I am trying to figure out which way to go in getting into REI.
I have another business on auto-pilot so I can devote a substantial amount of time/energy and some capital ~ $50k.
I also have a friend, who also wants to get into REI, also has ~ $50k and has recently acquired some experience in “rehabbing”, a few family properties. Does not have a contractor license however.
I was thinking we can pool our money, I would find/negotiate the deals and he would rehab, then we sell (I know it’s simplistic but thats a rough idea).
We are in southern CA, so the problem I see if we are using our own funds would be finding “lower end” properties, since anything around here is $250k and up.
What do you guys think?
Should I scratch all that, and get some wholesale deals under my belt?
Input appreciated.
Hi,
I originally started my investing career in southern California and about 25 years as my primary market!
When I tell people primary market, I am still buying properties all over the country, however I buy more properties in California then I do in say New York! Now my primary markets are Arizona and Nevada!
Southern California is a very competitive market, you will need to buy a $250k FMV / ARV home for less than $160k minus rehab / remodel cost’s and some carrying cost’s and overhead! So your going to be looking for a needle in a hay stack, but your biggest issue will be where you live and what’s a reasonable distance to go to handle and manage an investment!
You are better off getting into secondary markets and by saying that I mean stay away from beach communities and area’s that are known to be upper class or upper middle class neighborhoods, you want to stay in Middle class or lower middle class area’s!
For instance Huntington Beach / No - Anaheim / Yes or La Jolla / No - Escondito / Yes!
You don’t need a contractors license to remodel your own property but you will need to follow building codes and get permits when your work requires it!
Keep in mind to get hard money you will have to put 20 to 25% down with the HML and you want to allow yourself upwards of 9 to 12 months carrying cost’s just for comforts sake, although if your good you should be able to sell in less than 6 months from purchase to closing a sale. Your remodel (Full kitchen, baths and interior / exterior) should take you less than 60 days, and quicker if it’s not very major!
There is money to be made in California but it takes a lot of money to make money there and everything cost’s more!
Good luck,
GR
Rehabbing is the absolute toughest way to make a buck in residential REI. As Gold River illustrated, rehabbing is absolutely mired with potential pitfalls. You can make good money but there are much easier ways for a new investor.
I’d start with wholesaling first, so you can get a good idea of what a deal looks like. It’s VERY easy to THINK something is a deal when it’s really not. Also I’d learn about seller financing as an entrance/exit strategy…risk is lower than rehabbing as long as you don’t dump a bunch of money into a marginal deal.