A few questions about my strategy

General Real Estate Investing
1

I have found two websites with houses up for Auction. One is a HUD site and the other is a fanancial institutions REO site.

  1. My strategy will be to find a property I like.

2.Check county record to what see similiar houses sold for lately.

  1. Check online to see what similiar properties are listed for.

4 find out apporx. what the rehab will cost

  1. Calculate the most I could pay for the house and still make a profit.

  2. make a bid below thaty number

My question is: Who would give a loan on a house that needs a rehab? Is is a regular mortage?

How can I refi after the rehab but before a year is up?

2
5. Calculate the most I could pay for the house and still make a profit.

This is a big one…if you don’t buy low enough…you’re screwed, (to put it bluntly).

For more discussion on that…check out this thread:

http://www.reiclub.com/forums/index.php?board=29;action=display;threadid=17847;start=msg86170

-Mike

3

first of all, slow down.

from your post, i can tell you that your 8 or so questions have about 5 different sub questions each.

i do not have the time to get into it here, but you must read some threads on foreclosures, mortgages, and general rei.

are you planning to rehab and sell the house?

do you have 5 to 10% for your down payment - due at auction - and that %age is for your max bid price.

how are you going to “find out what rehab will cost”?

do you know how to access the county record to view this information? how do YOU do this? what other ways can you get this information?

your strategy is “find a property i like” - so you’re doing this with no partners? who’s doing the rehab work? what is the other half of this strategy? are you living in it? selling it? flipping it?

“profit” - what are you shooting for? what percentage of profit? any specific amount?

what mortgage you get depends on who’s buying the property - if it’s THE LLC or CORP or LIMITED PARTNERSHIP that you are a member of, then obtaining a mortgage will be challenging? what other avenues can you explore to get financing? mortgages and foreclosures do not go well together unless you or your company have a relationship with banks/bankers.

bottom line - how much CASHEESH do you have? how are you going to finance this deal?

don’t mean to rain on your parade - go for it, just slow down and figure out the right questions to ask, get the answers and then go for it.

4
are you planning to rehab and sell the house?

Buy rent and refi

do you have 5 to 10% for your down payment - due at auction - and that %age is for your max bid price.

yes

how are you going to "find out what rehab will cost"?

I am learning one thing at a time. Right know it is the process of geting the property. I want to put a plan together than fine the steps individually.

do you know how to access the county record to view this information? how do YOU do this? what other ways can you get this information?

You go to the county court house and ask. Some counties have them for sale for free online. I don’t know the process of flipping a property. Once I know the steps I can dig into the details.

your strategy is "find a property i like" - so you're doing this with no partners? who's doing the rehab work? what is the other half of this strategy? are you living in it? selling it? flipping it?

I will live in it if I have to get financing. I will rent out my current house. I am going to rehab, refi, and rent.
The rehibing will be done by a contractor for major work and handy famliy memeber who I will pay that ahve done sheet rock, siding, fencing, painting, framing etc.

“profit” - what are you shooting for? what percentage of profit? any specific amount?

20%-40%

what mortgage you get depends on who's buying the property - if it's THE LLC or CORP or LIMITED PARTNERSHIP that you are a member of, then obtaining a mortgage will be challenging? what other avenues can you explore to get financing? mortgages and foreclosures do not go well together unless you or your company have a relationship with banks/bankers.

It will be just me. I am taking all my loans out from one bank to try to build a relationship with them. I was there today discussing it with them. This is were I need help. How can a guy like me get financing. It has to be possible. I always find a way to do everything.

bottom line - how much CASHEESH do you have? how are you going to finance this deal?

8k in cash, 15-20k in a heloc and a few k in credit cards to use to buy rehab materials.

don't mean to rain on your parade - go for it, just slow down and figure out the right questions to ask, get the answers and then go for it.

Don’t look at it as raining on my parade. I summed it up in my first post becuase there was not reason to go into alot of detail. I mean as an overall is that the process. Forget the details. I mean the chronological order. Are those the steps?

Now, how does a guy with about 20k in cash and credit and a 680 credit score get into investing?
What kind of property should I look for?

I have no idea how to gauge what the rehab will cost. That is something I will dedicate learning. Right now I am learning the process of finding the right property and geting financing.

I would like a total of 40% profit. I plan to refi and I need 40% to get the 20% in cash I want from the refi.

I will have a house at the time and If I have to move in to the investment property to get financing I will. I would rent out my current home.

5

well, if you move into the investment house “to get financing”, you mean that you would try and buy it as owner-occupied…you’d have to ask the bank(s) about that - not sure of the logistics.

if it is just you - how do you plan to hold title?

there’s alot to consider.

also, to answer your question about costs of rehabs - i think the best way is to just go to home depot, price out, well, just about everything you need to complete the average rehab. to me, my partner compiled a list and i just liked looking at it with my own eyes. no guessing whatsoever.

then what i did add .50 - $1 for every dollar of material. I also factored in losses for waiting time - for contractors - thus increasing holding costs - worst case scenario.

i know there are other ways to price out rehabs, but i felt comfortable doing it this way. that’s just me.

6
well, if you move into the investment house "to get financing", you mean that you would try and buy it as owner-occupied...you'd have to ask the bank(s) about that - not sure of the logistics.

That is probably not what I am going to do. I think that I would have to live there for 3 years. I learned this yesterday.

if it is just you - how do you plan to hold title?

I am not sure exactly what you mean but I do not have an LLC or S CORP. I am going to look into setting one up after I have a strategy perfected.

also, to answer your question about costs of rehabs - i think the best way is to just go to home depot, price out, well, just about everything you need to complete the average rehab. to me, my partner compiled a list and i just liked looking at it with my own eyes. no guessing whatsoever.

then what i did add .50 - $1 for every dollar of material. I also factored in losses for waiting time - for contractors - thus increasing holding costs - worst case scenario.

i know there are other ways to price out rehabs, but i felt comfortable doing it this way. that’s just me.

That is a good idea. I would like to establish a good relationship with a good contractor. I will be having alot of work done on the house I am buying now so I may establish that relationship with one. I would like to have one with me when I first inspect a house so he can give a figure before I actually buy the house. I would then add a buffer to his price. I have not decidefd how much of a buffer because I have no experience with contractors yet.

I am currently starting to learn about the financing which seems like it will be the hardest part. But “where there is a will, there is a way”

7

You can have the house appraise by a knowledgeable contractor that understands REI and get the ARV…This will help you when you go to get a rehab loans… If the deal is good then it won’t be a problem. A lot of them are very much like hard money.

8

“I am not sure exactly what you mean but I do not have an LLC or S CORP. I am going to look into setting one up after I have a strategy perfected.”

LLC or corporations are complex entities that require common sense. if you can understand the relationship between you and THE LLC or CORP, then you will do well. if you have a misunderstanding of exactly what this relationship is, you will have multiple problems, get confused, discouraged and finally just say f it.

starting an LLC or Corp, requires knowledge. i did it backwards - within one month of my “new found” career in rei, i went ahead and just started “my LLC”. i did business cards, the whole gamet - only to find that THE LLC had no leadership, no marketing plan, no business plan, too little financing and no defined mission or operational systems. it didn’t have any of these because i was so wrapped up in find out about rei, that i ignored the BUSINESS aspect of running THE LLC.

now many can minimize a business plan and financing to death. they can tell you a good business plan is
buy
fix
refi
rent and
repeat

they can throw some numbers at you and tell you how they did it, BUT, the difference is - they have done it. they are in the business. they are ADVANCED rei’s.
additionally, some of them may be leveraged to kingdom-come, own 10 houses with over 1 million in debts and a total positive cash flow of 600 a month…that’s very bad. to make matters worse, many of them may be involved in wraps, lease options and the like, where they have concealed this from their lenders…this is very bad.

bad means “risky”. the higher your risk variable - the worse off you are.
buy, fix, refi, rent is a great strategy, as long as you have all the details worked out. details such as, limiting costs that will literally eat up most if not all of your profit margins. however, you need to know what these costs are in order to limit them in the first place.

knowledge about business really is the key. i do not care at all about what anyone says in any forum or in any guru commercial - if you don’t understand business and money - you’re risk variable will be VERY high.

so don’t look at an LLC as “having one”. look at it for what it is, a business that requires, leadership, business planning, financing, marketing and systems of operation. at least the very basics of each of these.
check out www.noobdogs.com [click on it, if it doesn’t come up, click “back” and then “forward”.

9

let me add a qualifier:

in regards to the comment about 600 dollars positive cash flow and million in debt - of course this could be a good position to be in if the million is matched with good equity in the properties, the properties are located in areas that are appreciating and saleability is flexible, and the positive 600 cash flow is flowing into an account that has 100k of operating funds in it. yes, this would mean a very manageable risk factor.

however, to get to this point, takes time, knowledge, wise investing strategies and perserverance.

the beginner needs to start somewhere, but owning 10 properties in 2 months, with little or no money down, and no money in the bank, is HIGH RISK. so is buying one property without having a sound understanding of business and money.

10

Thanks guys. I don’t know if I posted thid aleady but I am not making my frist move for about 2 years. So, it is not like I will blindly be jumping in at that time.

What I meant by the LLC and S Corp when I ahve enough rentals I would set one or the other up so my bussiness liable, not me directly. As far as I know that is what I would have to do, but that is so far way that I am not concerned with it yet. I would not be doing that for about 4 years from now.

Right now I am concerned about the process of finding a deal and what to do with it. When I learn that part I will learn the managing part. I have to knowwhat it is I am managing before I learn to manage it.

11

stoop,

you do not necessarily have to wait 2 years dog.

you don’t have to kill yourself with analysis. a year of reading, talking and joining a local reiclub - yes, i would say that’s needed, plus save some cash during that time. you never know, at the end of one year, you might have a partner or two and be doing your first deal on a commercial apt complex with 15 units for 1.1 million. you never know.

one full year though - makes good sense - especially if you have a job, don’t have any experience in business and have a family to care for.

secondly, just to clarify, it would be prudent for you to consider actually starting up an LLC or S-Corp sooner rather than later. first, if YOU, personally, buy a property, and then plan to “put it in the name of LLC/CORP” will not be so easy, especially if you have a loan. that’s considered a deed transfer, which transfers ownership which violates due-on-sale-clause.

i know NONE OF THAT makes sense to you. i probably shouldn’t even write it, but take my advise bro, SLOW DOWN. You remind me of me, 6 months ago. I was devising plans that helped me “feel” secure in my thoughts, but I was not ready for rei because i simply did not understand it ALL. and there is alot of ALL to learn.

private message me if you like.

12

Well granted you need to think about every possiblility. But Being eager leads to taking action. Dont wait two years, you’ll be much further ahead starting sooner.

Your plan on getting in the home and living in it sounds like motivation to me. I lived in the homes i invested in untill I had built up enought to start things out with more ease. I used 1031’s as my tools towards getting the next one each time. till i had enough accumulated to pay off one home in a year. Not a huge home, only 109,000 but enough. Now i owned it outright rented it for 900, and had leverage with HELOC for doing my next rehabs.

Now 3 years? Why that mark? I lived in my first one for 4 months. I made sure the loan had no prepayment penalties or if it did it was very low like 1-2%. i worked on it hours into the nights after work… had licenced guys do what required licences.

The appraiser is a definet help as suggested earlier if they are familier with REI their ARV numbers will help to comfort a bank towards lending if they know these numbers from a licensed person.

LLC are good tools, But you don’t need to start with one. I did 5 properties before i started one. They are handy tools though. They can give you very decent tax leverages as well. Deductions and receipts are good stuff :slight_smile: Also building a character of it into something bigger. Business presents a bigger image vrs a single individual. The business will build the image of the person who runs it though.

Being prepared is important, just figure the worse case scenario on everything. See how it will affect you.

but goodluck there

13

Thanks.

I am in the process of buy my first house for 95k. It will appraise for 120-130k. It was appraised , I just don’t have the number yet and my mortgage broker is well that is another story. I will just be making it as far as living and I don’t want to take on extra responsability at this point.

I want to to spend the next year or two builing relationships with banks, upgrading my credit score, and upgrading my house to give it forced equity. I get a check for 10k in 1 year. I will save that and take a Heloc out the following year to have hopefully around 25k at my disposal. When I said 3-4 years that was regarding setting up a company. I will end up doing this full time, that is my goal. I am interested in every avenue of making money in real estate.