Newbie here from League City

[Michael Barry]

Hi all, I posted an intro in the new member section but also wanted to post here. I live in League City and work downtown. In a nutshell, I'm interested in single family rentals in our region to start my REI journey. I have a goal of securing my first investment in 2020. Looking for long term buy and hold opportunities in established areas in the $100k-$200k ARV range that will be managed by a PM. I have the capital for down payment and rehab budget but ideally I'm aiming to do a cash-out refi to keep as much of my capital working towards more property acquisitions. I'm initially going to focus on older neighborhoods on my side of town because I know the area and can easily hit the pavement to do my neighborhood research. I'm doing several analyses each day from MLS listings and rentals posted on Zillow and HAR just to start familiarizing myself with the analytical process. Next steps for me are to start building my network with like-minded investors, RE agents, conventional and hard money lenders, contractors and property managers. I know I need to get my lending lined up and pre-approvals in place so I can start to do some serious work on finding properties and putting together deals.

Thanks and I look forward to participating in the BP community! 

[Adam D Rinehart]

Originally posted by @Michael Barry:

@Vijaianand Thirunageswaram thanks for the words of encouragement.  I will need to start talking to lenders ASAP.  I like your suggestion to lay down Specific milestones. I’ve got to talk with my insurance broker to get a ballpark idea of rates, contact several mortgage brokers and hard money lenders for pre-qual, perhaps some local banks for lines of credit, get with a few RE agents with approved funding in hand so they know I’m serious so we can start hunting for deals. I think end of February is a realistic goal to get those items checked off.  Next milestone would be to start putting offers on properties starting March and secure at least one deal by the end of 2020. 

Hey Michael! I'm pretty new to this myself but I will add that it would be extremely beneficial to have your exit strategy lender lined up too since you mentioned wanting to pull your equity out through a cash out refi. In my opinion, this is the most risky aspect of the whole process since it's at the end and most of the in-between from purchase to finish is out of your direct control. If you go with hard/private money or use your own cash to fund the deal, time isn't on your side when you need to pay back the high interest loan or recoup your investment. In this game rehabs take longer than scheduled, go over budget, and appraisals come in lower than your target ARV. All 3 happened to me on my first deal. Traditional lenders typically underwrite to Fanny & Freddie criteria and will want a seasoning period around 1 year from purchase to show that the note is performing if you bought it with a mortgage. I've also found that many of them are not keen on the idea of cash out refi's for investment properties, especially for new customers and/or people who are just starting out in real estate investing. The Chase's and Bank of America's of the industry put a ton of hurdles in the application process which would have been a nightmare to deal with when trying to exit. I recommend finding a small/local community bank that will do a commercial portfolio loan.

I've only been play the game for 3 months and personally, I ended up finding a small community bank in Bellville, TX that considers themselves to be a business bank first and a consumer retail (depository) bank second. Once I was under contract on my first property, I printed out my BiggerPockets BRRRR calculator report, rehab estimate and scope of work, a 1 week old copy of my full FICO credit report, and 2 recent pay stubs to a small bank and talked to their commercial lending banker. I didn't have all of the answers but I did my best to show them I was serious, financially responsible, had done my homework before sitting down with them, wasn't crazy and already quit my day job, and aware enough to see the risk I was about to undertake and mitigate it by finding the exit funding early. I also tried to make it easy for them to say yes knowing it would be a portfolio loan they kept in house. The first bank I gave my pitch to said yes and I opened up a business checking and savings account before leaving, making good on my unsolicited offer to deposit the cash out refi funds in those accounts once it closed. That helped sell them on the notion that I wasn't looking to take their cash with a one and done deal with them. For what it's worth, that refi closes tomorrow and I bought the house on 10/15/19.

That's my experience and $0.02 as a newbie so take it for what it's worth. The most important thing I took away from that process was the confidence I gained in myself from being able cold call a bank as a walk in, show them my plan and get them to say yes because it validated everything I thought should work. If I was off on my numbers or came off as having no clue to what I was talking about, they would have said no. Saying yes made it real. It was no longer an academic exercise or talking about a concept and how cool it would be to do after listening to podcasts and reading books. I now had a real life deal and it came together by implementing the strategies I learned from my virtual real estate education, almost entirely gained from BiggerPockets.