First investment in real estate

General Real Estate Investing
1

Hello folks, I am thinking of purchasing my first property and get my foot in the door in the world of real estate investment. I am 21 and dropped out of college to start my web business that for the last year has gotten me a fairly solid footing. Lately the real estate plans came as I sought to diversify my holdings from high risk/volatile businesses in tech/computing to something at least material (rather than a whole bunch of code)

I plan to purchase some houses in downtown Omaha near college campuses and job centers. Most houses I am considering purchasing are in the 80-150k range. Taxes in Omaha is ~2.2% of property value, and rents seems to fetch 750 for 1 br to 1100 for 2 br.

Several questions regarding strategy:

  1. I have a cash reserve in my business of around 140k USD. I plan to keep half of that in the bank for the operations of my business (I can probably manage my biz with 30-40k if necessary)

I also have an American Express card with a 15k credit limit with a 8.25% interest that I am using 100% each month for my business. I pay the entire balance off in full each month however so I have not raked up any interest or anything.

As I own my business many banks are cautious and due to my lack of financial history most banks dismiss the documents I submit to them as insufficient and thus it has been nearly impossible to get any financing thru conventional means.

I can purchase a house in an all cash deal though. Should I seek out any hard money lenders for this? Would any private lenders be willing to offer me a more favorable termed mortgage if I was conservative with structuring my numbers? I am thinking of seeking out mortgage of 50% of purchase price and I wonder if this is realistic, and what sort of interest rate should I expect today?

  1. My business generates a fair amount of profits in the range of 7-8k a month of disposable income that I intend to place 100% into real estate investments. I figured I can probably buy 3 small houses, all cash in 2 years in this manner. I am however, reluctant to predict my income beyond the next 2 years as I would like to be conservative with my tech business and being overly rosy with things.

Should I purchase rental properties with the Omaha market as described above? Or should I consider buying some foreclosures to flip to start building a bigger cash pile? There are some properties selling at ~50% tax appraised value that I will probably have to put another 20-30% of appraised value to repair.

  1. I plan to be an active investor as long as I build a portfolio of houses paid out entirely. What are most of ya’lls view on hiring property managers? Is active management of rental houses even as a beginner worth it? Or should I hire someone at the beginning while I get myself more familiarized with the deal making aspects?

Thanks for the insights!
Kav

2

Your rent amt vs. purchase price is way too low for houses in that price range.
Remember leverage in REI isn’t necessarily a bad thing. Having paid off houses over time is good, but you can control many more properties by having mortgages on them.

3

Nice plan.

HOwever, don’t ever put all of your money in one deal.
I would wholesale at least 2 properties at first to get a feal for how deals are done, how to analyze and contract and make some money.

In the wholesaling phase, it’s ok to make mistakes as you are only risking your earnest money.

If you find success at this level, then you are ready to move on especially if you have cash reserves.

Remember, you can get loans for houses, take over existing financing, do private lending etc.
Your cash can be used on dozens of houses not just one if you know what you’re doing.

Dennis

4

First off, congratulations on your web business and your money management (i.e. no consumer debt).

  1. What is the rental market like in your target area - lots of vacancies or pretty tight? I think that 2bed at $1100 would casflow (10% down, $90K at 6%)if you can pick it up for say $100K.

If you can find properties near the campus that you can rent to students then they should cashflow well. Each student would pay $350 - $450 per month. You will need to look at larger homes.

It’ll be tough to get loans through your business; you or somebody with good credit will, at minimum, have to co-sign. I personally wouldn’t buy all cash using personal funds; cash is king and should be preserved. Plus your ROI will be very poor in an (personal) all-cash scenario. Hard money has become expensive, at least in my area. Lookat other financing options such as private money, equity share, lease options, etc.

  1. You can achieve your goals by a combination of wholesaling + buy-and-hold. Use wholesaling to generate chunks of cash that you can use to paydown on your keeper properties. Be careful with rehabs in declining markets.

  2. I use property managers - I don’t want the headaches of dealing with tenants. Property management is time consuming and you’re basically on call 24/7.

Hope that helps… I’m curious, what kind of web business do you have?

Best of luck.