Wanting to Start

12 Replies

I am currently a senior civil engineering student and once I graduate I would like to start REI, I would like to start out with SF homes and possibly getting into multi-family. I would like to start getting my "team" set up now so I can hit the ground running once I graduate. I have began going out and searching the internet for home prices and rental prices in my area (Denver area). My biggest constraint is capital which I am sure is a lot and this is my reasoning for waiting to start once I graduate. I figure a lender would be more willing to loan to someone with a full time job as opposed to a college kid. When it comes to buy and hold homes is it typically harder to find investors (non financial institutions) to work with you since they are not getting the quick and direct payout like with fix and flip? What are some of the ways to raise capital outside of taking out loans with a bank when trying to get into buy and hold properties?

Chris 

Hey @Chris Shipman  !  Glad to see another fellow civil engineer on the site.  Sounds like you have the same thought process I did a few years ago when I graduated.

I would definitely recommend getting a full time job if you are interested in building a buy-and-hold portfolio as you will make your life much easier when it comes to getting financing. 

You're right, it is typically harder to find private money that is willing to loan on a long term basis, especially if you don't have a track record.  My first property was a seller financed deal since I was somewhat lacking in the capital department.  I think seller financing is a good strategy to pursue if capital is a constraint.

Good luck and welcome to BP!

Thanks for the feedback I will definitely look into that. I know they had mentioned it a few times on the podcast but I will delve a little deeper into it.

Originally posted by @Chris Shipman:

When it comes to buy and hold homes is it typically harder to find investors (non financial institutions) to work with you since they are not getting the quick and direct payout like with fix and flip? What are some of the ways to raise capital outside of taking out loans with a bank when trying to get into buy and hold properties? 

Chris 

A1: Yes. Most folks don't want their money tied up for 30 years in an investment. That isn't to say you won't find investors, you are just going to have to look harder. This is the type of investment that friends and family can make a big difference. Show someone 12-15% ROI and you'll have interested parties no matter what the term is.

A2: Getting a job is the conventional option.  Banks love people with jobs.  Finding people to invest takes a good investment as much as anything else.  Not too many people here on BP are going to tie their money up in much less than 12% returns.  There are exceptions on bigger projects, but deal with those a bit later in your RE career.  After purchase price, the biggest purely financial factor in a Buy and Hold deal is the interest rate on your loan.

I recommend buying a 2-4 unit property and see if you like being a landlord.

If you are truly set on the SFH route, find a place where your roommates will cover all/most of your expenses.

Quick Example:

Lisbon Court House

Probably cost your $1600 in PITI. Toss another $200 for operations.

It has 4 bedrooms.  You get one, and your roommates pay $600 each an should cover just about everything each month.  From an investment point of view you can figure that you are NOT spending $600 in rent each month.

Here are several ways to get into a property for minimal amounts of money:

0% Down:
NACA (https://www.naca.com)
VA Loan (http://benefits.va.gov/HOMELOANS/index.asp) Rural Development Loans (Renovations MAY be included)
(http://www.rurdev.usda.gov/HSF-About_Guaranteed_Loans.html)

3.5% Down
FHA (http://portal.hud.gov/hudportal/HUD/topics/buying_a_home)

3.5% AND Renovations
FHA 203k loan (http://portal.hud.gov/hudportal/HUD/program_offices/housing/sfh/203k)

5% Down
Homepath Owner Occupied (http://www.homepath.com)

Thanks @Aaron Montague  those are some good ideas. Personally wouldn't work out for me having a wife and kid but the idea sounds good. I have heard a lot on the podcast on doing this idea with duplexes. Live in one rent the other, "live for free" idea. I will definitely look into all the ways to get into homes for low interest rates. Thanks for the advice.

@Chris Shipman  

Yeah, that is why I recommend the 2-4 unit route.  You can get everything you want, big yard, nice apartment, great kitchen, etc without having to pay for it all yourself.

Welcome to Biggerpocket!

Congrats on almost finishing your job. We have gone the "traditional" route with a spin. We are buy and hold investors with full time jobs. We started out with no money as personal property right out of my undergraduate degree. We bought a fixer upper and than rented it when we were transferred. We both work and have worked hard to grow our W2 salaries. Than we have used those salaries to leverage as much as we can. We below are means savings living on one salary and using the other one to invest in real esate. I have a finance degree so I have used my knowledge the best I can to make smart decisions. I have also worked for different companies, learning on "their" money while using my salary to invest in. ITs been fun to learn off supervisors who have been great investors and someone else money.

For us having jobs have been key. I also have no issue with debt and being highly leveraged when I first buy the houses. That being said I don't refinance out. I work hard through sweat equity and brain equity to buy houses that have potential. Once they have realized the potential I don't cash out through refinance but rent them. That way my equity continues to grow.

There are lots of lots of options and strategies. We ave had many friends who rented out rooms in their house living rent free while building equity. Other people here on bigger pockets got started with duplex and multi-flex. The key is just to get started. It might not be comfortable in the beginning but it does pay off eventually.

Definitely check out the blogs, podcast and forums. Another great source of information is individual blogs found in peoples signatures. Many of us including myself write about our niche. The only thing we all agree about is investing in Real Estate. Beyond that there are many different style and types of investing. My blog/website is about long distance self management, landlording, investing in class A investments, investing in a transient lifestyle, etc.

Originally posted by @Chris Shipman:

Thanks @Aaron Montague  those are some good ideas. Personally wouldn't work out for me having a wife and kid but the idea sounds good. I have heard a lot on the podcast on doing this idea with duplexes. Live in one rent the other, "live for free" idea. I will definitely look into all the ways to get into homes for low interest rates. Thanks for the advice.

I can understand you not wanting to live in a multi-unit with your family (or not being able to convince your wife that it's a good idea financially). One way you could modify this strategy a little bit would be to buy a SFR that would make a good rental property and move into it yourself for a year or so. Then buy another house and convert the first one to a rental instead of selling it. That way you could take advantage of the great financing with a low down payment that is available for owner occupants like @Aaron Montague referenced. You aren't going to get those low down payment options on an investment property.

You obviously aren't going to get the benefit of having some else pay for your housing during that first year but if living in a multi-unit is out of the question then this type of approach might be a good fit for you. 

@Jeremy Zindel  Is there a limit on doing this? Besides the fact the wife would kill me if I made us move into a new house every year and begin renting out the other, it seems like the bank/government would catch onto this and disallow it at some point.

Originally posted by @Chris Shipman:

@Jeremy Zindel Is there a limit on doing this? Besides the fact the wife would kill me if I made us move into a new house every year and begin renting out the other, it seems like the bank/government would catch onto this and disallow it at some point.

From my understanding, it is not explicitly stated how long you should live in a house that has owner occupied financing on it before you can move out and convert it to a rental.  It seems like the general consensus is that somewhere between 1-2 years is acceptable and will not draw any attention whatsoever.  Now if you did it every year on the dot for 4-5 years straight, you probably going to start raising red flags with your mortgage broker.

I would not recommend this as a long a term strategy for building a portfolio but rather as a way to get your feet wet with your first property with minimal down and minimal risk.  Depending on your goals, I'd think you would want to add to your portfolio faster than a house every 1-2 years.  Getting your first deal under your belt will give you confidence plus you will continue to grow and develop as an investor and come up with additional ways to acquire property so that this approach is not necessary long term.

Hey @Chris Shipman , always nice to see another (civil) engineer on the forums. You've got a great plan just coming out of school...I would highly recommend you find a full-time job in your field. Have you considered land-development/construction management? Somewhat related to real estate which will keep you in the loop with the market.

Your job should provide a nice income which you will hopefully be able to save a decent chunk every month. Also, when it comes time for you to buy, the banks will feel very comfortable, given the fact that engineers have relatively stable professions.

It took me about a year of working full time out of college to feel financially comfortable to make my first purchase. If your finances can support it, go for it. If not, an extra year of self-education in real estate is never a bad thing. Just don't fall into the paralysis by analysis trap. Once you have the capital, you gotta pull the trigger!

Have you looked into wholesaling to make some quick cash?

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