What are the possibilities of me being able to do this.

Question

Hey so I’m 14 so I can’t invest in real estate for a few years. What would the success rate be if I did this( by the way in the the Chicago suburbs) if I invested in B class areas with caps of 6-8 percent and average appreciation of 3-4 percent ( is this reasonable.) put 25 percent down than once I have 30 percent equity I pull it out to buy more deals. Also I’d have a 6-12 month emergency fund. What would be the chance I fail. And our those returns reasonable.Also is this top risky or no.

Edit also I’d raise rents with the market every year.

Warren Swede · Answer

You can really do anything you set your mind to.  There are enough resources here that you can tap to get started.  Make some goals for yourself, set up timelines and hold your self accountable.  Best of luck

Evan Smeenge · Answer

@Connor Watt don't put too much weight on cap rates. It's a good initial gauge, but be sure to analyze the property with potential cap ex. But I've found cap rates all across the board. But I'm working from willmette to hyde park

Connor Watt · Answer

@Even smeenge . Do u know what the cap rates would be in a B class property in Chicago. Would there be like a 4 cap or like a 6-8?

Brie Schmidt · Answer

@Connor Watt - remember that the cash out n an investment property has a max of 70% LTV - so you will need more than 30% equity to pull your money out.  I also find most appraisers will not value the property based on market comps until you have owned it 5-7 years or done substantial improvements

Blaine Alger · Answer

I think I need a little more clarification to give you a decent answer. What do you mean by pulling out your equity when you obtain 30%?

In order to do this, you would need to do some time of forced appreciation to be able to pull out a sizable amount. The banks will require you to sustain a certain LTV (loan-to-value). So if you have a 100k property, most banks will only finance 75%-80%. Once you get to 30% equity you might only be allowed to pull out 10k, which is a decent amount but I don't know if it would be worth your while to refinance to only pull out that amount.

I think what you are trying to go after is a BRRRR. This is when an investor will go out and buy a property with cash, rehab it to increase its value and then refinance to pull out a good chunk of their money to more on to the next deal. This deal would look like this: buy a property for 80k, put 20k into the rehab, it is now worth 120k (this is all hypothetical). You then can go to a bank get a 80% LTV and pull out most of your capital out of the deal to go out and buy the next deal.

Let me know if this makes sense or if I just totally messed you up.

Evan Smeenge · Answer

So, I think the key is to have a failure buffer. Now, failure is a very vast term. A failure buffer would be an amount of capital that allows you to cover a negative cash flow first property. In my opinion, start with a house hack. With a house hack you have more lending option (@Eric Johnson, correct?), and hands on experience in your property. If you can cover the property being your own housing expense, then there is never going to be a problem holding that property.

Then, once through the first property, you've learned the good, bad, and ugly. Then you move onward and upward.I do think suburban markets aren't as great as urban markets (higher population that are buying detached homes, smaller population in general, less business hubs - But with the change in working life, I don't think its necessarily bad), but I think if you can get into a small market and have it as your first experience, I don't think that is a bad thing. I think the thing you need to do is just do, experience the process, hedge as much as possible, but just go and do!

Connor Watt · Answer

@Eric Johnson. I didn’t realize they were that high in Lisle. Do you think it would be better in a middle class area of the city?

Eric Johnson · Answer

Right, but do you know the effective tax rates of properties in those areas? Outside of cook county is wildy in-proportionate because there aren't any businesses/large commercial districts to help subsidize the property tax rates and so, all of the burden falls on people who live there. The effective tax rate is Lisle is about 7.8667 per $100.

Meaning you're paying about 7,800 a year in property taxes fro a $100,000 property. Good luck finding a deal that works down there.

I hope these are words of encouragement. Real estate is a sophisticated topic that takes years of practice to actually understand. Keep learning.

Eric Johnson · Answer

My dude... just find someone to shadow and help. Just learn the trade first. You'd be making a grave mistake going in on your own deals. For example, the numbers you threw in your post don't make any sense and there's no information there that actually tells us anything important about what you want to invest in. I'm not saying this in a derogatory way, I'm saying it because it's the reality. If you turn 18 and start doing your deals without the proper preparation and support, you will fail and the market doesn't care.

If you're 14, the best you can do is to link up with someone and shadow them.

Connor Watt · Answer

@Evan Smeenge. I would define B class as a 8-15 year old nice but not in a 5 star neighborhood. Probably one like Lisle or Downers grove.

What are the possibilities of me being able to do this.

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