Is this a good strategy for a first time investor?

6 Replies

So I have really been into REI lately and doing a lot of research and I think it's about time I develop and short term and long term plan. Just some info, I have very little capital. Anyway I was wondering If i could have some insight on what investment vehicle to pursue for a first time investor with little capital.

Here is what I have come up with so far:

Option one: Finance an owner-occupied duplex/triplex with a FHA loan and only 3.5% down payment. I have the money and the credit score requirement but I do not meet the 2 year employment requirement. Also this option seems very slow with minimal cashflow. And I want cashflow for future investments

Option two: Look into buying and holding small/less expensive properties, at first (due to my little capital) renting them for cash flow for later investments. Seems the most reasonable and doable to my knowledge at this point.

Option three: Partnering with other investors, lots of networking on my part, on flips until i raise enough capital to start funding my own flips. This one is a longshot but seems like it would make more significant gains faster. But also more risk involved.

Right now I guess what sounds best is to buy and hold, rent to build some cashflow and then transition into flipping. What do you guys think??

Insight and constructive criticism would be greatly appreciated =)

This post might as well have been written by me, I'm in a very similar position. Also with option 2 did you mean that you'd use conventional financing to purchase cheaper (~50000$ im guessing?) SFRs? I think the most accurate answer honestly is "it depends." The city your buying in, the specific location of the property, and basically all your due diligence will add up to your actual cash flow per deal and will paint a better picture of single vs multi family as a strategy I believe. For me I think an open mind is best at this point, and as I talk to realtors, brokers, and other investors i'll have a better idea of what kind of strategy works best for my area and me. I also don't see why you couldn't do option 3 in addition to 1 or 2? Anyway good luck!!

Hello,

I suggest being open to any and all opportunities. In my personal option, for you being new and very little capital, I would suggest partnering up. I don't see how partnering would increase your risk over the other options? Also, do you attend your local REI Group meetings? You should find quality resources there! Hope the best for you!

@Jacob Cannon and @Abbott Mary The buy and hold thing is really not a place for beginners with only a small amount of money. The cash-flow is not all that you think it will be after you pay for vacancies, repairs, maintenance, new HVAC when it goes out, new roofs when they go out, etc, etc, etc. And the cash-flow really sucks when you don't have much of a down-payment and you have to load the property up heavily with debt.

My suggestion is to find a good deal on a good fixer-upper that you can buy to live in. And use that great FHA loan. If you buy it right and do some repairs yourself, you can get some equity. Then, get a HELOC against the equity, or sell it after a couple of years and repeat the process until you have some capital.

@Bryan L.

Thanks for the reply Bryan, and It's great to hear from a fellow Tennessean! I plan on using the FHA loan on a duplex/tri/quad, that way I can develop those landlording/investing skills and save myself some rent money at the same time. I should also mention that I would not be using my properties as a means to come up with money for my other investments for quite a while and my down payment money would initially be coming from other sources (career savings). Do you think i should just start with SFHs like you said, or do you think the owner occupant is viable/worthwhile?

@Abbott Mary Others may disagree with me, but I really don't recommend multis for newbies. Unless you've been around the biz by growing up as the child of an investor or something. If you make a mistake in buying a multi, it can really eat your lunch, and for a long time (ask me how I know).

What is your experience level. Have you ever owned a home before?

@Jacob Cannon

& @Abbott Mary

I'd go with FHA, owner occupied 3.5% down, and have seller pay 6% seller help with closing costs. I'd live there for a year. Rinse and repeat.

I actually know somebody who bought 7 serial owner occupied mortgaged houses including a 3 unit, a 4 unit, a townhouse, a condo, several SFH, and a farm all as legal owner occupants by staying a year then moving on to a new property. He was always putting down the smallest down payments, getting the lowest interest rates and fixed for 30 year. All legal and...

How sweet it is!

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