Investment Strategy, Reality Check

6 Replies

Investment Strategy of a Broke Guy

Intro: 

I would like a "reality check" on how actionable my investment strategy is. All direction, incite, or alternatives are very welcome. I have already read a good number of guides on this site as well as government based public information.

My goal is to collect as many income earning assets as possible, as quickly as possible. I am incredibly new to the world if real estate

I have spent the last 4 weeks reading everything I can get my hands on regarding real estate. I have no money, no contacts, and very little knowledge. From this starting point I have formulate an plan to move into my first investment and here it is.

Why Real Estate?

My interest in real estate comes form population demographics provided by the US census.  We can see 2 large waves in the age demographics coming into rental ages at the same time.  This is coincided with a relatively smaller group at the age of home owner ship.  

The baby boomer generation are reaching or are in retirement.   Soon, They be moving in to rentals to adjust to a fixed income or to get out of a big empty house.  This trend will accelerate over the next 15+ years.

Next is generation "x" who is in their 40's and 30's that makes up a minority of the population demographic.  Many are home owners or where home owner before the Housing bubble.  Their ability to buy up the homes their parents are moving out of is limited. This may lower the market value of single family homes aiding investors.

Lastly, We have the Eco boomer generation who is 20 and under.  Their numbers rival the baby boomers.  They are prime for renting with lending practices stiffened up.  It is yet to be seen what desire this generation has for home ownership.   Home ownership no longer defines a individual's success in live and is viewed less as a status symbol than in years past.
 

Starting Point:

I am 26 and work form home. I earn just a enough to support me and my partner (relationship) Brody who is 22 and in collage. We have the change to change our lives cumming up in 1.5 years. Brody will graduate and has a job offer from a company he has interned with.  We can sent aside a large sum of savings from the added income stream if we keep our current standard of living.   Well, large for a 20-ish year old.

Venture:

My partner and I will be hunting for 2 Quadrapleaxes (4plex) to buy as an owner occupants. We are looking for FHA, Home Path, or VA foreclosure to finance for low money down. We each will occupy our units for one year and rent out the other 6 units. We both can get a FHA loan and live apart for one year, seeing how we can't marry in our state.

Capital Resource:

From 2015 (current) until summer of 2017

I am collecting more savings by working overtime for the next 1.5 years while my partner finishes school.  In that time I can save up $3,000.  Then, after he graduates and begins work, we estimate we can save $900/mo.  We should have $13,000 saved for our first investment in just under 2.5 years form now.   We aim to have the down payment for a properties and have reserves 3 months for operating cost. 

  • Current Price of a 4 plex in my market: $150,000 for B/C+ or $85,000 for C-/D+
  • Average rent per uint in my market for a 4plex: $600 for B/C or $450 for C-/D+
  • PITI: $1,100 for B/C+ or $750 for C-/D+
  • Target Down Payment* $5,000
  • Closing Fees $3,000
  • Legal, Accounting, & Advertising Fund: $1,000 annual
  • Maintenance** $3,000 annual
  • Emergency Repair Reserve: $3,000
  • Management: Self Manage - - - -
  • Projected Total start up cost for each Properties: $12,000

* 3.5% FHA for $150,000
** based off FHA guide lines of 2% of the property value in annual maintenance

2018 to 2019

We hope to quickly save for a 2nd property with in one year. We can do this with out the help form equity, hard money, or the rental income from the 1st property.

Options:

 I am learning about whole sealing for other cash buyers as a way to build start up capital. I am also open to the Ideal of managing properties under a subject to or lease form sellers.

I can substitute my hours devoted to overtime with my job in exchange for Whole Selling.

Note:  I am dyslexic. I would like to thank the creators of spell check for this post.

With good credit & income starting off with an owner occupied resi multi is a great stategy.

welcome to the site.

@Wilson Lee  

@Wilson Lee , I read through the whole post. Wow! Firstly, allow me to welcome you to the BP community. You may want get your partner to create an account and join the party!

I must commend you on your focus and diligence. Most start out without a clue of where they're headed or why. You seem to have both. With that said, keep in mind that census data can be poor predictor or future reality. There's often a large gap between what should happen and what does happen. There's nothing wrong with your analysis, just temper it with a generous dose of real life. You find plenty of that in the forums.

Have you read @Brandon Turner  on Turner's book, "The Ultimate Beginner's Guide to Real Estate Investing". If not, do so. It is HIGHLY recommended!

Become active on the forums, make a lot of friends, ask a lot of questions and listen at least twice as much as you speak. You'll be on your way to the financial freedom you're looking for. You might look into another book by Brandon Turner, "The Book on Investing in Real Estate with No (and Low) Money Down". When folks tell they plan to start invest as soon as they've saved enough money I always say "why wait?" Failure is "I can't afford it". Success is "how can I afford it?"

I could bore you with plenty of techniques you could look into doing right now, but that's likely not what you need at this point. I'd rather see you eliminate "no contacts, and very little knowledge" from your intro. Get contacts and build knowledge. When you have some of each, forget about "no money" and let's just get started. In fact start, if your serious, by sending me a colleague request. 

Great beginning! Can't wait to see you succeed.

Happy New Year.

I think it sounds like a good foundation (What do I know? I'm just starting out too.) However, the one flaw in your reasoning is retirees selling their homes the then rent for the rest of their lives. Yes, they may feel the need to downsize. But there are a few factors in this:

1. Most will stay in the home as long as their health and finances allow. They worked hard for it. It is also the major source of inheritance for their children.

2. Once they are retirement age the IRS allows them, once, to sell and buy a lesser home without paying capital gains.

3. There is also the reverse mortgage option.

4. If there health forces them to sell, they most likely will move in with family or an assisted living situation.

That being said, it is probably a good market for investment buying but I wouldn't rely heavily on the strategy of senior renting. But maybe it is different in your market.

Any one know of a expedited way of making start up capital

@Wilson Lee  -  Sounds like a good plan, just remember that the RE market might not be the same in a few years so plan to make adjustments.  But overall the foundation is solid.  We started planning for investing about 1.5 years before we actually bought.  My suggestion would be to keep track of all your spending (we did through Mint.com) and stick to a livable budget.  Don't budge just enough to eat ramen every day, it needs to be a realistic and enjoyable to live.  But cut out the things you don't really need.  

@Wilson Lee  You need to do more than just eat ramen and be frugal. That's not a good quality of life. You need a side hustle. Considering you work from home I assume you probably have some extra free time. Start looking into other ways to make some extra income. Provide a service, sell something, or just simply get a side job and put all that money away. Before you know it you'll have increased your income by thousands and will have that down payment in a shorter time frame. 

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