Good or Bad Idea to Start Investing

[Alexander Flores]

Hey all, I have been around the bigger pockets for a while. An idea I have been thinking about for awhile is this: 

• 10k to use on investing
• 3k net income
• Currently living at home with no expenses
• There are some SFH 3+ Beds that I could mortgage with FHA or 203k at about $1100 a month after insurance, etc. is factored into the monthly payment.
• Use the 203k loan to fix up the house and hopefully raise the value of the home. (I know hoping for appreciation is a no-no)
• Rent out the spare bedrooms to friends or anyone I can find that is suitable to rent to.
• Once the 1 year requirement of occupancy comes up, put the home on the market for a reasonable profit.
• Or decide to rent the home out, in my town rentals that are updated can rent for $1500 easily, all the way to $1800 a month which would result in 500-800 cashflow. 

I am just curious if this makes sense because to me, I would rather do this than just keep my money in my savings account making crud interest. Even if I sell the home after a year and make 1k profit after all is said and done, I would have learned so much from the whole venture.

[Kyle Gregg]

I think you are in a great position to start investing in real estate. Having no expenses is HUGE. School loans and auto loans is currently killing me right now and tying up my income that i could be putting towards investing. So, you're ahead of game in that aspect. 

Buying a SFR with a 203k as your first investment might not be the best first investment unless you rent out rooms to create cash flow. If a property isn't cash flowing, its a bad investment. Also, your primary residence is typically not going to be an investment, its an expense...unless you set it up so that your cash flowing by renting rooms.

Also, have you considered buying a multi family property? With the 203k, you can buy up to a 4 unit multi family property which is HUGE. Putting 3.5% down at a low interest rate on a multi family...now that's an investment. Depending on how much you can rent out the other units, and how much you have to finance, you could potentially generate some substantial cash flow. 

With your plan on selling after a year...have you decided what your goals are with real estate investing? Do you want to buy and hold to create passive income? Are you trying to get into the flipping business? If you want to start flipping houses, maybe the 203k loan isn't the best vehicle for your first investment...

The 203k loan thrives off the appreciation of the property through rehabbing. Its pretty much the whole premise behind the program. You buy a property for cheap that you typically could not finance through the FHA because it is distressed. You rehab the property using the 203k and create value through forced appreciation. This isn't speculation. Speculation is buying a house in hopes that the market will change in your favor by raising the value of the property. This is a no-no.

You should do some research in your area and find a brokerage that has experience with the 203k loan. Dont be afraid to vet them out. The last thing you need is dealing with a loan officer that doesnt know what their doing...An experienced loan officer will know the process, have connections with good approved contractors, and will ultimately guide you through the process. Once you find a brokerage, you can get yourself prequalified for a 203k loan. This will let you know how much you can spend. Once you know that, you have a better understanding of what properties to go after.

Anyways, you are in a great position like i said. Keep doing research, keep asking questions, keep searching the market for potential deals, keep educating yourself, network with other investors in your area, and keep being active and moving towards your goals.