First off, hello! I am new to the boards and am at the very beginning stages of changing my life. I am looking for a sort of game plan from people who have been successful at RE to maybe push me in the right direction.
Here is where I am in life. I have good credit history, but my debt to income has gone south over the last year (unsure of my exact credit score now, but was 800 a year ago). I have virtually NO savings. I am divorced and have 2 toddlers. I am a firefighter in a major city, so I work a 24 hr shift, but only 9 days a month. I cant get a job on my off days because I have one that I refuse to quit (daddy). I do however have a good deal of time on my hands to look for deals ect.
My long term goals are to have rental properties that generate a significant amount of passive income, and eventually sell for a nice profit…rinse and repeat.
So here is what I am asking. Where should I focus my “studies”? I am leaning towards foreclosure/short sales. I am starting from square 1, but have a goal of owning my first rental property with-in a year. Due to my job I know what areas in the “hood” are true war zones, and what areas are decent. I think using my knowledge base along with the cheap homes (therefore being able to save up for down payments ect) are leading me to believe I should look in these areas to start.
Knowing what you know about me and my starting point, where/how would YOU begin (if you were me).
Thank you so much for taking the time and energy to help…it is appreciated.
If you put “experts” into quotes, is that meant to imply sarcasm?
You have no money, but if you have good credit, you can always get money.
Do you have any construction skills? If so, the best way to increase your capital is with fix and flip. Once you build up your capital, you split and do part flip and part buy and hold.
When your rentals are generating enough income, you can go to straight buy and hold.
When you start to generate some cash, use some of it to pay down your debt and improve your debt to income ratio. That will make it much easier to borrow.
Knowing the neighborhoods and how they differ is good, but you are going to need to know value of the homes that you can buy and the rental income that each house can generate. Example, how much for a 2bed 1 bath vs 3bed 1 bath, differences in both value and rental income.
If you know that a 3 bed 1 bath rents for 550/mo. then you can work the numbers backwards to figure out what the maximum you can pay and still have a positive cash flow.
What I would do is to locate a very good deal and wholesale it to another investor for a 5-10,000 profit and then buy the next one free and clear. With the time that you have I believe that is your strength. Time to become the expert in your market on selling prices and rents and when you locate that deal it will stick out,like neon antlers. You also have the time to build a wholesale buyers list.
Redhawk
Tatertot-- no sarcasm intended at all…as a very sarcastic guy, I can totally see how that might come off that way so I have edited the title…my bad lol
I do have some construction skills. The problem is, is that I don’t have a lot of free time. I have 2 children, a 4 year old and a 3 year old, that I take care of by myself on my off days. This would allow some computer time, but not much in the way of actual work time…at least for the time being. I like your thoughts on flipping first to generate capital. I failed to mention that I am sort of following your plan because I bought a hud home 1.5 years ago that needed a lot of work. I am doing almost all this work myself (in my limited spare time)…but the FMV on the home should be $110K-$130K, and I got it for $64K (neighbors house just sold for $124K, its 200 sq ft more living space, but sig. smaller yard). So in another 1.5 years when I can sell, I should have a nice profit (assuming it sells…in my market it seems like everyone is selling, and no one is buying).
Thanks a lot for taking the time to help…its appreciated
Redhawk…thanks for replying. Looks like I need to do some research on renting prices, ect. Is there a specific way I go about finding out what properties are worth in different areas? Also, how do I go about building a wholesale buyers list? And what sort of contracts (or do i?) do I need to draw up for selling deals like that?
Also, the city just announced yesterday that it will receive something like $50mil from the feds to revitalize 4 neighborhoods. How should I best approach this info in regards to my plan (or should I even care?)
OK, here is what I would do if I were starting over and in your position:
First, I would educate myself. Learn the local market, look at prices and valuations on Realtor.com and Zillow. Decide on a target area to become an expert on.
The actual process of buying real estate is not all that difficult; people think it’s hard without knowing the facts and this keeps a lot of people out of the business. Go and get pre-qualified so you know the facts in this regard.
Don’t try and get too creative with your first property. In fact, it is easier to get qualified for a primary residence than it is to get qualified for an investment property and will, in general, require less up-front costs. Consider buying a second property financed as your primary residence (owner-occupied financing).
By doing so, the property you live in now will become your first rental. This will have several advantages.
The more difficult part of owning rental property is managing tenants. Learning this aspect of the business after the fact (after you own a rental property) is the most expensive way to learn. I would consider working part-time for a property management company. I understand you want to be there for your kids but this is not a business you can run or learn from your computer. If you are inflexible in this regard, maybe you need to consider another business.
And diversify with your next property into a two, three or four unit building as close to your first rental (the house you now live in) as possible. Up to four units can usually qualify for residential financing as long as you plan to live there. The prospective income from the house you now live in can also be used to qualify for your second purchase.
There is so much to learn it’s hard to give any meaningful advice in this format. Define your goals for the business, read, read, read, and join a local landlord or investor’s club. Good luck!