First Opportunity to Invest, Should I Go For It???

Question

I'm a new member here on BiggerPockets. I've had a passion for real estate investing for around 5 years now. I'm 26 and  my husband and I want to be involved in real estate investing SO SO BAD.

We just opened a moped/powersports dealership together which was very difficult and draining on our finances and credit. I had impeccable credit, but now it's very poor. We are making payments on our credit cards and digging our way out as our business is becoming more successful.

We recently found a rental house right behind our shop. And we know the owner, so he gave us a fantastic deal and didn't even ask for applications or proof of income from us. When I asked him why, he said he knew we'd just opened this business and it's hard to prove income and our credit was probably bad anyway. He also said he knows us and that we'd be good tenants and doesn't really want to deal with the property anymore.

It's actually a duplex. The other half is already rented and Myles and I are moving in next week at a GREAT deal. He had mentioned to us that he doesn't really want the property anymore or to deal with it. His wife wants him to sell it. He said he was willing to rent it or sell it when we found it.

I'm hoping this could be an opportunity for us to get started!

We were planning to save money, build our credit back up, and buy a multifamily with an FHA loan in a year or two. I've been reading Rich Dad, Poor Dad again and noticing how the parts about missing opportunities have been jumping out at me.

We have terrible credit because of our business. We are starting to build some savings, but it's extremely small. We SUPER want to get into real estate investing. Is this an opportunity we should go for???

I was researching and thinking maybe this is a good example of what seller financing could do for us? I'm still unsure as to how it all works exactly. It all gets a little confusing when I read so many different strategies. And trying to pick which one applies to my situation is even harder! The landlord is obviously motivated at least a little to get out from under it.

Any ideas and advice is MUCH appreciated!

Steve Vaughan · Answer

I'd ask about seller financing for sure at a sit down for coffee.  Most tired landlords like the monthly and tax benefits of spreading out the gain over time but are tired of the tenant headaches.  Listen and gather information at this meeting!

Broad strokes about down payment and market rates.  Most standard purchase and sales agreements have a pre-printed addendum for seller carries.  Just fill it out and take it to a title co.

I wouldn't ask about a RE attorney until much later, if at all.  Sounds like a good find @Brittany Young!

Jack Bobeck · Answer

@Kyle Soderman No wrong answer here for sure.  My point  to @Brittany Young would be to use OPM, Other People's Money, as they worked to find a solution. If the owner can hold the paper for a while, it helps her family get the business financials in order and gives them time to build credit. On their first deal, I would not suggest a loan, since they have the business as well.

Stress can be a killer and when you add loans on top of credit cards, it can all catch up with people in real estate. I do not want to see the family get loaded down with debt and struggle to find a way to pay it off. I've been there before and it is a very bad place to be.

Kyle Soderman · Answer

What @Jack Bobeck said. Check out what similar properties are worth. Be sure to do all your due diligence on the house to be sure you're not going to be buying a money pit.

Just because you have bad credit doesn't mean you wont be able to get a loan. Go to many different banks and talk to the loan officers about what they can do for you. (do not fill out an application at every one) They wont be able to tell you the exact terms but can give you an idea of what you can get.

I was able to get a loan working part-time ($1200/month income) in college for a $100,000 home. But only after talking to 5 different lenders. The first 2 lenders told me they couldn't do anything for me unless I filled out a credit application. The last of the five went through everything with me and by the time I filled out the application they and myself were confident that I would be approved.

Good luck!

Will Prince · Answer

This isn't relevant to the real estate side of your post, and I'm sure you already know about it, but in case you don't, look up the Brazos Valley Sport Riding group on Facebook. It's a motorcycle group and would be a great marketing opportunity if you haven't already contacted them.

Jack Bobeck · Answer

The Note is the "Mortgage" or the "terms of the agreement" or "holding the paper". He, the owner of the duplex, is holding the note, acting like the bank and working with you on the payments. The Pros are that 1) he does not ding your credit by checking it, 2) he does not saddle you with the debt, 3) you build a relationship with him on paying on time, so that he may wish to sell the property to you at a later date, formally where you take out a loan. Cons could be that if you miss a payment, he may decide to make the agreement null and void, so make sure you pay on time. He may make the interest rate a bit higher, but the terms are something you can work on together. Again, find the payment that allows you to pay 25-33% of your gross income and no more. Otherwise, you run the risk of being house poor and its no fun. You have a great opportunity here, take the shot!

Brittany Young · Answer

@Jack Bobeck what does it mean to ask him to HOLD the note? I'm unfamiliar with this process. The pros and cons, what would be expected of me and of him?

Jack Bobeck · Answer

@Brittany Young As Wayne Gretzky once said "You miss 100% of the shots you never take", so um, yeah, take a shot.

If it were me, I would get some comps of other similar duplexes, if possible from a realtor friend, or you can search online for properties around you, what they recently sold for. Work with the owner on a fair sales price, and ask him if he can hold the note, as you build your credit, a year should do it, maybe less.

See if "he" has a real estate attorney to draw up the paperwork, the note, the terms, and can take care of the closing at the courthouse. Make sure that your payments are no more than 25-33% of your take home pay. You do not want to be house poor, as you work on your business.

If he says no today, ask again in a few weeks. A bird in the hand is worth a lot more than all the birds in the bushes. If he knows he has a good payment option with you, he may just do the deal. In your books, this is also called a Lease Option or Rent To Own solution. If he has a loan on the property, you could ask to assume the loan, but your credit may not make it feasible at the moment. See if he will hold the credit and make it work. Best of luck to you.

First Opportunity to Invest, Should I Go For It???

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