Investment path advice for 24 year old investor.
Investor · Warren, OH · Member since 2013 · 7 posts · 1 vote
Hi Everyone,
My mother has been investing in real estate for the past 10 years and I have helped her along the way with basic work. I never looked at it as a career path until I recently came across a video of Brandon Turner's and it inspired me to begin investing.
As of now I have one property which will be finished within a week. It is paid off and has a value of roughly $90,000. I have a tenant moving in January 1st and will be making $900 a month in cash flow from the property.
What should my plan be to expand my portfolio at this point? As of now I think it would be best to refinance my property and use that money to acquire another house and pay for repairs. Is that a bad idea?
My long term goal is to hit a net worth of $1 million by 30, and have around 10 properties. I think that is very achievable for a 6 year plan.
Thank You,
Kyle
After doing 1-4 unit mortgages for all types of borrowers for the last 12 year I've learned a lot from these investors. Not one of them has ever said it was a bad decision buying their property I would say all of them would probably say it was the best thing they've ever done.
Here's my plan take from it what you will (I wish my parents knew enough to do this).
I have two kids and soon as they turn 18 I will have them buy a 4-unit using FHA 3.5% down and a blood relative (me) as a non-occupying co-borrower and source for down payment. FHA you can use 85% of the rental income to qualify too so I may not need to be on the loan. When the property appreciates enough to pull cash out I will have them pull cash out for a 25% down payment on another 4-unit property. Continue this cycle until 4 properties are owned and financed. Then from 5-10 properties the down-payment will need to come from other sources or obtain seconds because you can not leverage by doing cash-out refinances with more than 4 properties owned and financed.
*As a side note, at any age if someone is living in an apartment with the FHA opportunity you might as well go out and by a 4-unit because on FHA loans they let you use the rents as income to qualify, this has to be one of the greatest opportunities allowed by FHA or any other loan program.
Take as much as out of the property as you can but do not exceed 2:1 debt to income ration. For example, if your net income after all expenses on the month ly rent is 650, don't let your debt payment be more than 325 per month. You will never become over leveraged using this philosophy. Banks and private money lenders love fiduciary discipline. So, now for the money you take out of the property. Don't buy one property here, one property there. Wait and have patience for a giant package comes along that offers owner financing. The banks are becoming more and more stringent on lending to investors for single family homes so there is going to more seller carry backs in the future. Lend the money out short term to a hard money lender and sit and wait for the giant package and pounce on it. Be Ready! So, since you want to do this for a career? Learn to wholesale and put deals together. If you become good at this you will make so much money you will not to do with it. While you are wholesaling you can have first dibs on the packages that come across your desk and use that money to buy the package.
Hope this helps
I would say yes, refinance. In my opinion, it rarely makes sense to own a property outright (and before people tear me apart, read the if) *IF* your goal is to expand your portfolio as fast as possible. Sounds like 10 properties in the next 6 years is a good pace. If your goal is to make $10k/month and stop investing, maybe owning all properties outright will work for you. Like Brad said there are some calculations that go into how much you refinance. First, banks probably won't lend you more than 80% of the appraised value so that's your top end. As a new investor, you should have a minimum goal of how much cash flow you require before buying a property. I'd re-finance your current property to the point where you don't fall below that limit (or stay comfortably above it). Then use that capital to continue your empire! :)
Thank you for the advice Brad, I appreciate it. I am not familiar with wholesale or putting together deals, I have a lot to learn in that respect. Also, what do you mean by a big package, a multi-family?
My mom has always done the buy one house, repair, rent, refinance, buy another house method and it has worked well for her. But by all means if there is a quicker way to make more money, I am all for it.
Thank you as well Justin. I have a full time job and make decent money for my age at this point. If the houses are paying for themselves and I am making even a marginal amount of cashflow I would be fine with that. I know im not going to become wealthy overnight, my eyes right now are on setting myself up within the next 4-6 years to make close to six figures and allow myself to become self employed.
Good luck with your current and future ventures!
After doing 1-4 unit mortgages for all types of borrowers for the last 12 year I've learned a lot from these investors. Not one of them has ever said it was a bad decision buying their property I would say all of them would probably say it was the best thing they've ever done.
Here's my plan take from it what you will (I wish my parents knew enough to do this).
I have two kids and soon as they turn 18 I will have them buy a 4-unit using FHA 3.5% down and a blood relative (me) as a non-occupying co-borrower and source for down payment. FHA you can use 85% of the rental income to qualify too so I may not need to be on the loan. When the property appreciates enough to pull cash out I will have them pull cash out for a 25% down payment on another 4-unit property. Continue this cycle until 4 properties are owned and financed. Then from 5-10 properties the down-payment will need to come from other sources or obtain seconds because you can not leverage by doing cash-out refinances with more than 4 properties owned and financed.
*As a side note, at any age if someone is living in an apartment with the FHA opportunity you might as well go out and by a 4-unit because on FHA loans they let you use the rents as income to qualify, this has to be one of the greatest opportunities allowed by FHA or any other loan program.
Thank you for the input Ed, that is certainly something to look at that I have never heard of before. Sounds like a very good plan and I would expect you would know seeing as you are in the real estate industry.
As of now I'm happy to finally have one under my belt that is paid off and rent coming in next month. Im going to start looking over the next 2-3 months for my next property and hope that I can come across a nice deal.
@Account Closed A package is something like this. I have this under contract and looking to buy.
25 houses. purchase price is
$ 800,000
20% down payment
seller is carrying the rest of the note for 600 k amortized over 25 years with a balloon in 7.5 years.
I will be projected cash flowing. after expenses 12,000.00 per month.
12,000.00 per month x 12 months = 144,000 per year / 160,000.00 per month = 90 % return on money.
that is what i mean. you get wealthy finding those deals.
Ed, I'm curious as to if FHA will allow you to apply rents as income to qualify if it's a single family with a mother-in law suite or if it's a single family (say 3bdrms) and you plan to live in one bedroom and rent out the other two?
Kyle E. The key to success in real estate investing is the same as every other industry or career path: continual learning/intense study. Also, decide which area of real estate investing you want to go into and become an expert.
Deciding the area to go into can be more difficult than it seems but I think most people here would agree it is incredibly important. Of course, you can change your mind. But, the quicker you figure out what area is of particular interest and focus on that, the greater the probability of long-term sustainable returns.
I have the advantage of speaking with, looking at the balance sheets of and arranging financing everyday for many individuals who have been successful enough in real estate investing to move into buying larger commercial properties. I learn a significant amount from what they say but, more often than not, I learn even more by asking for details about the practical means by which they orchestrate deals. The most successful ones have a methodology and they stick to it. They aren't afraid to walk away from a perfectly good looking deal because it simply isn't in their 'circle of competence'.
Also, be aware from the start that different strategies necessitate different models. Thus, focusing entirely on residential throughout your life by necessity means that you will reach a scale barrier that will be difficult to jump past without additional effort and risk exposure. On the other hand, focusing long-term on working into bigger deals on the commercial side by necessity means that you are quite often exposing yourself to more risk and building a strong network of equity partners will become a critical step in starting a real estate empire. Regardless of the area in which you want to focus, there are certain skill sets that each area will necessitate. Early on, it is practically impossible to identify all those skill sets. Thus, one of the early steps, in which I wish I had invested more time at the beginning, should be constant networking and asking questions of those who are experts in what you want to do.
Ask questions and don't stop. There are plenty of people with amazing amounts of insight and the more time you can spend around them the better. You will start to pick up even the tiny differences in how they look at something but those tiny differences often have a profound effect.