Hey everyone. First off I should introduce myself and my situation. I am currently in the army and deployed for the second time to Iraq. I just turned 24, and realized that when I get back from this deployment I should have about 60 to 70,000 dollars in the bank. I know that I am good at saving money and spending it wisely, but to me it just looks like a big number sitting in my bank account. I have no bills, Im still single, and I already own my car (its not fancy, lol). I think that with that 70 in the bank, I have some real potential to jump into real estate investing. Ive recently ordered a few books, The Real Book of Real Estate by Robert T. Kiyosaki, The ABCs of real estate investing by Ken McElroy, and a couple others. I read Rich Dad Poor Dad when I was 18 and was very inspired, but was almost completely broke trying to go to school at the same time. Then I joined the army and it was pushed from my mind. I am now getting out of the army in about a year, and I want to set myself up for success. I work with UAV airplanes in the military and will almost certainly be coming out of the military to work on them, so I should have a stable good paycheck coming in to help support my goals.
My idea is to buy homes to rent out, not necessarily to sell. I would like to eventually be able to live off the rents coming in from multiple properties. Being new to this and not really knowing anyone who can help guide me so I dont make bad mistakes, I am looking for any kind of advice, guidance, or suggestions that you all can possibly offer me. I know that I have enough money to help me get started, and I dont want it just to sit stagnant in a bank account. I think it would be wise for me to learn as much as a can before I get out of the military, so that when I do get out and start working as a civilian, I will already have a good knowledge base, and actually start buying. What could be some good choices to help set myself up for success starting with 60 to 70,000? Any advice is greatly appreciated. Thanks in advance!
Sgt. I think that you are on the right track. When you get out buy a home for yourself,then start purchasing rentals. I would join you local landlords assoc. or REI club an ask if you can buy some on a l/c . Many of them will want to retire. Learn how to manage them and buy some more and you will reach whatever goal that you set. And thank you for serving our country.
Redhawk
When I decided to start buying rentals, I read everything I could get my hands on for about two years before buying my first property. Three years and 15 units later(down to 7 now), I can only think of two books that really helped me. The first is Mikes book One minute rental property riches (sarcasm) and the second would be Landlording by Leigh Robinson. The other vital info I learned was from a local guy that has been investing in my city since the early 80s. He taught me a lot of tricks dealing with our county courts, inspectors, etc. that no book will teach you.
Your in a pretty good position to get started with the cash you have on hand. Here is what I did when I started with about 90K on hand. I only bought properties that fit the 2 % rule (do a search) and around 50% of current market value. It’s not easy to find these, but easier now a days then back in 2006! Buy them cash. Repair and rent for as much as you can. Take that lease down to every local bank in your area and tell them you have a house you want to mortgage that is leased for X number of dollars a month. Almost no bank will lend on a vacant piece of property right now, so use that is your niche to get big discounts on vacant beat up property using your cash. Become handy if you aren’t yet. If you did it right you should be able to get your money back by mortgaging the property, and have a property that cash flows too. Rinse and repeat. Most local banks will only do 15-20 year loans at as much as 7%, so keep that in mind when you run the numbers. Or you can go the conventional loan way, but you may have to wait 6 months for “title seasoning”
The key here is to ONLY buy great deals. If you decide this isn’t for you, you have options. Pay market value, and you are backed in a corner. And your first one has to be a REAL BIG steal, because you will make mistakes, it’s human.
Congo,
The Rich Dad books are good for an overview of investing. They got me interested in REI. However, Kiyosakis’ books do not provide enough specific information about the do’s and dont’s about REI. Read everything you can on this website! Some of the posters here are real world experts. Look for posts from christopherw on finance, fdjake on thinking outside of the box and propertymanager for what I call the REI reality check posts.
I highly recommend buying propertymanagers’ book www.1MinuteToRentalPropertyRiches.com to get a real world perspective of the rental property business.
I am a new investor and by no means an expert. However, I can tell you how I started.
My first and only real estate purchase is 4 family home that I purchased as a short sale with a 203K renovation loan. Problems present opportunities and having extra cash was key in getting this property. The previous owner signed an addendum to the mortgage that he would have a state mandated fire alarm installed. Instead of putting the alarm in, he took the money and over-improved his unit. He put expensive tile in the kitchen and bathroom, recessed lighting throughout, and had an island built in the kitchen. His unit was beautiful but was very much over-improved for a rental. Because he didn’t put in the fire alarm there was a fire-code lien on the property. There was also a tenant with a lead poisoned child. I found out about this by finding a post on the front door from the state department of health. I found this out after my offer was accepted and earnest money had been paid. Because of this liability I was prepared to walk from the deal. At this point it looked as if only a cash buyer was going to buy this property.
Because I had some money saved up, I was able to set up and escrow account with the money it would cost to put in the fire alarm. I would get my money back when the fire marshal did his final inspection. For title to be transferred, the state required that I sign an assumption of risk for the lead problem. I negotiated another 45K off of the purchase price of the house. Then, I spoke with an insurer, told them the details of the situation and purchased a lead liability insurance policy for $800. I moved the lead poisoned child and family into the newly renovated apartment. His lead levels dropped dramatically because of this. Problems solved!
The house is assessed at 347K. It was listed as short sale for 299K. There were offers in the 280K range. But, because I was a qualified buyer with extra cash, I was able to get this property for 185K! It is now fully renovated and I’m getting $50 per unit more than my post renovation forecast.
Since your in the military I would start out with a 4plex and get a VA loan which will allow a low downpayment, low closing cost and low interest rates. Live in 1 unit and let the other 3 pay the bills and give you some cash flow. Also since your living in the unit, it is a OO loan. This is a great way to see if you like rentals also and learn the game. You maybe a good renter but plenty of people out there are not.
You should definitely start with a multi family unit so that you get the experience of renting. Plus with houses being so low, you will most likely live rent free if you move in one of the units.
I would advise that you do not jump into buying a foreclosure cash and having to do the repairs as this takes a lot of time and know-how.
Talk to lots of people in your area that are already in the business. The way to find them is to respond to advertisements if you do not already know anyone.
Call on homes for sale ads and meet these people in person. Check out the homes and see if they are something you would be interested in.
If so, make an offer of what you think the home is worth, if not go on to the next one.
Do not jump in head first.
Try talking to a lot of different people and seeing a lot of different homes before making a decision.
There are a lot of sharks out there so do not tell people how much money you have to make the purchase unless it is a loan officer
Don’t count out foreclosures. They’re not always tore up. Most people think foreclosures are in bad shape and dirt cheap. Neither of this is always true. I’ve seen plenty of foreclosures that only need minor repairs. I’ve also seen plenty of foreclosures that are priced at or above retail.
Thank you all for the great advice! I never thought of tri-plex’s or quad-plex’s. I also plan on checking out some of the books you guys recommended. I didnt realize what a goldmine of information this site was until I started looking around. There is a ton of information on this site! Two of you suggested 1MinuteToRentalPropertyRiches, and I am going to have to check that one out as well.
Luckily, I feel pretty handy when it comes to home repairs. I cant wait to start learning as much as I can. Some of the books I ordered should be arriving any day now. I wish I could start jumping into it now, but I am in Iraq for 8 more months, and that is a good time to learn during downtime.
I just saw a buddy from my last unit here, and he told me that hes buying 6 more properties since the last time I saw him. Gave me a boost of motivation, I know I can do this. I am definitely going to be frequenting this page!
Congrats Sgt, and thank you for your service to our country.
Here’s a thought - why not look into self storage and/or commercial/multifamily properties? Both will take some training and more time, but the payoff potential is exponentially higher than buying single families.
I’m interested in self storage because there are hardly no tenant issues & much less maintenance expenses, plus the cashflow can be tremendous.
Depending on your market it seems as if you’re well capitalized enough to get into a decent multifamily, maybe 16-24 units. Proper training and heavy due diligence are absolute musts. But once you’re in and everything settles out all you gotta do is hire a good certified property management company to handle all the day-to-day and you’ve just bought yourself a cash machine. Or perhaps you could get into land development. One properly executed land development deal could make you a multi millionaire.
In either case you’ll need attorneys and lots of training, but what the heck? At your age why not go for the big score? Just make sure you know what you’re doing before you do it.
Interesting ideas nsu, I was mainly thinking about 3plexs and 4plexs, but I hadn’t considered the idea of something quite that big. I definitely need to keep my options open, and maybe start thinking bigger. Some of the books arrived that I listed in my first post, and I have been reading a few of them during my downtime at work. So far I’ve noticed that they all make a strong point of building a team of people to work with, such as brokers, attorneys, and lawyers. I understand the basic principles of how REI works, but I still feel that I am lacking in knowledge in the area of team building. When I try to visualize myself doing this, its hard for me to see where the money will come from to get the assistance from all these people. Especially if I was to try and get into larger multiple unit buildings, and using more of my personal finances to do it.
Another thing that has been on my mind is whether or not I will be able to get into this fast enough to not have the need of a job when I get out. My ETS (end term of service) is April 2012. Almost exactly 2 years from now, and when I get back from Iraq it will be 1 year and 4 months. Just something that has been on my mind, but I know it is entirely up to me and how much I can learn in the meantime. I definitely don’t want to rush into something that I do not fully understand.
I started rereading rich dad poor dad just for a boost in motivation, and a recheck on my level of thinking. If you have any tips on how I should be thinking about building a team, like these books are teaching, feel free to share. I might not be visualizing how everyone works together the right way.
Sargent you are scaring me. :shocked Whatever your MOS is you are on a team and most likely the leader of that team. Real Estate or any other business is the same thing. You will pay for the lawyer out of closing costs and for the title co and the Realtor, they work for you. Think of them as specialists first class,because you do not want recruits or second class.The same with contractors , lenders appraisers and so on. They report to you ,you are responsible for the outcome of the project or mission. When you get back to civilian life the structure may be different and the culture shock is real. but the basics of getting the job done is the same. You can not let the titles of your team intimidate you, your the boss.
Redhawk
Lol, I guess its not as complicated as I built it up in my mind to be. I think the level of detail in the books may have made the process look harder than it really is. Some of the information Ive been reading is geared toward more experienced investors/businessmen. I am a squad leader for a few soldiers, and doing a good job taking care of them and learning every day. I know that the game is a lot different on the civilian side.
To expect to jump right in and have enough income to completely replace your current military income may be a bit of a lofty goal. It’s not impossible and I’m sure some people have done it in that short of a time, but you may want to plan on having something to supplement your income while you build your business.
As far as team building goes, find good people and keep them. If you don’t like the job someone is doing, move on. VERY few Realtors truly understand the investment side of RE. If you find one who does, keep him/her. That Realtor probably already has other good contacts in your area. They probably know the good local RE attorneys to use for closings and other issues.
If you’re going to buy and hold, you’d better find a really good reasonably priced plumber. Many of your problems will be plumbing related.
To expect to jump right in and have enough income to completely replace your current military income may be a bit of a lofty goal. It’s not impossible and I’m sure some people have done it in that short of a time, but you may want to plan on having something to supplement your income while you build your business.
As far as team building goes, find good people and keep them. If you don’t like the job someone is doing, move on. VERY few Realtors truly understand the investment side of RE. If you find one who does, keep him/her. That Realtor probably already has other good contacts in your area. They probably know the good local RE attorneys to use for closings and other issues.
If you’re going to buy and hold, you’d better find a really good reasonably priced plumber. Many of your problems will be plumbing related.
It just pisses me off when people give such great advice… What the heck were you thinking? lol
I wanted to ask your guys opinion on something i found in the rich dad book on real estate investing. heres the passage from the book.
“myth#3 you can flip your way to sucess or get rich with no money down”
“no money down is a way of saying the property is 100% financed. That means a much larger part or all your cash flow goes toward the monthly payment.”
"“it leads to higher interest rates, higher loan costs, and no money to improve the property should something break”
"with this model you are banking on property to appreciate to make money rather than improving the operations and making money through cash flow. appreciation is only in your control when you have improved cash flow in this case you have none.
So does this mean that those guys on the tv show “flip this house” are doing things the wrong or hard way?
What do you mean by this? Who’s to say what financing is used by anyone flipping on TV? They could be using cash, lines of credit, hard money loans, etc.
I just purchased a $60K house for $35K that is completely remodeled with 100% owner financing. I will rent this section 8 for ~$700 a month and will have $25K in equity. If the seller will let me get in with $0 out of pocket, I feel no reason to bother. I will simply rent it, and pick up some decent cash flow.
Each situation in RE investing presents different opportunities and decisions for the investor. In the example I described, some people might just turn around and sell it, but I’m looking for cash flow while others may look for cash.
i dont know how else i can explain it… flipping property with no money down, higher interest rates, higher loan costs for you and everything else i mentioned. here it is again…
no money down is a way of saying the property is 100% financed. That means a much larger part or all your cash flow goes toward the monthly payment."
"“it leads to higher interest rates, higher loan costs, and no money to improve the property should something break”
"with this model you are banking on property to appreciate to make money rather than improving the operations and making money through cash flow. appreciation is only in your control when you have improved cash flow in this case you have none.
If someone wants to sell a property for $70K and it’s worth $100K and they will provide 100% financing, you’ve really taken a lot of risk out of the equation. Even if the market retracts 20% you still have $10K in equity.
Buying property with 100% financing with no equity, assuming the value will go up, or no way to pay the monthly note is a risk.