I am very new to the idea of real estate investing. I am rather interested in buying an apartment or house and then renting it out. I know the current market is very difficult and there are lots of delinquencies, but maybe that also creates opportunities.
My beginner questions are many, but here are a few:
Does a particular type of property better suit this goal (house, condo, apartment)?
I cannot personally do fixes or refurbish it. So does that exclude foreclosed places?
What should be estimated as an average foreclosed discount on a place?
Any good recommended learning sources for a total newbie?
What amount of cash is needed to start with my fisrt property? High and low estimates?
Here’s my point of view on your questions:
Houses - Easy to rent since most people would rather have their own space and not neighbors on the other side of the wall. Easier to get rid of if you find that you don’t like being a LL or have to get rid of the property for financial reasons.
Condos - Have association fees that can get pretty expensive. The association can also do an assessment and force all the owners to pay a certain amount of money for repairs to the property as a whole. On the Gulf Coast, there have been condo buildings where the association assessed all the owners for $40k each or more for hurricane damage. This amount is over and above the insurance coverage for the building.
Apartments - Can be easy to rent. Economy of scale. Have one roof vs. a roof on each house you own. Harder to get financing for because anything over 5 units is commercial and falls under different lending requirements. Usually require more of a down payment than houses. Can be harder to get rid of if you need to because your buyer pool is smaller. Not everyone wants to own apartments like they do for a single house.
2 and 3 kinda tie together. Not all foreclosures are beat up piles of crap. You can find some that need very little work. Others have been neglected. You just have to go see. Also the word “foreclosure” does not mean priced at a deep discount compared to retail. Many banks are asking retail prices and above for their REO properties. You have to know your market to know if you’re going to pay too much or not. You need to be able to accurately estimate repairs so you’ll know where you need to be on the purchase price. This will come with experience, but if you have no experience you need to get several quotes from repair people.
Read these forums from oldest threads to newest. Find the ones that interest you and relate to what you’re doing. Read all those posts. It will take awhile, but it will be well worth your time and you’ll learn things from people who are actually out there doing it and not people getting paid to write books or “courses.”
You will probably find that banks will want between 15-30% down on an investment property. Then you must figure in repair costs, carrying costs until you get it filled (mortgage payments, insurance, utilities, advertising costs, etc), and some type of reserve for when things break. I can’t give you a dollar estimate because I don’t know what types of properties you’re looking at. You also need to consider banks may not go out to 30 yrs on an investment property mortgage. Find out what terms and interest rate you can expect. Almost all of our deals are financed at 6.5% fixed for 3 yrs on a 10 yr amortization. Need to consider that because you might find a property that cash flows for a 30 yr term, but won’t for 10 yrs.
There are opportunities out there, but there are still overpriced properties too.
I am sure justin really meant to say “anything over 4 units”, or, “anything 5 units or more” is commercial.
Regarding question 5, there is no minimum cash reserve requirement when you are just starting out. I suggest you begin your investment plan for six months carrying costs for each property, and then add more as your experience dictates.
As you acquire more investment properties, the lender will want to see six months cash on hand for each property as a requirment for loan approval to acquire your next investment property.