hi group, im new to the forum. thoroughly enjoy reading the post! my friends and i are coming together to purchase a property. we decided that between the 3 of us, we can gather up 30k. not alot, i know. we’re just starting out. we’re looking in the south jersey, trenton/hamilton area where we can afford something and the rent rolls are pretty decent. my question is where is our 30k better spent? 10k down on 3 single fam units, maybe costing us no more than 60k, from research i know we can rent out a single fam 3br home for 900$, conservative end 700$. …or 30k down on a multi-family unit, i’m sure it’s something that will need work. ideas? suggestions? advice? thanks in advance. also when you have a cash deal-how much lower from the offer price are sellers willing to go?
If you spend this 30k, is that it for you? Meaning can you come up with more money after the purchase to put some money into a new place (or places) to make it rent ready? You could put 10k down on a few units, but if you can’t come up with any other money that won’t be good. Even if it looks like a place needs no work, you’ll still need some money held back. You have to think about closing costs, NOO property insurance (they may want a full year payment up front…ours does), advertising cost, mortgage payments for when it’s not rented, utilities while it’s vacant (if you need electric on for repairs), etc.
Be very careful going into this with friends. It’s very likely that someone will inevitably feel like they’re doing more than the other people. Could cause problems with friendships and the business.
Are you doing this because you love doing this or just because you have thoughts about getting rich quick from some fly-by-night tele-seminar? If you can’t pull money out of this duplex or whatever you buy after a year because of market conditions, can you still imagine yourself being happy with your decisions and what you achieved? If not, it’s not for you.
It took me 8 years to move from buying my first duplex and other converted houses into buying an 18 unit building. I’m taking a huge financial loss over a building I’m dumping this year (probably in the $200K range–money that could have been used as a downpayment for something better) and it’s sending me back years from where I thought I’d be, but I’m still happy. It kinda burns at my heart and soul when I think about how much time I spent rehabbing for less than min. wage, but no regrets. I value the learning experience, regardless of whether it was financially rewarding or not. Ask yourself, are you that kind of person? Can you come to terms with this? Or if you lost that $30K or couldn’t pull it out until 8 years later after putting in lots of free work, would this get you upset to the point of losing interest in doing it? Results vary in real estate outcomes. Look deeper and ask yourself if is this something you’d really enjoy doing a year from now if you didn’t see those “get rich quick” results?
There’s a lot of great deals out there. There’s also a lot of lemons that look like great deals. Unfortunately, even with all my experience, I still managed to buy a lemon that looked like a great deal and now I’m paying the price. I can’t even stop to imagine what I could have done with that $200K and all that 16hr a day unpaid time I lost. It wasn’t the building itself so much that was the problem as it was the market and not being able to refinance anything to do with it what I planned to after putting so much money into it to prep it. It could be worse. I could have lost everything like others. I could have even gotten a stroke or some other permanent injury. I could start blasting banks, private money lenders and credit card companys (cutting their limits and bouncing checks halfway through my rehab project) for the mess they got me into, but I’ve come to terms with it and learned from it and realized that I’m going to do things differently from now on. Just don’t get into this as a “get rich quick” thing. If you can get passionate about it, do it; otherwise don’t.
Where it’s better spent? If you’re not comfortable buying beyond 3-SFs for rent at this point, don’t. As for your last sentence. Only the seller knows how much they’ll take. It’s best to understand their motivation. Some are just stubborn on their price and can afford to hold onto it forever and cash vs. VTB makes no difference. Others are ready to go under and will take a huge hit for cash at close. It’s not a hard and fast rule.
@ justin0419…valid points. ur right we would have to either put less than 10k down and save $ for closing costs, fixing up etc… and valid points on the friendship thing. to answer your question no its not just my 30k. 3 of us together came up with 10k so it would have to be a group decision. thanks for ur input. all things being equal, if im not worried abt messing up the friendship. and we have extra funds for the home. do you think our funds will be best used on 1 multiple unit, single family homes? or a flip? what would you do if you had an extra 30k and were just getting started may be a better question.
@davewindsor, im not sure how to answer ur question u mentioned a get rich quick seminar or because i love it? im not sure if i love it, i havent done it yet. and with 30k, or 400$ monthly profit is far from get rich quick. we’re new to rei, trying to figure out the best way to make the funds that we came up with stretch thats all. id like to be happy, and at the same time profitable (or at the very least make a good investment with the $ i have) u raise a good point-i would like to know how do i know if ill be able to pull funds out of this home in the next year?
i apologize. im not sure how to respond to each of you separately. thanks for ur responses
Well, we started with a 6-unit multi which is contrary to what most people recommend for starting out. You’ll generally get told to start with a SFH because it’s only one unit and you should be able to unload it easier if you find out you can’t stand being a LL. I know you’re looking to maximize your money working for you, but what about using 10k to get one SFH, fix what’s necessary for rent, advertise, and fill it? You could go thru that process and see how you like it for a couple months. If all is well, then you could look for a couple other places or a duplex with the rest of your money. You may find that you don’t have as much money left over after the first one as you thought originally. Better to learn that lesson off one house rather than three.
Our first deal on that multi bldg took close to 30k by the time we put down 25% and then fully rehabbed the two vacant apartments. You can try to flip in this market, but understand that lending is tight so it may take longer to sell.
Something to think about:
Do you own the house that you live in? I'm very skeptical of a deal between 3 partners, unless they have experience in REI. It could work for you. However, unless the partnership agreement is drawn out, I think you are headed for conflicts. I would wait until I could do a single deal on my own before I would do 3 with partners. I'm not a seasoned investor by any stretch. I do however own a four unit building that I purchased and rehabbed myself. It did not go smoothly at times but it was done right and is cashflowing nicely now. I can't imagine if I had to "sell" my ideas to 2 other people. Just out of curiousity, what do your partners bring to the table? What do you bring? I'm thinking of partnering with a GC to do some flips. I have hired this GC and trust and respect his judgement and character. My job will be to find the deal and provide the funding. His job will be to give me accurate estimates on improvement costs and make sure the rehab gets done in a timely manor. Then, it is my job to get the home sold, rented, L/O'd etc. What is your plan? Do your partners have complimentary roles in the the process or does everyone want to be in charge?
If you’re not sure you’re gonna love it, don’t touch it and use your money towards some other venture. If you’re unsure now, just wait until something bad or expensive happens like being sued and having your property destroyed by a bad tenant or having to pay ten grand for a new roof and joists. And, that stuff comes up. There was a guy on here who recently had one of his rental houses shut down by the city for mold issues because police raided it for marijuana plants that one of their tenants had. Then, you’ll hate the property so much you’ll dump the building at a huge loss. Do something you love to do. Then, it won’t matter if life throws you tough challenges because it’s about loving what you do, not the money.
Are you sure you want to do this in New Jersey? With the sky high property taxes, government uncertainty and the still over inflated real estate market, are you sure you will make any money? Look at the taxes on those properties, even in Trenton you are still shelling out 2-3K a year, Hamilton 4-5K a year and so on. Ugh I hate this state.
Dan732 has some points to think about there. I invest in SJ (Burlington County area) and taxes are brutal, prices are STILL high while the market is stagnant, and rents are such that its nearly impossible to cash flow at 100% financed value.
Still, I live here and invest here, its just very tough to find deals that are worth the money/risk. I suggest starting out small, get your feet wet, learn a few things. Starting small means you will generally only make SMALL mistakes that don’t cost too much money… much less painful than losing you entire $30k wad.