First Deal Advice

[Quentin Lee]

I have been thinking about investing into real estate for a few years and have started taking the first steps toward that goal recently. I have been doing research, learning strategies and terminology, and begun to form an idea of what type of investing might work best for me in my market. However, I have similar hurdles as many do in getting their first property. Another thing I am doing right now is looking for a mentor to help with my strategy, but in the meantime I thought I'd make a post and hear what BP investors would do in my shoes.

For my situation, I am 26 and I have a very low income (55-65k annual) for my household and a growing family of 5 to support. Naturally my DTI is high, however my only debt is our primary residence mortgage I have had since 2020. We have some cash savings in the ballpark of 10k ready to invest today not including emergency fund and other savings, but that number is growing thanks to a recent bump in income.

Now for the pros. Our home was purchased in 2020 for 160k and I have done many renovations to the property myself. We currently owe about 140k and it was appraised last year at 250k. Today it would probably be worth more than that with further improvements, but I'm not sure how much more, maybe upwards of 280k. 

Following this, I consider it another pro of our situation that I have the ability to do significant property renovations myself, and between my wife and I, we make a pretty good design team. Although my spare time to complete such projects follows seasonal work highs and lows, it would be smart for any type deal I consider to involve adding value myself to the property.

With at least 100k (possibly up to 140k) of equity in our home, I have done a fair amount of research in HELOCs and refi. I also have decided that with our current income, it is a necessity that our first property have positive cash flow. I think this is doable with my midwest market, but difficult with current borrowing rates. The fact that our current rate is only 3% doesn't help the refi situation, as we probably would not be able to afford (or would at least struggle to afford) the payment on the new mortgage with the higher rate and principal.

I think the best way to max cash flow would be with a small multifamily that needs moderate rehab. I have some ideas about how to make this possible (partnership, private loans, refi/heloc, or combination)...

But what would you do in my situation, if you were starting your portfolio from the beginning in 2024? If it helps, my goal is to scale, but I do not intend to go full time. Between my wife and I, we should be able to manage a small to medium portfolio and as of today, we don't desire to have a large portfolio.

Thanks in advance,

Quentin

[Sam Woody]

Glad to hear you begin your investment journey Quentin! As an investment real estate agent, I'd suggest being able to move as quickly as possible when the time comes to purchase a property. Look into off market properties in your area- whether through Facebook or an investment brokerage like New Western. Likely, these off market properties will move fast so being fast is key. Best of luck Quentin!

[Travis Main]

Hey Quentin, 

It sounds like you're in a solid position to start your real estate investment journey, especially with the equity you've built up in your home and your ability to handle renovations. Given your situation, one strategy that could work really well for you is the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat).

The BRRRR strategy is a powerful way to scale your portfolio, especially when you're working with a limited budget and need to focus on cash flow. It's a smart way to leverage your current resources while keeping your financial risk in check.

If you ever need advice on financing or want to discuss this strategy further, feel free to reach out. Best of luck as you start building your portfolio in 2024.

[Jackson Ebersole]

Hey Quentin, 

Here are my bits of advice:

Prioritize Value-Add Opportunities: Focus on properties that require cosmetic updates rather than extensive structural repairs. Since you and your wife have renovation skills, targeting properties that need minor improvements can maximize your return on investment while minimizing the time and cost associated with major renovations. Look for properties with outdated kitchens or bathrooms, as these updates often yield high returns. Fences, basic landscaping, tree removal can put some nice padding into your margins as well. 

Focus on Positive Cash Flow: Given your goal of ensuring positive cash flow, look for small multifamily properties that require moderate rehab. Analyze potential rental income versus expenses carefully to ensure the property will generate income from the start. This aligns with your financial situation and helps mitigate risks associated with high debt-to-income ratios. Happy to discuss in further depth if you would like.

Explore Creative Financing Options: Look into alternative financing methods such as seller financing or lease options. These strategies can allow you to acquire properties without traditional bank financing, which can be beneficial given your current DTI and income situation. Creative financing can provide flexibility in structuring deals that work for your financial situation.

I understand that rates are a bit higher than everyone would like at the moment. However, we are expecting 2 rate cuts this year. This would allow you to leverage what Travis said, Buy, Rehab, Rent, Refinance, Repeat. Everyone will be jumping back in, making the market much more tight. So right now is a chance to nicely position yourself when this occurs. 

Good luck!

Jackson

[Wale Lawal]

@Quentin Lee

To build a successful investment portfolio, focus on cash flow, value-add potential, and cautious leverage. Start small with a property within your budget and skill set, using HELOC for funding. Focus on small multifamily properties with moderate rehab potential. Use private money lenders and choose a conservative market. Scale with a long-term plan, acquiring one or two properties every few years. Seek mentorship and expand your network.

Good luck!

[Sam Woody]

Glad to hear you begin your investment journey Quentin! As an investment real estate agent, I'd suggest being able to move as quickly as possible when the time comes to purchase a property. Look into off market properties in your area- whether through Facebook or an investment brokerage like New Western. Likely, these off market properties will move fast so being fast is key. Best of luck Quentin!

[Timothy Franklin]

Hi Quentin, I am new myself, but I understand the position you are in. Since you have 10k liquid, I would reach out to other investors in the area and see if they might need private lending for earnest money deposits until you are ready to buy your first property. This could let you start building relationships with others in your area (and potentially lead to joint ventures later) and to build up your working capital. You could consider wholesale also (but personally I hate those calls and the run around). I am happy to connect and bounce ideas and share info as we both grow, if you like.