One Way ANYONE Can Get Started in Real Estate Investing

Introduction

There are countless paths someone could take to be a successful real estate investor, but you only need one to get started. With so many options, it is easy for any novice to become overwhelmed and unsure where to begin. I know because my wife and I started the same way. Fortunately, we happened to find a method which has proved to bring us success and is easy for anyone to replicate.

I am talking about the Live-In Flip.

What is a Live-in Flip?

A live-in flip is a strategy of acquiring cash-producing assets by purchasing and living in the fixer home while rehabbing. It provides many benefits, especially for new investors who may lack capital or access to private funds. It also has some negative qualities which will not suit everyone’s goals. We present the live-in flip strategy as a strong consideration for those who are looking to take their first step in real estate investing.

How We Got Started

We got started in real estate as a consequence of getting into too much debt.

RELATED: How we got started: From Massive Debt to Financial Security

After selling our two brand new cars and renting out our house with a high mortgage payment, we needed somewhere to live. Using unsecured loans from a bank, we purchased our first investment property for $34,900. It was a 4 bedroom house located in a small town in Grays Harbor County, Washington. Taking a huge step toward our goal of financial freedom, but not exactly knowing what we were getting ourselves into, we happened to develop our strategy for investing.

The First Two Flips

We bought that 4 bedroom house with a leaky roof, rotten floors, bad plumbing and funky smells.

RELATED: Our First Investments: The Elma House

After maxing out a $5000 credit card, we were ready to move in. Initially, our strategy was to pay off the short-term loans from the bank, own the house outright, and save the monthly payment towards fixes. But, when insurance denied us based off the condition of our roof, we started looking for a better way to come up with cash for fixes.

I called a bank requesting $6000 to fund a new roof. Instead, I was offered $35,000 in untapped equity. We had no idea we were sitting on so much cash. With this newly found discovery, we decided to completely renovate the house.

Our contractor installed new siding, carpet, windows, a roof, and put on a fresh coat of paint. When the remodel was complete, we found ourselves living in a much nicer house but again with a high payment. With perfect timing, our second flip came within our grasp.

We purchased a 3 bedroom house for $25,000 which using private money. The private lender was willing to lend us the money to purchase and fix the house as long as we paid them back in 12 months. We renovated, moved in to it, and rented out our 4 bedroom house for $1100 a month. After occupying the new property, we pulled a line of credit and cashed out our couch investors with the promised $5000 bonus in just 3 months.

From there, the cycle continued.

Positives and Negatives of the Live-In Flip

Positives:

• We are able to purchase some properties investors can’t. Many foreclosures have a set period for owner-occupied offers only. Performing a live-in flip, while complying with the agreements in place for owner-occupancy, gave us an advantage over many investors in purchasing real estate.
• Banks loan us 80% or higher on our equity. With an investment property, most banks will lend between 65-70% of the equity in a property. For owner-occupied homes, they will lend a higher amount. This makes it easier for us to pull cash from a renovated property when paying back our private lenders. It also gives us more cash available to pull from lines of credit for future purchases.
• Living in the home while renovating allowed us to ease our way into real estate investing. We were renovating our primary residence, not holding onto a second property, which allowed us the time to learn while we were taking action without impacting our wallets.
• Moving into the next property during renovation not only saved us money by eliminating multiple liability (non cash-producing) properties we were holding at once, it also allowed us to make more money by renting out the previous property sooner.
• Living in the home allowed us to test drive the house beyond the inspection and really get a feel for what worked and what needed fixing. We learn about the home through living in it. This has built on our abilities to assess the condition of future properties.
• Living in a fixer forces simple living, which is a key to successfully getting out of the rat race. By living simply, we are not spending our money collecting “stuff.” We buy what we absolutely need and pass or get rid of what we don’t need. There is no point of collecting a bunch of junk just to pay someone to move it months later. Living simply has allowed us to focus on spending our money on assets instead of junk.
• The live-in flip allowed us to feel safe and secure entering the real estate investment world. We were able to move at our own pace and learn a lot in the process. Living on site allowed us to closely monitor contractors, perform any of the work ourselves as we desired, and experience the project fully immersed from start to finish.

Negatives:

• Living in a fixer means living with fewer luxuries. We could go out and buy our forever home, but it would go against our goals of accomplishing financial freedom and never having to work again. As an added bonus, the luxuries we live without have given us an appreciation for the smaller things in life. We have lived without a kitchen for a month. We frequently live without dishwashers until the renovation is complete. Our toilet may be out of order for the first week of the flip forcing us to drive to the grocery store to use the restroom. Once the renovation is complete, we gain a whole new appreciation for the things we take for granted every day.
• Moving frequently can be a hassle. We moved ourselves after the first flip to save money. That was a mistake! Since then, we hire movers and fit it into the cost of the project. We invest in an area which does not disrupt our lives. Our children still go to the same school and actually enjoy the excitement of discovering a new house and yard every few months. If we were to invest further away, we would not perform a live-in flip. It would not go with our goals of family stability.
• Major renovations can be a disruption to your life. Living without a kitchen for a month was both a learning experience and a memory we will never forget. We got tired of barbecuing meals and hand-washing dishes in a Rubbermaid container at home because it felt like camping. So, we decided we might as well do it for real. We packed all of our gear, headed across the state and camped for a week. We eventually figured that since we were making money on each project, we might as well build in a vacation during the major parts of the process. Doing so has saved us much stress and made each move something to look forward to.
• Moving frequently means you will be constantly changing your address. This affects bills, credit card information, automatic payments, accurate mail delivery, etc. While this takes effort to update, it is a short-term negative which can be seen as insignificant in the whole scheme. Something so simple would never discourage a determined investor from continuing towards their goal of living their dream life.

How Anyone Can Get Started

The most difficult part is getting started. From there, it gets easier and easier. Figure out any way you can to purchase your first investment property and make it livable. How do you finance it? Well, you need to get creative.

First look at your primary home. Will it cash flow with the current mortgage? Can you refinance and lower the payment to make it work? Can you pull cash from its equity? Can you sell it? HINT: We started in 2009 and couldn’t sell or refinance so we rented it with negative cash flow… our future properties more than made up for the difference and now we profit off the house. Do whatever you need to do to get started!

Can you borrow money from friends or family with a large enough incentive to make it worth it? Do they have cash or the ability to borrow from a HELOC or 401(k)? Do you have a 401(k) you could borrow from while paying yourself the interest? Will you qualify for a conventional, FHA, or unsecured loan from a bank? Maybe the owner will finance the property for you with a low down payment. Whichever method you choose doesn’t matter. All you need to do it get the property.

Here’s the fun part. Many banks will loan you 80-100% of the purchase price in a home equity line of credit the day you own the property. In case you were looking for money to fix the place, here it is!

After forcing equity, you can get an appraisal and borrow 80% of the property’s new value. If you run your numbers correctly before purchasing, this will fully fund your initial purchase, rehab costs, and incentive to the private money lender. It may even put additional cash in your pocket!

Performing your due diligence is essential before purchasing. Talk with banks about your lending abilities, credit score, and other aspects which may affect your ability to successfully perform this strategy. Spend time running numbers on properties to determine what is a deal and what is not. Also educate yourself on successfully placing high-quality tenants or hire a property management company. The time you put in beforehand will pay off huge in the end!

RELATED: What Every NEWBIE Should Know About Tenant Screening

Consider this strategy as a method of getting started. It does not have to be a forever strategy. It can be an effective way of accumulating your initial investments, increasing your cash flow, and (with the right money management) a way to quickly escape the rat race. 

About Us:

My name is David Stone. My wife and I buy fixer single-family properties in Grays Harbor County, WA, live in them while rehabbing, and turn them into rentals. Our goal is to build passive income to supplement our working income. We plan on holding some properties long term and BRRRR others.

PNWHomeBuyer.com