I’m looking for advice, suggestions or recommendations for my first investment. I’m not sure whether to go with a 3-family rental first or a flip.
This would be my first home purchase in general. I don’t own a home right now – I rent. My idea was before I buy my first house to own and live in, to (OPTION 1) buy a rental for additional monthly income, so that I can afford a better home and then use the equity to get another rental etc. My big dream was to eventually get a bunch of rentals and live off the income and continue to invest, but I see how that could take a very long time.
My real estate agent advised me to do a flip first (OPTION 2), and if it works out, do another flip, then buy my house, and then get a rental or two etc., which makes sense because I’d be able to build up equity quicker.
I am well aware of the responsibilities that come with rentals, although I’m sure you guys would know of more than I do. Although I’m in healthcare finance now, not making a whole lot money, I do have construction background, so I’m not afraid of a flip either.
Then comes the question of how to get the mortgage for these properties... I have 12k cash but can sell one of my cars and get additional 13k for a total of 25k as a down payment. If I’m correct, with either a flip or a rental, I’ll have to get a conventional loan and 20% down, which leaves me very little money to rehab if I go with the flip, possibly, none.
There's also the option (OPTION 3) of doing FHA with less money down, while rehabbing the place with the remaining cash and living in it for a year, and then after a year, sell it gaining some equity. By then I should have enough to get another with a conventional loan, with money down and for rehab itself.
I’m really not sure which is the best way to go. Ideally I’d like to get into a house of my own within a year, while doing either the rental or a flip.Long term, I think I’d like to own a few rentals and live off that, but again, those are just dreams for now. Maybe these options are just unrealistic, period?
Any and all feedback is greatly appreciated.
Personally I listen to the Realtor, do flips. If you can the get the right prices and if the Realtor has worked with RE Investors you can make a decent profit margin that will help you with what you want. Rentals are great for passive income and that is what I am planning on doing, down the road. There are others that will tell you to Wholesale as well, money is not that great but its still a good income you just make more if you fix and flip but that does take a lot of work and a good team to work with you. Now me personally I don't mind getting my hands dirty but I know what I can and can not do, like for instance I can not do electrical (I know enough not to touch the live wire, its shocking). See what your strong points are if you don't mind doing the work yourself and see what your weak points are that is where you may want to consider hiring a General Contractor. But its really your choice :) I just thought I might put my 2cents in :)
Welcome to BP and Congrats on your decision to do real estate investing.
I would look at flipping most all markets are in good shap for it and you can do a lot of the work. It is still not easy to get a loan on a flip property form the bank. There are a few PVT lenders you could look at message me if you like.
I know you are excited about getting started and I understand so was I. Let me say a few things to you out of experience. First I see you have a job, so are you taking advantage of your employers 401k or if not offered do you have a roth or a self directed ira set up and are you maxing it? How about a emergency fund of $2000 or more? Also a living expense fund of 4mths if your out of work? These are just a few things that are a must have in place before you venture in to RE investing. I always say strive for min 7 streams of income in different sectors to have for your retirement.
Welcome to BP! You mention in your profile that you're a vet- doesn't that entitle you to a VA loan? I don't know the details on those, but I do know that that is often your best choice if it's an option. I'd look into that. A good solution for getting a home AND getting started investing might be to get into an owner occupied duplex or triplex (using your VA loan if it's possible)
@Konrad L. I saw you mentioned that your real estate agent "advised you" regarding your RE investment.
I would like to share with you my short story about my agent "advising"me:
I listened to my agent's advise about buying rehabbing and selling a 3 BR 1 BA SF and this is what happened. I worked my a### off to do a rehab project and made $2000 in 4-6 months. My agent made $12,000 on the same deal because he helped me buying AND selling the house as well. This was back in 1999. At that time soon after this deal i came to realize that the RE agents are good at Selling and I am the investor and i need to do my own homework independently from the agent on each investment project.
I am also a Vet (12 yrs USAF) and the way i started out, i would get a VA loan lived in the house for a year, than i would get a second one and rented out the first. (VA let me use the loan twice.) by than i had enough appreciation (equity) in the homes that with the next house I went to the local bank (small bank) they said they will pay 80% with 20% down so I asked them for substitution of collateral (the vp for commercial landing was quite intelligent and creative).
So instead of putting down 20% cash they accepted the equity in the other property in the form of a second mortgage with no monthly payment just as a collateral.
Disclaimer: This will work is you have enogh instant equity in the subject properties (you need to buy them for at least 60 -70 cents on the dollar.
Good Luck to you!
Welcome to the Best Real Estate Site on the Net.
It is always nice to see another Ct., resident in the forums.
Click on the "learn tab" at the top of this page, and you could be spending many hours on the Information that is available.
Thank you all for the quick feedback, I am pleasantly surprised how helpful people are on here!
Sounds like majority is leaning towards the flip, which I am too. However, that brings me to my next dilemma, which is financing. My only choice would be conventional and even if I have enough for the downpayment, I won't have enough for the rehab. If I can make it happen, it will increase my equity quicker yielding more possibilities following.
@sydney chase I will send you a PM regarding the private lenders - thank you.
Val, thanks for the 'story' and your service as well. That is the reason why I'm a little weary of 'trusting' their (not everyone realtor) suggestions.
Buying, rehabbing and living in a house for a year is my 3rd option. Sounds like it worked out fairly well for you. It also puts a little less stress on the getting the job done quicker, although doing it this way may take a little longer. Although, hopefully by the first year, there would be enough equity where I can just do a conventional and do it quicker.
Each of us is different, so it is hard to advise on what is the best way to go about investing in real estate. For me personally flipping did never really appealed as I thought it was a lots of work and in the end I am endup with some money but nothing to show for in the future! So my favorite is to buy SFR s with ugly carpet and paint fix that up and keep it rented. Since I take the properties highly leveraged ie (almost) no money down I have little cash flow for the first couple of years but I am patient and just keep going with it.I am more concerned about to make sure I go the second/third highest rated school areas in the county, so my houses will be sought after therefor cut down on future vacancies.
The VA loans are no-money down (if you are owner occupying it) and what I used to do when I had no cash I would call around and find a realtor who would willing to lend me their portion of the commission on an unsecured note and I would pay them say $50-70 per month for 50-60 months. There buy have no closing cost expense going in.
Now days I do Multi Family deals too, but if the situation is right I still like to own SFRs if they are in the "easy to manage" area/price range.
The VA stuff doesn't apply to me so I've never looked into it before this, but a quick Google search (google is your friend....) shows that qualifying veterans can get 0% downpayment loans for a personal residence. You can't beat that. http://www.bankrate.com/finance/mortgages/getting-va-loan.aspx#slide=1
I don't think you have enough cash on hand to really do a flip right now (I don't know how much you'd need because don't know your area but I'd imagine CT is not super cheap) Yes, you can use a hard money lender, but they'll want you to have a considerable amount of "skin in the game" especially on your first.
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