Newbie with Plans, Questions on Next Steps

General Real Estate Investing
1

Ok. After months of wrangling, I have a plan. I have a 30K double in an Northeast City. Gross 12K rent. Low taxes. Figuring property management, reserves, etc I am looking to net 7-8K on this property. I plan on using 5K for down payment and financing rest.

I think that’s the easy part.

Next steps are where I get a little cloudy. I would like to parlay this into a series of small scale doubles in similar rent situations in the same City and eventually grow into some major holdings (or a single, larger scale holding, like an apartment complex, etc) after 10 years.

Any advice on the early years?

2

Once you complete the purchase of your first rental property,

  1. Get the property tenant occupied with annual leases.

  2. Locate your next property acquisition and get it under contract.

  3. Secure financing and purchase property.

  4. Go back to step 1.

These are the major steps. Depending upon the property, each step may have several sub-steps. Unless I misinterpreted your question, it really is this simple.

3

Good advice by Dave T. Take it one step at a time, don’t overextend yourself, and don’t become the motivated buyer. You’ll do fine. :cool

4

You have to finance them in the early years, but you are going to find that you are not going to make your projected cash flows. The only way to make money in the rental business is to have them paid for. Then you can use the cash flow to buy another one. Or you can buy one to sell and then have enough to buy two. Keep one free and clear and sell the other to keep acquiring properties until you have the income that you are looking for.

Redhawk

5

Dave, AJ and Redhawk,

Thanks for the advice. Will probably be locking up this contract soon – thanks for the notes.

My biggest question remains centered on whether to roll income (7-8K/yr on the 1st property I purchase) into the debt I will have to incur on that property (~20-25K loan, commercial/conventional) for a quick paydown (~3 yrs) OR to utilize the cash flow in some other manner, i.e. building a down payment for the 2nd purchase.

I know some of you mention importance of having one parcel owned outright, which I took believe is important.

I also am not sure when to start the second purchase and whether or not multiple (I believe 4 is the new limit for non-owner occupied mortgages) mortgages is the way to go about accomplishing this systematically. Ideally the scenario I would love would be an open line of credit of say 200K to draw down from over 5-7 years with proceeds of the draw downs used to purchase duplexes in the 30-50K price range with 20-25% cap rates.

I assume that type financing option went out the door w/ Fannie/Freddie meltdowns?

Thanks for the assistance!

6

If you get commercial loans, the only limit is when the bank says they’re not loaning any more to you.