Hello. It looks likes this is a good place for newbie questions. After reading for a few days, everyone seems to be pretty helpful here!
Im 25. Own a 2 bedroom condo i got just in time for the first time home buyers tax credit last year(closed on the last day!) Currently renting that to a friend for slightly less than the mortgage. Also was fortunate enough to purchase a crappy tralier on a decent peice of land for just under 10k cash.(all surrounding property has sold for over 50k in recent months). fixing it up as we speak.
and now i have scraped together a little over 20k and Im about to look for another undervalued property. Ill put down 20k an finance the rest, (purchase price no more than 100k)
I have a very well paying job with lots of overtime… at least for now… who knows with layoffs??? and i have virtually no bills, other than standard cell phone and utilities, and of course my first mortgage. I live WAYYY WAYYY under my means on purpose(think reusing zip lock bags for sandwhiches,and bringing mcdonals napkins home as paper towels!, lol) so that i can save absolutely as much as possible.
Critiques please! on the right path with properties? should i be doing anything else in particualr for investments?
thanks for contributing to this excellent forum! :beer
The first thing I notice which concerns me is you bought the Condo obviously as an owner occupied loan and took the Federal First time buyer tax credit, but your not living in the property and your renting it for slightly less than the mortgage.
In the US when you buy a property as “Owner Occupied” it is a legal requirement for you to actually live in it, the statute is roughly 2 years, so right now you could be arrested, charged with defrauding your lender and defrauding the government for the tax credit and arrested and put up for trial for this, end up in jail or prison and fined more than you have now!!!
So if you have never owner occupied it yet, you had better move in right away and fulfill your 2 year requirement because you will surely get caught otherwise!!!
Now I think your monthly expenses are about to go up drasticly so I would keep your $20k in reserve until which time you sell the MH and the land, then invest the profit from that deal into another property around your living expenses!
Everyone should have a reserve of cash including you it should include enough money to pay all your debts for 6 to 12 months including your current MH and of course you will be living in your Condo Yourself in 30 days!
oh no no no. sorry, must not have been clear about that. I bought the condo for myself, and i do live there. My job forced me to a different area(layoff related ) 3 months after i had purchased it and lived in it. now i come home whenever i can and still consider it my only residence. im not there every night, but its still my only owner occupied home. all the utilities are mine, and all my mail delivered there, one of my vehicles stays there. i could guess i shouldve said i had a roomate instead of just renting it to him. He lost his job(same company as me) and asked to stay there, so it benefits both of us.
If I were you I wouldnt start on rentals just yet. Of course thats your decision, but you could be building up a lot more cash from whole-sales. That way you could get a relationship with some of the investors in your area. Thats a good thing because you may be able to get great values on rental properties they don’t want to own anymore and end up selling them to you with renters in them already! Whole-sales are easy and they get you into the real estate investing community, and it really helps to be part of a community of people that are doing the same or closely related things as you.
It does sound like your off to a good start, I would just want to see your assets a little better protected.
Have fun and Best of Luck to ya!
Your on the right track, keeping expenses low and learning to cut corners to save.
How is your credit, that is a very important part of what you will need to get into rei, with good credit and reserves you will find you can get into a property for a lot less cash than you think, consider financing a property that needs some repair using hard money,it is possible to have very little cash into the project IF the deal is right, you have good credit and you have reserves.
You will quickly run out of cash if you continue down this path. You will need to start buying/controlling properties without cash, or at least without your cash.
TK7,
I’m glad you clarified your situation. One note, if that property ends up being non-owner occupied you need to change your homeowners policy to reflect the change. If you don’t live there and something happens, your current policy will not cover you.
I agree…also you will quickly run out of CREDIT as well. After a certain number of properties the banks will cut you off. Plus you’re risking everything you own whenever you take out a bank loan to buy real estate.
While you’re learning wholesaling be sure to look into “subject-to” investing. You’ll thank me later. LOL
I always thought the more properties you own, your ‘credit’ and your relationship with banks gets better. No?
also, if that’s the case, can you suggest an alternative for buy and hold? I dont think bank will loan money to a new LLC.
You’re welcome. Common misconception…totally not true. After a certain number of mortgages the banks are typically done with you. Usually once you have acquired 4-5 mortgages in your personal name lenders will not approve any additional mortgages, though there may be exceptions here and there. In addition, you’re risking all of your assets when you put a mortgage in your name, plus you will have to put down a small fortune just to get the financing, even if it’s your first property.
The “subject-to” strategy (or owner financing) gets you around all that. I learned it from Ron Legrand’s programs but there are several others who teach it including John Cash Locke, William Tingle, Lou Brown, etc
you can have up to 10 conforming mortgages (basically good rates locked in for 30 years), but the reserve requirements are high (on your 5th mortgage and each mortgage after that you have to show you have liquid assets equal to 6 months of PITI for each rental property).
You can get loans after that, but they would be more along the lines of commercial loans, normally 20 year amortization with the rates only locked in for 3-5 years, and the rates will be a point or so higher than the conforming mortgages
If your getting portfolio loans, loans that banks hold and do not sell, you can get as many as you want, but they will be the higher interest, shorter term loans with adjustable rates
Hey everyone. sorry, got incredibly busy at work and forgot about my first post here.
To answer the credit question, i currently have excellent credit.
next point i see is that i need to be looking into controlling properties without “MY” cash… how exactly is that done? what does that even mean? Im to new to understand how that is achieved! lol.
my short term plan, is to acquire 1 more property to rent out, and then focus on paying off the smallest loan, which will be this next property. If i can maintain my current employment, i would be able to do that within a year. Then i would be continuing to collect rent from 3 places, 2 of which would be paid for, and start looking for another proerty. but of course this is all using “my” money? i didnt know there was any other way, haha. can someone point to a link or something explaining what you guys mean by not using “my” money?
there are a few ways, I deal in rentals, for me it means buying properties with as little tied up in the transaction as possible.
for example, I buy a bank owned property (REO) for $65k, that should be worth $100k after it is rehabbed, the rehab cost $10k,I go to a hard money lender, borrow 70% of the “after repaired value” (ARV) of the house, $70k, which pays for the house and $5k toward rehab, I bring the other $5k of rehab money plus closing cost to the table,I’m out just under $10, after I get the property rehabbed and a renter in it I refinance to conventional financing (30 year fixed around 5.25% for investment now),I finance 75% of the appraised value, which should come in at $100k,so they pay off the $70k hard money loan and I have $5k to go toward the second closing,
i end up with $5k cash in the property and have a $75k note,so I still have 25% equity inthe property
sooooo… the goal with that process is to have as little money…or should i say, as little of YOUR OWN MONEY in the transaction initially as possible? So now you control/own the property… with equity in it, and still have more of YOUR OWN cash to do another deal in the same fashion? so its a way of utilizing your capital as much as possible.
Yes! you can buy several properties with the same cash you would use to buy one in the 'traditional" way where you would pay 20-25% down, plus closing cost, plus rehab money
One thing, make SURE the properties will still cash flow,if they won’t then don’t do it,my standard is at 75% of rent will it cash flow,the reason I use that figure is the bank will only give you credit for 75% of the retnal income toward PITI in a property you have held less than 2 years
) 3 months after i had purchased it and lived in it. now i come home whenever i can and still consider it my only residence. im not there every night, but its still my only owner occupied home. all the utilities are mine, and all my mail delivered there, one of my vehicles stays there. i could guess i shouldve said i had a roomate instead of just renting it to him. He lost his job(same company as me) and asked to stay there, so it benefits both of us.