I live in the NJ area close to philadelphia, camden, and trenton. There are properties in these areas that are as low as 7k ( that is a little too cheap for me) and these areas, in my opinion, are great to rehab and rent out. I am new to investing, but would like to start with a rental property to help supplement my income and extend my RE education. I plan to have property managers do their thing, and I own a home improvement and cleaning business. I am looking for something I can afford monthly, just in case, that is why I am pursuing these cheap homes (also because this is my first deal). I am planning to hold my properties for a unknown amount of time, this depends on the first few yrs.
My biggest roadblock is financing, I have to look for private lenders, or hard money, due to being self employed for less than two years and recently leaving my J.O.B (thus another reason for cheap, entry level homes).
Soooo…question No. 1 Is buying to rent in these markets a good idea with cheap properties ( i understand that I have to do more homework.)?
No. 2: Is it wise to be a tenant in the property and rehab it while I am living there?
No. 3: Is seller financing a good option for this tactic? If not explain.
No. 4: When buying houses of this nature what are the major pitfalls I should look for?
No. 5: What are some things I may be able to overlook when dealing in a market of section 8 renters?
Visit a mortgage broker (it’s free!) and get a professional opinion of what you have to do to qualify for a loan.
Now start doing those things–pay off your short-term debts, credit cards, etc. Cut your living costs. Get a 2nd job. Clean up your credit. Make a financial housecleaning your first priority. This may take months, but you can do it.
When starting out in Real Estate, look to your own roof first. You are paying rent somewhere, right? Figure out how to make that a house payment instead. Don’t invest in an area that you wouldn’t want to live in. Think about a fixer duplex as your first home. Move into the worst side, fix the other side. You can work this plan while you hold down a full-time job.
Wealth is initially created with baby steps. Write your plan, then work it. Let us know how you do. Good luck.
I have visited a few brokers and have been told that I wont qualify due to my self employment income, it is less than 2 yrs. REO Realtors wont even allow me to view the house without pre-approval (financing is my biggest wall right now, I love challenges). They tell me in order to qualify before the 2 yrs I have to either get a fulltime job or get a co-signor. I can get a co-signor, but am trying to avoid this; and I wont work fulltime for nobody besides myself. My credit is great (700s), my finances are in order (thus the reason to get involved with RE). I am currently helping my mother pay of the house I stay in, but am looking for a starting point and some additional income to pay for my current home quicker and expand my RE portfolio. If I can use private lenders pay them off with interest and hold the property for 2 yrs at least, then additional loans will not be a problem because my self employment finances would qualify correct?
Honestly, I understand what you are suggesting, and baby steps are a part of wealth building. But action is as well. If the purpose of purchasing these homes is not a hardship on my finances (in fact according to my written plan this will increase my monthly income in the coming months) then why is this not a viable first action step? My purpose here is to try to tackle some newbie mistakes before they happen. Additionally, I was told that the duplex idea is not a good one from some gurus, but I will look back into it.
I truly appreciate your advice and am looking forward to more
You are on the right track. The only way to make money with the buy and hold strategy is to have them paid for. To do that you need to buy ,fix and sell, then keep the next one free and clear. Lets say you can do 4 /yr. Two to sell at a profit and two to hold and rent. Income builds and vacancies don’t bankrupt you. Slow but sure.
redhawk
Jersey is a tough market, REOs is pretty much a cash business right now. Remember the banks are looking for the highest and best offer right now, and cash buyers are buying above listing price.
I invest in the SJ area and as Dan732 noted: NJ is a tough market to make money. Even “good” (by RE agents, bank , the “normal” RE players standards) deals will not cashflow without substantial downpayment. What you need is a great deal by investor standards.
No. 1 Is buying to rent in these markets a good idea with cheap properties ( i understand that I have to do more homework.)?
“These markets” meaning Camden and similar lower socio-economic areas ---- I try to only buy in areas that I would live in. I won’t live in these areas due to crime, violence, poor schools, and general declining environment. Otherwise, buying to rent is a good idea if you can find a property that will cash flow.
No. 2: Is it wise to be a tenant in the property and rehab it while I am living there?
It can be a great way to start. As mentioned by furnishedowner, buying a duplex and living in one side while fixing the other is a good initial first step.
No. 3: Is seller financing a good option for this tactic? If not explain.
Seller financing is great if you can get it, I’ve never been able to. If you can get seller financing, make sure the terms make good financial sense.
No. 4: When buying houses of this nature what are the major pitfalls I should look for?
When buying in poor areas the 3 major pitfalls I see are are location, location, location. Other pitfalls are price and condition of the property, availability of good tenants, and demand for rentals. I like to own in reasonably desirable neighborhoods where the great majority of the population is self supporting - i.e. lower middle class to middle-middle class.
No. 5: What are some things I may be able to overlook when dealing in a market of section 8 renters? I can’t help with advice on section 8. I avoid it like the plague. It’s bad enough with the local, county, state, and federal government mandates without more regulations governing your rental properties. But other landlords will swear by it and know how to make it pay off.
For low-class neighborhoods, collect rent BY THE WEEK rather than by the month. You get to check on the condition of the place more often, and if they welch out on the rent, you can get them out and re-rent without loosing as much. You get to weed out bad tenants faster. Say the rent you are asking is $500 a month. Tell them you are going to let them have it for $125/week. This improves your cash flow, too, as you get money sooner.
Places where you have to collect the rent by the week (camden) aren’t going to be fun unless your making a TON of money. I mean at least 1500 a month per property. Trust me, you will get worn down, and you are gonna need a gun.
We have a bunch of tenants now who are paying by the week, or bi-weekly. They come into the office and pay by check, cash, or credit/debit card. Or we do it over the phone.
But they are paying. This is a first in 6 years of business, and a sign of the economic downturn hitting even out here in the hinterland.
These tenants are middle-class worker-bee tenants, not low-income. I just think it pays to adjust to your tenants. Do what it takes, but don’t leave that vacant unit just sitting there.