How should I invest with these stats?

I have 65-70K to invest, Good credit (thin portfolio, mostly credit cards, about 710 score all around), and I dont make much every year, around 25-30K because I am also a junior in college. I still live at home, and my expenses are maybe $150 a month.

I have noticed probably 10-15 houses that look abandoned and/or run down around my area, and Im not sure if the best way to invest would be to just try and get one of these properties under contract for the lowest price possible, spend some to fix it up, and just sell? I do have a subject to investing course but Id like to get advice from you guys. Thanks.

Well, Aares, you’re in a pretty enviable position for a young guy in college, having 65-70k to work with, a very low debt-to-income ratio, and good credit. Do you want to flip, or do you want to buy/fix/rent?

I’d say that flipping for the retail market is a pretty involved thing, and perhaps not where you want to start. You’d need to do a first-class rehab, stage the house, work with a listing agent, understand financing in order to guide your end buyer, etc.

Why don’t you FIRST talk to some local banks, and see if you would be a candidate to get a loan to purchase and rehab an REO, and keep it as a rental for now. (You’ll need to tell the banker you’re looking for a portfolio/in-house loan for at least a 5-year term, or if you’re buying a Fannie Mae REO you might be eligible for a conventional rehab loan).

You’ll get great experience in tenant/property mgmt, and working with a bank and contractor. Look for a property in an area where you could potentially sell if you needed to. This means verifying that there have been some sales to retail buyers (i.e. not foreclosures or REO sales) in the prior few months. Try to find a property where your gross rent yield will be at least 20%-25% (mthly rent divided by purchase+rehab+closing cost). This should ensure solid positive cash flow, and should deliver a return on your 25% downpayment of 20%+).

You want to begin holding a rental as soon as possible, because lending channels will open up for you further after you have two years of experience. As you get comfortable with RE investing, maybe a year down the road, then look at flipping. It’s a very complementary business to buy&hold, and will allow you to grow your investment capital much more quickly. Hopefully the local bank you’re working with will do a rehab loan for your flip. Many banks will do these types of short term loans, it’s the long-term stuff that they’re leery about. The bank will give you much better rates/terms than a hard money lender (maybe 7% and 1 point, versus 12% and 4 pts with a hard money lender).

Good luck. Be patient, and very aggressive on your bidding. Make sure you’re buying below market on the front end, such that your total all-in costs on the property will be 25-35% below market value after you’ve rehabbed it. Make sure you use good reliable comps (look at sales within last 6 mths, and within 1-2 miles of your subject property, in neighborhoods you know are similar to your subject property) to validate this, BEFORE you buy.

Thank you for the advice d1.

Ive been involved in rehabs with a friend that I used to birddog for. I got to know the rehab process, and what they would do was buy a house at an extreme discount (some houses were bought for $5,000!), and they would spend 15-25k to rehab, then sell for a large profit, then cut me my check. I really liked the way they could buy houses at such a low % of FMV. Could I not just do the same thing, and get a contractor to fix up the property, then sell myself? I mean these guys bought, rehabbed, and sold usually within a month or less. I could personally do the small stuff like painting, landscaping, and basic work to the house. Then instead of using a realtor, I could simply FSBO, correct?

Also, I do have access to the local MLS. Ive seen many REO’s, and as far as Ive seen, they are all priced at or above FMV, unless I am missing something.

Is it hard to get a good price on a REO? Ive heard stories of how its close to impossible to get a bid approved because someone is always bidding higher?

Another idea was to buy a 3-5 unit, and live in one of the units, although I really would rather not live with my tenants…

i don’t think its hard to win a good price on REO. If you deal efficiently you can win a bid.if i state my experience in this regard! when i start bidding, i was also scared like you but after that we develop a network of some good Realtor’s. we don’t let others to stop bids if we think its worthy to capture. in real estate you have to step up in a tactful way otherwise other investors will crowd out you! :biggrin