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Next Step

Stanly Hernandez
San Pedro, CA · Member since 2013 · 14 posts · 0 votes

I'm interested in a duplex-quad in the Los Angeles area. I attended a FIBI event and talked to an experienced investor about my idea of starting out with a duplex where I can live in one unit and rent the others. He said its a great idea to start off like that.There is one thing stopping me though... I don't know my next step! I read the Ultimate beginner's guide and lots of blogs here in BP, but I'm still lost. I might be lying to myself. I sometimes lose hope or just say to myself "give up". I've seen a couple of properties in realtor and zillow but everytime I call an agent I feel like they don't want to work with me. Maybe because i'm 21 years old ... I don't know. I have school loans, car note, bills and rent to pay. I don't have the 3.5% down payment that the FHA requires on a 350k(+) homes here in the L.A area. It's really expensive in this area.

So my question is: #1.Should I pay off my loans first?( witch will take approx 5 years to do so) Who knows how the market is gonna be in 5 years. The time to buy is now... right?

#2.Can I get a full loan that will cover the house and the down payment?

#3. The car that I bought might be a problem. I finance it for 72 months. I'm stuck with it now. Are there anyways to return it without hurting my credit?

Any advice is appreciated! I would love to get together with someone in my area to talk and might want to mentor me. Or over the phone if possible. Thanks!

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  • Ryan Logsdon
    SFR Investor · Los Angeles, CA · Member since 2013 · 134 posts · 16 votes
    13y

    Hi Stanly Hernandez.

    It's great that you're looking for a 2/3/4plex in LA, but get ready for very low returns. LA's a tough market for cashflow.

    First, drop any agent who doesn't give you the time of day. There are enough great agents out there, you don't need to waste your day on the bad ones.

    Now to address some of your questions,

    1a) Evaluate how large your debt-to-income ratio is. What's the interest rate on your current loan, and can you make a higher rate of return by investing rather than paying all of your debt off now? That is, can you use your money (and other people's money!) more effectively? There's no clean and clear answer that works for everyone.

    1b) It's not about this being "the time to buy." It's about evaluating an opportunity and seeing if it fits your requirements. Keep that in your mind, and you'll always find a buy when everyone else screams SELL. You'll also see when to walk away from a "deal."

    2) Start getting comfortable with mortgage calculators. Build a 2-part loan for yourself. Take a loan out on a hypothetical property, 85% of X-hundred-thousand dollars at the average bank rate (higher rate if your credit's not great), then take a 2ndary loan on the remaining 15%. Play with the numbers, and see what the highest rate is that you can afford for that 2nd loan. See if you can find a private lender advertising that rate or lower. Move it to 90/10, 80/20. See what works, if anything. There's no clear cut answer, but on this one, keep in mind that concessions will need to be made. Say the seller carries your 2nd, what will you give them in return? It's not going to be higher earnest deposit nor a larger down payment.

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    13y

    Ryan has given you some good advice. Whether to pay off loans has 2 parts to it.

    1) Can you invest the money you would use to pay off the loans at a rate that is higher than the loans you are paying off?

    2) You personal attitude towards debt. Debt can be used effectively to grow your investment real estate. However more and more people are moving in the direction of being debt free.

    One thing to keep in mind. If you are paying off loans that are at say 10% interest, it has the same effect on your net worth as if you invest your money at 10%. The difference is paying off the debt is a lower risk alternative.

    Good luck - Ned

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  • Ryan Logsdon
    SFR Investor · Los Angeles, CA · Member since 2013 · 134 posts · 16 votes
    13y

    Thanks Ned Carey.

    0Reply
  • Dev HornPro Member
    Flipper/Rehabber · Arlington, TX · Member since 2013 · 1k+ posts · 2k+ votes
    13y

    CA is a tough market for a young person even with "good" credit. Everything is just so freaking expensive there.

    In this business you need "working capital". In most markets like here in TX, you can get rolling with $20K to $30K. In CA, I think it's more like $50K. So, keep all your bills paid so you maintain a decent credit rating, and start doing some things to create a pile of cash (work overtime, deliver pizzas, rob 7-11s - KIDDING - whatever it takes).

    I just see so many people struggle to operate in this market with NO working capital and they spin their wheels a lot. You're asking some good questions - treat this like a business, figure out how to fund this new business, and then how to scale it once you get started. That's a "strategic" way to think about it...

    Best Wishes to you!

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  • Stanly Hernandez
    OP
    San Pedro, CA · Member since 2013 · 14 posts · 0 votes
    13y

    Thanks to everyone for your time and advice. Ill keep them in mind and take the next step. Ill build capital and my credit. Again thank you all.

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  • Kirk R.
    Peoria, IL · Member since 2013 · 967 posts · 383 votes
    13y

    Hi Stanley - I've been working to build my credit.

    Some Excellent FREE Credit Sites are:
    www.creditkarma.com
    www.creditsesame.com
    www.credit.com

    A couple things I've done besides joining the above 3 sites:

    Get secured credit cards - go to credit unions they are free. Big banks charge a bunch of expensive fees. Although before they approve you for a "secured" credit card they do a pull against your credit. Doesn't make sense they do credit inquiry since you have to have the CASH behind the "secured" credit card. Take out personal loans through the credit unions - They keep the money. I did one for 12 months for $1000. The credit union keeps the loan. Paid like $17 in interest on the $1000.

    PREPAID is not the same as SECURED - talk to a credit union they are very helpful.

    First Post on here. Hope it helps. Really enjoying the site so far. Looking for my next step.

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