What should be my next step? Denver Area.

Question

Good day everyone.

New registered user but I have been a lurker for a while. I was hoping to get some possible pointers or guidance.

I bought my first house Sept 2015 and when I lived there I was renting out a room and doing well. I had to leave the state for a few months and left it in a care of a property management company I have not been happy with at all. I am still getting a little monthly income but will most likely end the year in the red. Bummer but I consider it a newbie mistake and will not be making it again.

I want to get a second property to start building my portfolio but where do I go/start in this kind of market? Should I go for condo's and smaller single family or wait it out some more? I was strongly considering doing an FHA loan for a 4 plex and build it new on land I was eyeing but that might be too large of a jump for me being in for only a year or so.

My main issue is going to be DTI ratio given I have student loans and one house already. No CC and small car payment. I have been paying into my 401K but being new to the job market (2 years) I do not have a huge amount saved up.

End goal is a larger multi-family unit. But I do not expect that for a long time.

Bill S. · Answer

@John Smith your first step is to answer the loan question. Get with a lender that knows FHA and multi unit properties and see you need to do that deal. See what it would take to do a condo. Answer your unknowns. Don't guess. Also cross check the answers you get.

Micki M. · Answer

and remember, if you're going to rent out the first house you own, and it cash flows, that will improve your DTI.

John Smith · Answer

Thomas S. - I learned that while looking at homes down here. Right now it is give a little but I would like more obviously haha.

Thank you all for your suggestions.

Thomas S. · Answer

I would sell the SFH and maximise my investment in a Multi. The SFH is not producing any cash flow to be a benefit so really should be unloaded asap. Condos are like SFHs in that they are a higher risk in having only one paying tenant. To reduce risk and maximise investment your best option is to get into multi unit investments. I would not waste time and finances on a short game. Cut your loses and go long.

Dan Mackin · Answer

@John Smith as Bill said, get the loan figured out first. DTI has a wide range of actual restrictions based on what your credit score is. The better your score, the higher DTI you can use for some loans. If you need a good lender to talk to send me a message and I'll give you their info.

John Smith · Answer

Thank you for the reply!

I do believe I have a niche to start but my next property is going to be a Buy and hold. I know I am not good enough (or not skilled enough/knowledgeable) to do a Flip. And Wholesale isn't something I am interested in. The Denver market being what it is will give me a challenge but I did get one house so why not another?

I am planning on heading to an REIA when I get my feet back on the ground in CO.

It sounds like even if I want to eventually move into Multi-family for my end game I need to work on a specialty for my short game, condo vs single family etc.

Jake Hartnett · Answer

You have to focus.

In a big picture way you have to decide if this is really right for you. You have to do some self reflection and decide what is you competitive advantage. Do you have access to family money, are you wicked good with numbers, are you a great negotiator, can you swing a hammer? This will help you determine what niche you should be in and what other people you might need to bring on.

Pick an area, probably one that you know already, probably where you live, or plan to live. Pick a niche. If you like Multi, do that, if you like condos, know everything about condos in your area. It doesn't really matter, pick one and learn everything. Ignore everything else.

Talk to a lender in your area, talk to a few. I was recently surprised to learn I can buy another property with a conventional loan because I talked to a lender that offers financing that counts the property's income towards your own. Make no assumptions. Talk to everyone with a "how can I" not an "I can't" attitude.

Go to a REIA and introduce yourself. That's a great place to meet lenders and agents.

Take a local investor (that you find on BP) out for drinks. Ask questions. Offer your time. Ask what they are looking for.

Most importantly: Take action everyday. Read books, and spend time on BP, listen to every podcast, but most importantly meet people. Meet with three people in RE three times a week. Ask flippers if you can see their flips, Ask brokers for P&Ls on listings and practice crunching the numbers. Do something everyday.

I finally took this advice and my Real Estate world is blowing up.

Give yourself a deadline: 6 months to buy a 4-Plex. Put the date on your fridge. Work backwards. In 4 months I need a 4-Plex under contract, in 3 months I need to have looked at 20 4-Plexes, in 2 months I need my management systems, contractors etc lined up, in one month I need my financing figured out in 2 weeks I need to know what my buying criteria are, in 1 week I need to know what market I'll be investing in, today I need to analyze the market where I live and decide if it will accomplish my goals. Something like that.

This is a business. It is not passive income, at least not at the start. Get to work and have some fun.

What should be my next step? Denver Area.

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