the first multi-family rental with roughly 15k-20k. If I need to go higher than that, I will consider of course, but I just like the comfort of having a bunch of cash aside from that. Some people might that that is being far too conservative, but I like the idea of having at least a years worth of living expenses in the bank.

I have heard so far that a 4-plex may be the best way to go (especially if I am going to live in it). Although, this would require me to sell my current house or turn it in to a rental. My only real concern with any plan that is devised would be my 1.5 year old son. The times that I do have him staying with me, I would really not feel good about him growing up in a sketch neighborhood. This would include North Minneapolis and even parts of St. Paul. 

I guess what I am really hoping for here is to find out if there is any way to get started without having to personally move in to a terrible neighborhood and lets say for less than $30k? Thanks in advance for any helpful tips and hopefully someone else has been in a similar spot before that could give me some insight.

Jesse

[Jonathan Farris]

I don't know what the market is like in MN. Have you looked at 4 plexes? could you afford 20% down on a turn key 4-plex? Does it need to be turn-key? (do you have proper resources to do the work, or can you do it yourself if required?). I would not attempt to flip off the bat, if it goes bad you could set yourself back a long ways. Buy and Hold is a safer place. The downside, is that you are not always swimming in capital, your ship comes in a lot later. Sometimes you have to trade someone Cash Flow for cash in the form of a note (this can be tricky, but thanks to BP you might find someone). 

If you have an Owner Occupied scenario (house hacking) like you referenced above, you do not need to stay in it forever. If you sold your current house, could you take the cash-out equity plus the 20k that you "have to play with", combine it, and buy a MF in a nicer neighborhood? If so, that might be the winning play. Try for a 3 or 4 if you can, the more units, the more base rents. 

I ran into this spot. I wanted to get a 3 or 4 family, but didn't want to live in it. Banks don't like this scenario nearly as much, because THEIR bet on YOUR mortgage is in the hands of YOU being able to run a business well, which many people are not capable of. 

That being said, many banks will consider lending for these types of transactions, but the standards are tougher to meet:

Typically 25% down

Typically you need like 700+ credit score

You need demonstrable experience (construction/landlording) of 2 years

Doesn't hurt to have a friend in the industry (maybe someone here on BP?)

Typically you will pay a higher interest rate (mine was 5.5% fixed over 10 years)

Based on your situation, I would look for a partner (maybe also here on BP), because I think that way you can: 1. Raise your capital base, 2. Find someone who has demonstrable experience. 

Final piece of advice:

Residential mortgages end at 4 Units. If something is listed at 5+, it becomes MUCH tougher to finance, and often times a MUCH better deal (as there is less competition due to financing restrictions). If you can find a way to qualify (scenario above with 700+ credit, 25% down, Experience), often times you can come away with a pretty good deal.