My wife and I are interested in investing in real estate, but am not sure where to start.
First, some quick background info on us – We live in the Boston area, are in our mid to late twenties and have about $100k in liquid capital. We are looking to invest about $30-40k of the money to start investing in property. We both have 700+ credit scores. My wife has her RE license but has yet to work in the industry (I’m not sure if that gives us an advantage or not) and I am an accountant. I have experience with home improvement so a little construction here or there won’t be a problem. However, seeing as my wife and I both have day jobs, we wouldn’t have too much time fixing up a home.
Also, we just found a REI club in our area so we are going to attend the next seminar.
Now that you have some background info on us, here are our questions:
What types of investments should we be looking for - i.e. multi-unit rentals, flips, foreclosures, etc.
Where do people find these properties that are selling at a discount? Are they regular MLS properties or do you have to subscribe to a foreclosure listing?
I’m sure there will be some bias to this question, but what types of RE investments seems like a good place to start for us?
How do we know if a property is selling at a discount?
Any other suggestions/ideas that could help us would be appreciated.
Probably all these questions can be answered by experienced investors at REI club. It’s a great place to start. When I first started I had many of the same questions. I did a lot of reading but 1st hand experiences from other investors was the most helpful. good luck.
Types of real estate and methods of investing in real estate are as varied as the stars in the heavens. You need to get clear on what your GOAL is first. I mean get really clear - have dollar amounts and time line.
For example:
Goal #1 to own our primary residence free and clear
Goal #2 to have an income from real estate ( like $20K per month for LIFE)
Goal #3 to have goal #2 met by age ____?
Goal #4 to have enough $$ to buy ____? and ____? (again be specific as to $$ amount)
Once you have your goals clear in your head, you should explore and learn about as many types of re investments and methods out there and percieve them in reference to your goals. This will help you save time and money from pursuing only the sexy or trendy methods just becuase the guru teaching them was so convincing.
The other thing is ask yourselves if you are ready to make investing a priority? Most people just hover on the edge of investing as long as it doesn’t interfere with their current lifestyle and spending habits. If you are serious about re investing as a way to reach your financial goals, you have to be ready to make some significant changes in the way you currently handle or spend your disposable income.
What do you mean by the need to change your spending habits for your disposable income? My hope is to slowly phase in the REI and phase out the full time job. (I plan to keep working part time to keep my health benefits.) Mostly our goal is for my wife to stop working and take care of the future kiddies. So we have specific numbers in mind for that.
But we’re hopeful that REI will take the place of her income, thus being able to maintain our current lifestyle (with a few minor changes in priorities).
Thank you for the input. My wife and I are very eager to get involved with RE investing. Ideally, I would like for my wife to quit her job when I am able to support the both of us and for her to focus on RE investing full time. I think this would work nicely because she can work at a RE company part time and here about the new deals, etc. As far as the specifics of our goals, thats a great idea and it something that my wife and I will do shortly. Can you recommend any books that have helped you along the way? I do have some experience from my father as he owns several rentals, but I think my RE investment strategy will differ from his.
You’re post is exactly like me and my husband 2 months ago. Credit, cash, Re license…the whole deal. After doing some research on our first investments in February, I got into contract for a 4-plex and duplex in Missouri. They cash flowed really well with 10 down. I found a lender in Florida (on-line)…and everything seemed to be just fine. By the way, I live in California.
But then, the lender wasn’t calling me back, my sellers were needing the cash, and I had a contract on a primary property here dependent on the cash flow of these investments. Suddenly my little 10% down went from 40K to 80K (including closing) because it was only after I was tied into the deals did I learn banks are pretty much doing only 75-80% LTV on 4-plexes and 2-plexes. I’m okay with it because we have very good cash reserves but my warning to you would be to get yourself the name of a good, reputable lender who can muddle through what is going on with the banks. Even appraisers are getting scrutinized. I had to move everything to the seller of the 4-plex’s lender. He’s done a great job of piecing things together – this truly could have been a financial mess for me or someone else had I not been able to come up with the additional funds and the sellers have been flexible with the time.
I just wanted to share my newbie experience. We’re set to close in the next few days. I was initially freaked out about putting down so much cash so I probably would not have purchased them had known at the beginning how much I needed to put down…but then property is insured, will appreciate and NOW with GREAT cash flow. I’m very glad to take the chance. We’ve got enough cash getting hammered in the stock market.
Sunny - how did you find these investments? Were they listed on a MLS site or did you work with a broker? Also, when you crunched the numbers how much profit did you figure you would net from rents?
I found the 4-plex on Loopnet and the duplex by googling variations of “cash flow investment properties”. What I liked about loopnet is you can search by cities and see the trends (sort of). I looked at that for a while. I found Kansas City was working well with the numbers. So that’s where we’re starting our investing venture.
We’re working directly with the sellers of the properties because they are FSBO. But be sure that the state license rules don’t require you to work with an agent when the seller is represented by an agent. It’s to protect your interests and you can get your own agent to pay you a referral fee. I think it’s okay to work direct seller to buyer if your wife has her license when it’s FSBO.
These are flippers who renovated older properties and will manage them after we by them. They are also giving a warranty on the work and rents for 1 year. Plus they know the properties through and through. I also thought the fact that they are sticking with ME and the property after the sale then they are straight to deal with. We had them independently inspected, too – AN absolute MUST. I’m seeing this trend popping up in various cities which I find very attractive as an out of state investor.
Just a side note…alot of those “new developments” coming up guaranteeing rents and and exit strategy look like a bunch of hooey to me. Look VERY hard at those numbers and the area factors if you find a project that interests you. I’ve always found that the builder’s are the only ones planning to make out on those deals.
I’ve worked as a property accountant so crunching the numbers is something I love…there are a couple of ways mentioned on this board (ex. 50/50 rule) that will tell you how. One thing I must say is that all too often on Loopnet and other’s they’ll say CASH FLOW but they will leave out 50% of actual expenses. I have a worksheet that I offset the rent income with recurring expenses – I include EVERYTHING (even income taxes, llc fees, tree trimming, repair reserve)…then I even pad that. We are expecting $1,000.00-$1,200.00 monthly cash flow on the combined investments. The bank is VERY conservative and the are recognizing $987.00 as added income to apply to the purchase of our home here.
I’d be glad to send you my worksheet via e-mail. My little quick trick so I don’t waste time analyzing properties is to look at it this way while searching…
Ex…
4-plex $200,000
each unit $50,000 X .10 (cap rate) = 500
If the rents per unit are not at least $100 over 500 = $600 , I move on. I find the numbers are usually fudged to get to the 10% cap rate anyway.