Look for investor, or take 100% of investment risk?

Question

I’d like to start my own real estate business within the next year in the Pennsylvania area. I want to purchase a duplex to buy and hold as a rental property. Opinion questions! Should I look for an investor who would be interested in supporting the down payment for the property or should I put the down payment? Or is there a healthy balance of 50/50?  Has anyone found it difficult to find investors as a new business owner/real estate investor? Questions for investors, what qualities do you look for in a partner to make you more confident in supporting the down payment of a new property? As someone new, I want to show investors that I’m willing to take some financial risks as well, in order to participate in the gains. I also want to be sure I have plenty of cash reserves after purchasing a property. Thoughts?

Frank Hinck · Answer

@Jasmine Guio

I’d do the first 1-2-3 on your own, become and established owner & operator.  Once you have a good rep & portfolio of properties it will be easier to A-attract investors, B-ensure trust and earn full operating trust.    Plus come 4 mortgages you will need other folks to help take on the mortgage (actually 10 but some banks stop you at 4).    Document your entire process from evaluation, buy, rehab, rent refinance - even in a picture flip book so you can show others what you’ve done and why you deserve to be trust with their investment.

Darius Ogloza · Answer

As a general rule, I would avoid partnering on a buy and hold investment. Too many opportunities arise over time that may generate hard feelings. A lot of properties get sold cheap because partners could no longer stand each other.

On flips, partners are wonderful.

Jasmine G. · Answer

@Joe Scaparra Thanks for your thoughts! So I’m currently in a rent free situation, which is super nice! So I guess I’m already kind of house hacking in a sense. My goal is to smash out my debt and build a significant amount of capital. I have an ambitious goal of aiming to purchase my very first home, while simultaneously building my investment portfolio and a real estate business. That’s my 1-2 year plan. I’m essentially self taught, and will not pay for classes. Trust me, my student loan is plenty for me! I’ve been mostly reading literature and listening to BP and learning. My homework over the next 1-2 years is to establish an LLC and aim to find a good deal on a starter rental property that fits my budget. Finding an experienced mentor.... oh man that’s a tough one, I’m still learning to network and only have a few connections who have experience in real estate but I’m building those connections as well.

Joe Scaparra · Answer

Currently rent free situation!   I love that and like your attitude that you are taking advantage of it by taking care of debt and building capital!  I have mentored a few young people here in the Austin metroplex and on the phone with a few others outside the area.  I am a BIG duplex kinda of guy to build wealth.

Your first post mentioned you wanted to invest in a duplex, YAY!  But your last post quote "I have an ambitious goal of aiming to purchase my very first home, while simultaneously building my investment portfolio and a real estate business."

I would like to see you substitute one word in that statement.  Change home to duplex!   A duplex has tooooooooooooooo many advantage over a home regardless if it is for personal or investment.  A duplex will give you better financials and more flexibility.  If after you move in your side of the duplex and should you not like the situation, all you have to do is simply move out and rent the other side and be in a positive cash flow situation.  This might not work if you're in CA or NY or a very high property cost area.  Also consider this, by house hacking a duplex you can get in it with as low as 3-5% down.

But, I don't want to jump the gun as long as you feel good about your rent free situation.  Milk it as best you can to get yourself in a better financial situation!  Cheers.

Rich Somers · Answer

Buy the duplex on a low money down loan and own 100% of it for yourself.  I just closed on a Duplex for $0 down here in San Diego for example, and the seller paid all my closing costs.  There are local credit unions out there who are doing low and no money down conventional loan products with no pmi, you just need to shop around.

Good Luck!

Matt M. · Answer

@Jasmine Guio

I would stay away from partnering also on buy and holds. Unless it was a big multi unit.

Sam Shueh · Answer

You need to come up with downpayment even if you want to share 50-50. Often through relatives, friends or investment clubs.

Joe Scaparra · Answer

@Jasmine Guio, I absolutely agree with @Darius Ogloza especially with buy and hold as a goal.

Let's address why you feel the need for investor.  It is natural to have some fears!  Buying your first investment property will be one of the hardest decisions of your life!  Do your research, don't over extend yourself, and seek out a grey hair mentor who has done what you are seeking to do.  Don't sign up for some expensive training program, but do find that grey hair mentor in your town.

I don't know where you live but there are a lot of good value areas to invest, maybe you are in one of them.  If your new to real estate, one of the easiest ways to get involve is through house hacking.  Consider a duplex in that regard.  You won't need a large downpayment and generally involves the least amount of financial risk.   Cheers.

Jasmine G. · Answer

@Frank Hinck Hello! Thanks I really value the feed back.

Look for investor, or take 100% of investment risk?

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