The First Deal.. Looking for Advice!

[Damion Anderson]

Hello everyone!

I am a United States Marine and am separating this June for college. I recently networked with an established investor in the area and he has agreed to teach me how to become a successful REI with my first deal (not financially on my first deal, but the knowledge he's sharing is phenomenal). It's been a crazy couple of weeks thus far! Today I have officially received my Articles of Organization for my LLC in the state of North Carolina. I have also filed for my EIN!

Right now, I am focused predominately on finances. My mentor has introduced me with a local real estate agent / broker; however, she wants to see a proof of financing before she shows me properties and helps get me started. So far, I have spoken with Carolina Hard Money, LendersHome, and RealtyShares. Carolina Hard Money wants me to bring 8% to the table for 5 points and 13.5%. I must also be able to pay the contractors and being reimbursed. All in all, I would need about $22k for a $140k loan. Right now on Marine Corps pay, that'll take a while to get to that point. I am contemplating taking a personal loan, but it honestly just depends on the deal. I would rather not have to take a personal loan (6% APR, which isn't bad). I know the seasoned investors are saying to wholesale, which is an extremely valid argument. I don't mind wholesaling, however, my biggest constraint is time. I would like to do a deal with my mentor before I EAS (separate) for the invaluable education, therefore I am looking at more creative ways to finance.

I have an extremely high credit score. I also have a Navy Federal and USAA bank account. I am now focused on building the real estate investing business plan and seeing what a bank will offer before I make my decision as to how I will finance the deal. What would you include in the business plan? I have read the BP post on REI Business Plans, but is there anything else you would include/exclude? Also, what do you recommend looking into for financing? Also, do you prefer finding the deal first and then financing, or vice versa?

Goals:

For the first couple of deals, I am looking to fix and flip to build capital. Instead of looking at this as just an investor, I would like to continue building a real estate business and use this as my secondary job while in college until it can be my sole focus. Once I have capital built up, I would like to get into commercial real estate and use the buy, rehab, rent technique. I would like to explore various aspects of real estate before I say for sure this is my business' niche, but will focus on fix and flip for my first few deals. 

I am really looking forward to everyone's input. I appreciate your time and can't wait to learn more from you all! If you have any further questions, please let me know!

- Damion

[James C.]

Damion,

Sounds like you have a plan, which is better than lots of folks. I know that the fix/flip thing is great for building cash in the bank. It's also excellent that you have a mentor. The LLC is also a good milestone. I was reminded listening to the latest podcast that the fix/flip thing comes with a hefty price tag to your current employer... up to 60% of the income, so something to keep in mind. Not saying "no" just make sure you go in with your eyes open.

You have an incredible asset, but you haven't even mentioned it. It's a VA loan. 100% financing. My suggestion to get your feet wet, is to find a 4 family and use the VA financing. You don't necessarily have to do 100% financing, but if you have it use it. From there you can house hack the 4 unit (live in one unit) and accumulate cash faster than just on a salary. Make sure you pay off debt that doesn't generate income in excess of it's payments (car loans, credit cards, etc.). Think of it like having another partner generating cash for you. You need to buy right, and know your numbers, but you have BiggerPockets for help there, in addition to your mentor.

To answer your other questions:

1) What would you include in the business plan? I have read the BP post on REI Business Plans, but is there anything else you would include/exclude? 

I would check out several of the podcasts on business plans, as well as a search for files and posts on them. That would be your best course of action. You should include anything you think you need to let you/your investors know how you are running your business. I know it's vague, but the more you put in, the clearer your business is going to look to you, and subsequently, your investors. It takes some time and several tweaks/rewrites to get it right. There is no "list" of stuff to put in a business plan.

Also, what do you recommend looking into for financing?

I recommend looking at all types of financing. Remember, financing is a tool in the Real Estate Investor's tool bag. You should find the right tool to do the job. Just because the hammer of Hard Money is fast and easy, doesn't mean it's the right tool to screw a deal together.

Also, do you prefer finding the deal first and then financing, or vice versa?

When I sold Real Estate for a living, I figured that I couldn't sell a property that couldn't be financed, so I found my mortgage brokers first. Secondly, I figure that I couldn't price/sell/buy a property or get it financed if I didn't know what it was worth. So, I asked my mortgage brokers who the best appraisers were, and went to see them. I asked them how they did their job. After that, it was hitting the phones to get some listings. 

Although the above is about selling real estate as an agent, I think the same rules apply, since buying is just the other side of selling. Financing (i.e. mortgage broker/banker first), appraiser second, Deals third. Just my $0.02. Obviously, if you trip across a deal, then get it done, but in my perfect world, FADD it, Finance, Appraise, Deal, Do. The last one is the most important, you must Do, not theorize.

Hope that helps!

Thank you,

Jim