Best practices for newbies starting from zero in Real Estate?

Question

Hi guys, thanks in advance for all those that respond!

My name is Tony, I am new to the real estate business and I am amazed about all the information I have been learning from BP in the last 3 weeks. I've been reading books, documents/guides and now I am in the process of creating my short-term and long-term plan with real estate. I currently live in Huntsville, AL. With that being said, part of my plan is to have $10k-20k "on-hand" cash available for a down payment and/or repairs for the BRRRR and rental property strategies.

Cash savings is definitely part of my plan and something ongoing as we speak. I already tried a HELOC on my personal property but I don't have enough equity on it yet to obtain a line of credit (I am at 88% equity right now). Currently looking for more options...

This led me to the forum today. What are the best practices/creative ways to obtain this amount of money in the most efficient way?

Any answer is a good answer thanks guys!

(I currently have a mortgage property already, a single-family residence, almost getting married; so I have house hacking as my last option right now. Personal loan is also an option, but the interests rates range from 7%-20% and this is variable. The option for partnership is also in the table but that sometimes requires money as well which still pushes me to get creative).

Trent Stone · Answer

Take the money you have and use it as a downpayment for a hard or private money loan. You can find a lot of them that will take 10% of the purchase price down (plus some points and fees) then they will finance the rest of the purchase and 100% of the rehab. Once you are ready to refi they will count 70% of the gross rentals as income towards your dti for a traditional mortgage so you shouldn't have any problems as long as your credit is good.

We have been able to find partners who have put in 100% of the money for our deals. Network with wholesalers and investors.The key is to find a GOOD deal. Ideally 65% ARV all in. That way even if something goes wrong your investor is still protected. By month 5 you should start the refi process so as soon as the seasoning process is over by month 6 you can get your equity out and pay back your investor. I would keep all of your money out of the deal and keep saving during the project in case you can't pull out all your money on the refi, then you can pay your investor out of pocket and keep your equity in the project. Win-win for all. Don't be afraid to walk away from deals if the numbers don't work.

I know it's a lot to digest so let me know if you have any other questions. Good luck!!

Whitney Hutten · Answer

@Tony Moreno For the next few months, I would continue to sock away money, look for deals, and find a partner who has the funds to float the deal you want (do you have a family member who just pulled monies out of the stock market?).  You do all of the hustle and underwriting (figuring in lower ARVs), and they finance the deal.  Then split the profits.

This isn't the time to put yourself in a cash-strapped scenario or be over-leveraged.  1. We don't know where this "black swan" event truly is heading and how bad it will get.  2. There will be more deals coming soon, and if you are all in on one that will be rough.

Partner, partner, partner!

Trent Stone · Answer

I assume you are asking about counting the rents towards your personal income?

Let's say a lender wants your DTI(debt to income) to be under 50%, and you make $10,000/month. That means ALL your debt payments everywhere should be no higher than $5,000/month. Now let's say you want to buy a rental property that rents for $1,000/mo (not including expenses). For the sake of the lender they will count $700 of the gross rents towards your gross income. Now 50% of your net income for DTI will be factored using $10,700, instead of your original $10,000. Hope that cleared it up for you.

Tony Moreno · Answer

@Whitney Hutten great advice! Thanks Whitney! This truly helps. I will proceed to start looking for a partner.

Tony Moreno · Answer

@Trent Stone ir did. Thanks a lot man! 👍🏽

Tony Moreno · Answer

@Trent Stone thank you very much! That makes sense. I will start looking at private and hard money lenders in my area. Can you please explain in a little bit more detail the using the rental income as value?

Best practices for newbies starting from zero in Real Estate?

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