Looking for advice as I'm starting my long-distance real estate journey. Since I am investing out-of-state, house-hacking and putting down the 3% downpayment is out of the question. My first option is to go for a lower priced investment property (approximately $100k) that needs minor cosmetic repairs while the other option is to raise private capital and save for a higher priced property ($300-400k) that I can also do cosmetic repairs to increase ARV. I am torn since the lower priced property would at least get my foot in the door and begin to build momentum while the higher priced property would be more desirable in location, condition, tenants, etc. I am more open to hard money lending at a lower price point and refinancing within 3-6 months, but at the $300-400k, I would rather go with a conventional loan and refinance at the 12 month mark. Any and all thoughts on this would be appreciated!
Rental Property Investor · Washington, DC · Member since 2018 · 198 posts · 169 votes
3y
Hi Shalen,
The bigger question to ask is what class of property can you get at those various price points (A, B, or C) and which class do you actually want to be in? I own assets across that entire spectrum (A class I manage myself locally, B and C I have property mangers for locally and out of state) and I can tell you from experience that managing C class is a fair amount of work. The cash flow is better, but there is always some problem or tenant issue to address. If you have the stomach and want to be in this class that's totally fine, just set your expectations accordingly.
I would advise against raising money from others for your first deal. I think the responsible thing is to get into something on your own merit, learn the business, make your mistakes an grow as an investor, and once you have more of a track record, then look to borrow or raise money from private sources.
Rental Property Investor · Washington, DC · Member since 2018 · 198 posts · 169 votes
3y
Hi Shalen,
The bigger question to ask is what class of property can you get at those various price points (A, B, or C) and which class do you actually want to be in? I own assets across that entire spectrum (A class I manage myself locally, B and C I have property mangers for locally and out of state) and I can tell you from experience that managing C class is a fair amount of work. The cash flow is better, but there is always some problem or tenant issue to address. If you have the stomach and want to be in this class that's totally fine, just set your expectations accordingly.
I would advise against raising money from others for your first deal. I think the responsible thing is to get into something on your own merit, learn the business, make your mistakes an grow as an investor, and once you have more of a track record, then look to borrow or raise money from private sources.
Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
3y
Hey Shalen,
My preference is going with the $100k and doing the light cosmetic updates. I'm biased though because that's exactly what I do.
I live in California but invest in Detroit. I have 12-doors there now and this is the exact strategy I do for my portfolio. I also help others do the same because, well... I just can't do EVERY deal myself.
Feel free to reach out if you want to talk about it.
I agree with Michael. What type of property do you get for $100K in the area you are looking at? IF you can buy a good property for that price, then go for it. On the other hand if it buys you a home in a D class area, save up.
At the moment, I am looking near Nashville, TN. If I go further out, I can get a B- or C property for 100k. I would need to hire a property manager since I am out of state.
I agree with you on your statement about using my own money for my first deal. Initially, I wanted to focus on that until I was presented with the option of getting into a more desirable property with a higher price tag. For me, I want to get started in this journey and get off to a good start. Perhaps it would be best to stick to the original plan and use my own money for my beginning stages. What are your thoughts on hard money loan vs. conventional mortgage now that the seasoning period has increased to 12 months?
The bigger question to ask is what class of property can you get at those various price points (A, B, or C) and which class do you actually want to be in? I own assets across that entire spectrum (A class I manage myself locally, B and C I have property mangers for locally and out of state) and I can tell you from experience that managing C class is a fair amount of work. The cash flow is better, but there is always some problem or tenant issue to address. If you have the stomach and want to be in this class that's totally fine, just set your expectations accordingly.
I would advise against raising money from others for your first deal. I think the responsible thing is to get into something on your own merit, learn the business, make your mistakes an grow as an investor, and once you have more of a track record, then look to borrow or raise money from private sources.
At the moment, I am looking near Nashville, TN. If I go further out, I can get a B- or C property for 100k. I would need to hire a property manager since I am out of state.
I agree with you on your statement about using my own money for my first deal. Initially, I wanted to focus on that until I was presented with the option of getting into a more desirable property with a higher price tag. For me, I want to get started in this journey and get off to a good start. Perhaps it would be best to stick to the original plan and use my own money for my beginning stages. What are your thoughts on hard money loan vs. conventional mortgage now that the seasoning period has increased to 12 months?
At the moment, I am looking near Nashville, TN. If I go further out, I can get a B- or C property for 100k. I would need to hire a property manager since I am out of state.
I agree with you on your statement about using my own money for my first deal. Initially, I wanted to focus on that until I was presented with the option of getting into a more desirable property with a higher price tag. For me, I want to get started in this journey and get off to a good start. Perhaps it would be best to stick to the original plan and use my own money for my beginning stages. What are your thoughts on hard money loan vs. conventional mortgage now that the seasoning period has increased to 12 months?
I agree with Michael. What type of property do you get for $100K in the area you are looking at? IF you can buy a good property for that price, then go for it. On the other hand if it buys you a home in a D class area, save up.
At the moment, I am looking near the Nashville, TN area and would most likely be looking at a B- or C property
My preference is going with the $100k and doing the light cosmetic updates. I'm biased though because that's exactly what I do.
I live in California but invest in Detroit. I have 12-doors there now and this is the exact strategy I do for my portfolio. I also help others do the same because, well... I just can't do EVERY deal myself.
Feel free to reach out if you want to talk about it.
I agree with Michael. What type of property do you get for $100K in the area you are looking at? IF you can buy a good property for that price, then go for it. On the other hand if it buys you a home in a D class area, save up.
At the moment, I am looking near the Nashville, TN area and would most likely be looking at a B- or C property
I'd save until you can get a B class property. You also mentioned hard money lenders-save for your down payment. Often the markets are slower in the winter (check if that is true for your local market) as fewer people want to move.
At the moment, I am looking near Nashville, TN. If I go further out, I can get a B- or C property for 100k. I would need to hire a property manager since I am out of state.
I agree with you on your statement about using my own money for my first deal. Initially, I wanted to focus on that until I was presented with the option of getting into a more desirable property with a higher price tag. For me, I want to get started in this journey and get off to a good start. Perhaps it would be best to stick to the original plan and use my own money for my beginning stages. What are your thoughts on hard money loan vs. conventional mortgage now that the seasoning period has increased to 12 months?
When you say further out from Nashville you can find B and C properties for 100k. How much further out? 7 hours in the midwest???
The bigger question to ask is what class of property can you get at those various price points (A, B, or C) and which class do you actually want to be in? I own assets across that entire spectrum (A class I manage myself locally, B and C I have property mangers for locally and out of state) and I can tell you from experience that managing C class is a fair amount of work. The cash flow is better, but there is always some problem or tenant issue to address. If you have the stomach and want to be in this class that's totally fine, just set your expectations accordingly.
I would advise against raising money from others for your first deal. I think the responsible thing is to get into something on your own merit, learn the business, make your mistakes an grow as an investor, and once you have more of a track record, then look to borrow or raise money from private sources.
At the moment, I am looking near Nashville, TN. If I go further out, I can get a B- or C property for 100k. I would need to hire a property manager since I am out of state.
I agree with you on your statement about using my own money for my first deal. Initially, I wanted to focus on that until I was presented with the option of getting into a more desirable property with a higher price tag. For me, I want to get started in this journey and get off to a good start. Perhaps it would be best to stick to the original plan and use my own money for my beginning stages. What are your thoughts on hard money loan vs. conventional mortgage now that the seasoning period has increased to 12 months?
At the moment, I am looking near Nashville, TN. If I go further out, I can get a B- or C property for 100k. I would need to hire a property manager since I am out of state.
I agree with you on your statement about using my own money for my first deal. Initially, I wanted to focus on that until I was presented with the option of getting into a more desirable property with a higher price tag. For me, I want to get started in this journey and get off to a good start. Perhaps it would be best to stick to the original plan and use my own money for my beginning stages. What are your thoughts on hard money loan vs. conventional mortgage now that the seasoning period has increased to 12 months?
If you're looking in Nashville, most of my work is in flipping and developing properties in Nashville and if you're going to use hard money, a lot of people are going to require a 15% APR simple interest, with 2 to 3% origination points, charged and require an ARV between 70 and 75%
if that’s a lot of jargon, you’ll pay 15% interest or maybe a little more but an interest only loan on the funds you draw for your flip. Upfront they’re going to charge you 2 to 3% of the total loan amount for originating a loan. And they will require that your entire project cost with acquisition and repairs is no more than 70% or 75% of the exit sale price.
at first, the interest payments would be pretty nominal, and then they get higher as you draw more from your loan.
personally, I love using hard money, and what I would also consider is using gap funding where you would borrow the funds for the down payment on the loan, as well as the estimated interest payments so that basically you have no money down investment, but you're still using your own money to secure the loan but you're giving yourself some additional cushion and offering a 10% APR interest on the amount required so in like $100,000 property if you needed $20,000 they would get $2000 for lending the money over the course of a year(166$/ month interest) for and probably give them 1-3 points for giving you the gap funds for the project.
the best thing I can tell you to do is figure out how to properly estimate construction costs for the flip because if you’re looking at $100,000 home, it’s probably in disrepair, and it may need a good amount of money maybe even more than the home is worth I need to compare that again to what it would sell for.
I would save for your first renovation, before buying, partner, with an agent, who understands investment, who understands the fix and flip process, who has builder relationships, as well as understands that you should have an inspector come in during your due diligence. And the contractor so that you can determine whether it’s a deal you’re going to go through with or not , and it’s better to have spent a few hundred dollars for those professionals time versus being $200,000 into the deal with razor, thin margins, because things kept cropping up.
Message me if you want to talk more about this as I would love to help you work through some of your options and be a good sounding board on what your thoughts are and what you would be the right avenue for you based off of what you want to do.
Looking for advice as I'm starting my long-distance real estate journey. Since I am investing out-of-state, house-hacking and putting down the 3% downpayment is out of the question. My first option is to go for a lower priced investment property (approximately $100k) that needs minor cosmetic repairs while the other option is to raise private capital and save for a higher priced property ($300-400k) that I can also do cosmetic repairs to increase ARV. I am torn since the lower priced property would at least get my foot in the door and begin to build momentum while the higher priced property would be more desirable in location, condition, tenants, etc. I am more open to hard money lending at a lower price point and refinancing within 3-6 months, but at the $300-400k, I would rather go with a conventional loan and refinance at the 12 month mark. Any and all thoughts on this would be appreciated!
Go big or go home. If you're not uncomfortable you don't grow as fast or at all. Stagnation will be your biggest regret. That said, find a mentor before you start to bounce ideas off, or just use this forum for big decisions along the way. The $100k properties will be in undesirable areas and your equity will die in market downturns (which we may be in now). Make sure your numbers have solid margins before executing that way it will always be investable to someone. Buy right.
At the moment, I am looking near Nashville, TN. If I go further out, I can get a B- or C property for 100k. I would need to hire a property manager since I am out of state.
I agree with you on your statement about using my own money for my first deal. Initially, I wanted to focus on that until I was presented with the option of getting into a more desirable property with a higher price tag. For me, I want to get started in this journey and get off to a good start. Perhaps it would be best to stick to the original plan and use my own money for my beginning stages. What are your thoughts on hard money loan vs. conventional mortgage now that the seasoning period has increased to 12 months?
When you say further out from Nashville you can find B and C properties for 100k. How much further out? 7 hours in the midwest???
A realtor I spoke with had classified Hyde's Ferry Park or Harding Place as B- or C property. Do you more insight into this area?
Real Estate Consultant · Reston, VA · Member since 2022 · 513 posts · 521 votes
3y
Have you considered finding a partner? That would be a great way to be able to expand your current budget while also working with and learning from a more experienced investor. Don’t discount $100k properties though. Depending on neighborhood class, strategy, etc a lower priced property could still be a great way to get in the door.
At the moment, I am looking near Nashville, TN. If I go further out, I can get a B- or C property for 100k. I would need to hire a property manager since I am out of state.
I agree with you on your statement about using my own money for my first deal. Initially, I wanted to focus on that until I was presented with the option of getting into a more desirable property with a higher price tag. For me, I want to get started in this journey and get off to a good start. Perhaps it would be best to stick to the original plan and use my own money for my beginning stages. What are your thoughts on hard money loan vs. conventional mortgage now that the seasoning period has increased to 12 months?
When you say further out from Nashville you can find B and C properties for 100k. How much further out? 7 hours in the midwest???
A realtor I spoke with had classified Hyde's Ferry Park or Harding Place as B- or C property. Do you more insight into this area?
There is one active listing under 100k in the whole city of Nashville. The Hydes Ferry Park that you're referring to is on a failed septic that can't be repaired or replaced per the comments.
If your budget is truly 100k, I'd really recommend a different market.
If you can get up to 250k I'd look into the secondary markets surrounding Nashville, but that is still a very low budget for the area.
At the moment, I am looking near Nashville, TN. If I go further out, I can get a B- or C property for 100k. I would need to hire a property manager since I am out of state.
I agree with you on your statement about using my own money for my first deal. Initially, I wanted to focus on that until I was presented with the option of getting into a more desirable property with a higher price tag. For me, I want to get started in this journey and get off to a good start. Perhaps it would be best to stick to the original plan and use my own money for my beginning stages. What are your thoughts on hard money loan vs. conventional mortgage now that the seasoning period has increased to 12 months?
When you say further out from Nashville you can find B and C properties for 100k. How much further out? 7 hours in the midwest???
A realtor I spoke with had classified Hyde's Ferry Park or Harding Place as B- or C property. Do you more insight into this area?
There is one active listing under 100k in the whole city of Nashville. The Hydes Ferry Park that you're referring to is on a failed septic that can't be repaired or replaced per the comments.
If your budget is truly 100k, I'd really recommend a different market.
If you can get up to 250k I'd look into the secondary markets surrounding Nashville, but that is still a very low budget for the area.
At the moment, I am looking near Nashville, TN. If I go further out, I can get a B- or C property for 100k. I would need to hire a property manager since I am out of state.
I agree with you on your statement about using my own money for my first deal. Initially, I wanted to focus on that until I was presented with the option of getting into a more desirable property with a higher price tag. For me, I want to get started in this journey and get off to a good start. Perhaps it would be best to stick to the original plan and use my own money for my beginning stages. What are your thoughts on hard money loan vs. conventional mortgage now that the seasoning period has increased to 12 months?
When you say further out from Nashville you can find B and C properties for 100k. How much further out? 7 hours in the midwest???
A realtor I spoke with had classified Hyde's Ferry Park or Harding Place as B- or C property. Do you more insight into this area?
There is one active listing under 100k in the whole city of Nashville. The Hydes Ferry Park that you're referring to is on a failed septic that can't be repaired or replaced per the comments.
If your budget is truly 100k, I'd really recommend a different market.
If you can get up to 250k I'd look into the secondary markets surrounding Nashville, but that is still a very low budget for the area.
Do you have any recommendations for markets within that price range?
Have you considered finding a partner? That would be a great way to be able to expand your current budget while also working with and learning from a more experienced investor. Don’t discount $100k properties though. Depending on neighborhood class, strategy, etc a lower priced property could still be a great way to get in the door.
Hi Jamie,
I would love to do this, unfortunately, I don’t know other investors at the moment. The only partner I would be able to find is one that can only provide money without experience. Some people on here have also recommended I don’t use OPM if I have no experience myself unless I’m pairing with a more experienced investor.
Investor · Hillsboro, OR · Member since 2016 · 304 posts · 153 votes
3y
I encourage you to meet up with some mortgage brokers and see what you can qualify for. With the plan you are describing ... you could buy a $400k home with a hard money lender. HML doesn't care about your personal income. But, to refi in to a trad mortgage for Buy and Hold .... that is all about your personal income. Only buy in a price range that you can easily qualify for a traditional loan.
Specialist · NJ · Member since 2022 · 1k+ posts · 649 votes
3y
In the investor networks I manage, I always tell people who are just starting out that it's ok not to start where you want to be in a few years. Expensive deals have expensive problems. Expensive fees. Expensive holding costs.
I tell people all the time that if you have 75k then I can help you build a multi-million dollar portfolio that cashflows at about .1% of the value each month. So on 3 million in real estate have 3k/month cash flow coming in after mortgage payments.
So, obviously I will advise you the way I advise my own clients. Start small. I'm in markets where I can put a brand new investor in a deal that will need them to float 40kish all in: down payment, fees, closing costs, holding costs, first in money fronted to contractor (recouped at last draw). So with 75k to start there is plenty of cushion. And I don't want them to hold these things. I want them to get through a deal in 3 months max close to close, that's the close on the house to the close on the sale of. You won't make much, maybe 20k - 30k but now you have 1 under your belt and you get in another at the same level and in another three months you make another 20k - 30k and now you have 2 under your belt. I'll ask you to do it one more time and in the next three months you make another 20k - 30k and now you are a 3.
Now you have about 50k profit let's say plus your starting capital and now we look at a bigger buy box and now look to do both strategies - find projects for the BRRRR (project cost < 70% ARV) and flips when that cashflow won't be there but a quick 25k - 40k is there for the taking so why not.
I get you to 10 as soon as I can, maybe in two years if we work, and now your terms and rates are much more favorable to those 300k - 400k buy box deals, plus after 10 deals, guess who is now much, much more liquid and can afford those deals all by themselves? You, silly.