Newbie....What to do with my family!????

Question

Hello everyone! My wife and I are very passionate about REI. We've actually put if off for years, thinking that we needed to bring in more income before diving in. After reading numerous blogs and forums, we realize that everyone feels it's best to get started as soon as possible! We are currently renting and originally planned to purchase a place for us to live in when the lease is up using an FHA loan. Now we're not so sure. What would you guys do? Continue to rent and purchase a property to rent out? Purchase a sf home, stay for a year, then rent? Buy a multi family, live in one side, rent the other side? Any other ideas? Our main goal is to obtain 6-8 rental properties over the next two years. We also qualify for a conventional loan. Your input would be greatly appreciated!

Elizabeth Colegrove · Answer

Welcome to Biggerpockets!

Nice to Meet You! There are tons of straggles and honestly on here you will here every single one of them!

Take what I say with a slight grain of salt because I am not certified in anything other than a crazy investor :)

We got started with what you are suggesting. Turning a personal into a rental. Here are a few things to think about that we have notice/found.

• 12 months living requirement- While there are some exceptions to the rule. You must live in the house for 12 months.
• Personals are two Live not To Invest- The point of personal is as a personal not as an investor. So if you are going to buy another house you have to "upgrade". For example it is much easier to invest larger than it is smaller. So moving from a 5 bedroom house with 4 kids to a 3 bedroom is harder to justify than the other way around. So it often works best to start small and work up
• Personals only last so long- This is not a long term strategy. It is a great getting started goal. So make sure you develop

We got started out at 23 and 25 with a foreclosure that was a personal. We gutted it and than rented it out when we were transferred. While we have bought a personal where it has made sense being active duty military. We have also simultaneously developed our personal careers. Living very frugally off one income and investing the other. This has allowed us to buy pure rentals.

Look forward to hearing about your successes! Don't let analysis paralysis get you! Bought our first houses 3 yeas and we now have 5 houses with another 5 houses in the plan for the next 18 months. Our first houses wasn't as great as our second deal and so forth. The key has just been to baby steps. One deal at a time!

We have learned to adapted. Where we thought we would be 3 years ago is not where we are today. The only thing we haven't changed has been our end goal to retire off the cash flow in 15 years.

Don't forget to check out the blogs and podcasts. Participating in the forum is a great way to network, learn and give back. Another GREAT resource is everyone's signature. MANY of us, including myself have put together a blog/website about our niche, strategy and business model. Think of them as "free" books. These are GREAT free resources too!

Look forward to seeing you around! Please feel free to pm me if I can help!

Jamal Rodgers · Answer

Dave NA Thanks for your perspective. We definitely have a short term goal currently, time to look into creative investing!

Jamal Rodgers · Answer

@Kerry Baird Thanks for the reply! It's comforting to know that we are not the only ones willing to constantly move our family around.  I love how your 15 yr old wants to get out if the rat race already lol.

Kerry Baird · Answer

We've been Serial Movers.  We started in our mid twenties.  We have moved into moderate fixers, fixed them over time while living in them, and then moved on to the next.  The first house we sold, and then bought a too-flashy house with the proceeds.  Soon after,  we read Rich Dad Poor Dad and regretted *not* buying several rentals with the proceeds.

But from then on, we remained focused on real estate for profit, not for our own personal comfort.  Our kids are now 15, 11, and 7 and have watched us do up houses, and the older two are chomping at the bit to get started on their own fixer.  They have learned to have the asset (a house) pay for the liability (ds11 wants a gaming computer, dd15 wants to "get out of the rat race", LOL).

I'm only now wanting to work this as a business rather than a sideline, and we are on our 18th purchase.

Dave Toelkes · Answer

I would first define a goal.  Why do you want to invest in rental properties?  If the eventual goal is to live off the rental income when you retire, then how much income will your rentals have to provide (to supplement pension and social security).

Once you know how much extra retirement income you will need from your rentals, then you can determine how many properties you will need to acquire to meet your income requirement.  The answer in part depends upon your time horizon.  If you have thirty years to retirement, then you may get all the income you need from a few free and clear properties.  If you have a shorter timeline, then you will need the rental cashflow from several more financed properties to meet your need.

Once you have some idea of how many properties you will eventually need to acquire, an acquisition strategy can be devised.  For example, if you have thirty years to retirement, and decide you will need $3000 per month to supplement your retirement income, then five free and clear properties all averaging $600 per month in NET rental income are needed.  You can get there easily with duplexes.  Buy a duplex using owner occupant financing.  Live in one side for a year or two while you rent out the other side.  Hopefully, your rental income from one unit will make the loan payment on both properties.  There will be other costs of rental property ownership and operation over and above your loan payment, so make sure you budget wisely.  In about 18 months, repeat the process.  Buy another duplex as an owner occupant and convert your former residence to a rental.  When you acquire your second property, you will have three rentals in service.  Use excess cash flow to pay down your mortgage debt.  After another 18 months has passed, do it all over again.  Buy another duplex, live in one side and convert your former residence to a rental.  Now you have five rentals plus your primary residence.  At some point in the future, you may want to move into a single family detached home to accommodate a growing family.  No problem.  Now your duplex residence unit becomes your sixth rental.  Pay off the mortgage loans by the time you retire, and you should have all the rental income you need to meet your retirement income goal.

If you have a short timeline, you may need to meet your goal with financed properties.  If each financed rental property nets you $100 per month per door, then you will need 30 financed properties to meet your $3000 cash flow requirement.

My message is, figure out what you will need first.  Then plan to meet your need.  Easier than just jumping in feet first with no plan at all.

Jamal Rodgers · Answer

@Kyle H. Thanks for the suggestion. We do have an infant son, but I would still try that method! There's just a serious lack of triplexes and quads in our area. That's why we were considering a duplex.

Kyle H. · Answer

@Jamal Rodgers.  You didn't mention children.  Do you have any?  Are they in the near future?  If you don't have any, my advice would be to buy a triplex or quad.  You can buy one of these with as little as 3.5% down.  Also, while you are living there, the other units may be enough to cover the mortgage and your personal bills.  As a result, you and your wife will be able to save nearly all of your paychecks, allowing you to build a large cash account to put down on another property or 2.  With only 3.5% down and no rental expenses, you can really do some damage :)  This is defintely a good short-term, get started plan for you to really get a quick jump on things.

James Wise · Answer

@Jamal Rodgers

welcome to the site.

Jamal Rodgers · Answer

@Jon Huber, Thanks for the reply. U are right, I have read about ppl finding success in all of those ways. Probably why it makes it so hard to figure which path to follow. I will definitely check out more on the site and develop a solid plan! @Elizabeth Colegrove, Thanks for the reply as well. Congratulactions on ur success. I super appreciate the personal experience aspect u provided. That analysis paralysis is real! But we are determined not to fall down that hole. I do have one question, knowing what u know now if u guys could have started differently would u?

Jon Huber · Answer

@Jamal Rodgers  Firstly, welcome to the community. You've made the first step towards your education. Secondly, I think you need to focus on a plan. The plan comes with education. The education comes from being active on this site. Read the blogs, post in the forums, and please listen to the podcasts. If you have a couple of months before your lease is up, I suggest listening to one podcast per day, living below your means, and saving every dollar you can. The podcasts can help you develop the right strategy that works best with your situation. I wouldn't know enough about you or your situation to suggest any strategy you listen over another. Many people have become successful from starting in any of those ways. Meaning, you can find success in any of those directions, if you know how to work each of those directions. Good luck out there

Newbie....What to do with my family!????

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