New Investor Money Questions

Hi,

I am a new investor ready to get started and have a few questions about the finacing aspect. A little about me first/ Good credit (750’s) Have cash and other assets avaiable but not wanting to put up alot of my own money just starting out… Looking to invest in the MD/PA area. Now my questions:
1)Is it better to find a property I want then try to find financing or is it better to try and get some kinda line of credit so I am ready to go when I find a deal I want?
2)I am looking at properties that have tenants in place already. Should I try for conventional financing or use hard money loans to get the property and refi later?
3)When i see a property listed for sale with a wholesaler Do i need a lawyer,title search and apprasial and settlement company to do the deal all done at my expernece?
4)I would like to know what formulas you guys use to calculate if a property will really flow based on the number provided by a seller(asking price,current rent,ect.)
Thanks in advance

With your good credit, you have a lot of options. I’m not sure how much you’re willing to put down, but you’ll have to have some money down. If you purchase a rental property that you’ll live in and rent out, there are mortgage programs out there with as little as 3% down. Talk with a local mortgage broker to gover your options and get Pre-approved for a loan amount. Then you’ll have your financing lined up. The terms will be more favorable than a hard money loan. When it come to tenants, you want to make sure they’re the right tenants. You don’t wan to inherit bad tenants. Sometimes its easier to get your own tenants in there. I don’t know anything about wholesaling. But as far as calculating what a property’s value. The income the property generates is the starting point. Let’s say you have a duplex that’s listed for $100,000. The rents equal $1,000. Taxes= $1200. There are many factors you’ll be considering. But as far as numbers go, try this.

   Gross Rents $1000
Vacancy (10%) $100-
  Taxes            $100
   Maint.           $100 estimate
   Insurance     $ 150  estimate
  Reserves        $100.

                       $450

I’ll stop here to point out that you haven’t even covered your mortgage yet. but it looks like this propert will lose money… You have to adjust your offer or put more money down to make it work. I hope this helps.

I have gotten some good information so far and want to thank everyone for that. Owner occupied is not an option for me because I already have a primary residence I built a few years ago with a mortgage on it. I do have a a nice bit of equity in my house but i Do not want to touch it. I want to try and do this as something seprate from the family finances with some money I have laying in a mm account collecting just 5%. I feel I can do more with it. This brings to mind another question I have. I want to do this without my wife’s name on it.She has a different business plan she is persuing and I do not want this in interfere with what she wants to do. Will that make this more difficult for me? She supports what I do and is willing to sign or partner whatever I want but I don’t want to use her if I do not have to. Thanks.

I’m in almost exactly the same situation. I don’t know how much cash you have to spend out of pocket. But I suggest you have at least 6 months of reserves before you invest. If put downa total of $10000 out of pocket cost to buy a property. If You want to make sure you get more interest on your money, you have make sure the income the property produces puts enough money in your pocket each month to do that. That’s after all expenses and mortgages has been paid. If you earned $100/mo after putting $10,000 down. You have a return of 12%. That’s why you have to make sure you incude all the actual numbers involving a property’s operations to know how much to pay or the property.

aaahhhh…sigh…

first things first - YOU ALWAYS NEED AN ATTORNEY. NEVER BUY ANY REAL ESTATE WITHOUT TITLE SEARCH (and use a GOOD title company).

k, next thing - uummm…mmmm - you’ve got good credit - doyou have any money?

alright - i read your last response and i have to say this:

in order to make an ommelette - you’ve got to crack some eggs…

the bottom line is - you’ve got to decide if you want to take it VERY SLOW. build up some cash reserves via your own hard work. bank some casholo - as much as you can. while you do this, learn, talk with some realtors, meet some people - get used to feeling like a schmuck and that’s okay - everyone has to start somewhere - the most experieced “guru’s” had to start somewhere and we all start as little sh*ts.

OOOORRR -

you take greater risks to get where you want to go faster. you’ve got equity - use it. this comes with risk. but “risk” is mainly defined by lack of information/knowledge. if you’ve got a basic handle on numbers and understand how real estate works - how you can get burned and how you can make money - you’ll probably lower that risk exponentially.

“wholesaling” is something that many experienced investors talk about. i believe it’s probably one of the lowest risk start ups you can get into. however - it can be HIGHLY INEFFECTIVE depending on your marketplace.

on long island - you go around trying to get homeowners to sign an “and or assigns” deal and their attorney will tell their client to wipe their butt with the binder/contract.

now networking and telling other experienced investors that you’re going to “wholesale” and you want them on your “buyers list” is ineffective. real investors don’t have time to f around with a noob who says they’re going to “wholesale”…

advertising for buyers can be effective. but this all costs money. however with a good plan, A GOOD MARKET PLACE for this, and the money to back it up and you could possibly be up and running in less than 30 days.

your contracts are pretty cut and dry - “subject to” just about anything to get you out of it if you don’t find a buyer - and be honest - tell the sellers that
“give me 30 days and 30 days only to find you a buyer. heck, i’ve got a list of 20 or so buyers and i’m thinking we could close this deal in less than 30 days. but all i ask is for 30 days. this is what i do.”

best of luck to you…

elloyd4,

The formula that I use to calculate cash flow is 1/2 gross rent - mortgage payment (P & I only). I like to have a minimum of $100 per unit per month in positive cash flow.

I would not use hard money for a rental. Hard money comes with a short loan period, high points and a high interest rate. So, why pay a bunch to get a short term loan and then refi later? I would suggest just going to a couple of small local banks in your area and talking to them about buying a rental. If you already have a good relationship with a bank, that’s the place to start. With money in the bank and good credit, you shouldn’t have any problem getting a loan.

The important thing about rentals is that you MUST get great deals. Every rental should stand on its own. Contrary to an earlier post, putting more money down on a deal does NOT improve the deal. All you are doing in that instance is BUYING cash flow with the downpayment.

The very first thing I would suggest is to determine your goals. What are you trying to achieve? What is your plan to meet your goals? Do you have a cash flow target? Are you trying to achieve a certain net worth? Do you want to quit your job?

You can certainly keep your rental business separate from your wife’s business. Just set up a separate LLC for the rentals.

Good Luck,

Mike

You’re right propertymanager. I just read my previous post. Putting more money down on an overpriced priced property is not a good idea. I knew that but didn’t realize what I wrote. :anon