Is this deal doable for a first-timer?

10 Replies

Hello. First-time investor here looking to score her first deal. Here are the facts of what I’m dealing with: I’ve found a duplex and single family all in the same deal for less than 55k. Property will require some repairs, of course, but my brother is a carpenter and will handle all of that. I have access to 5k (in an IRA) and no other cash. I also have about 25k in equity in my primary residence (mobile home on 2 acres). Credit score is pretty good... between 670 and 690 but my debt to income ratio is high. Here’s my question: Is this deal doable? A partner might not be readily available. When fully rented, properties will bring in at least $1500 per month. I’d like to get one unit ready for rent immediately and do the others along and along. How can I make this work? Is it an advisable deal to pursue or should I get my debt2income ratio down and wait for another deal? Thanks for any guidance and strategies you can give.

Have you considered using a HELOC to fund your purchase and repairs? Can you get a loan? If you know what you are doing, you could make those numbers work, but you'll have to fund the repairs along the way, and hard money is expensive and terms are aggressive and typically don't work in your favor.

Have you considered that pulling money out of your IRA beyond what you've contributed will result in a penalty?

It sounds like this could be a good deal, but you might not be in the right spot to take advantage of it. I'd seek out a real estate investor's group in your area and start networking. If nothing else, they're a great source for ideas and resources in your area.

Good luck!

Personally, telling me that you have high debt already and some of the cash is coming from your primary residence, I wouldn't do it. Never put your primary residence on risk unless you have a backup plan, like living with family for a year after you lose both residence and rental. If you were a seasoned investor, or had more experience, or more contacts in the biz (someone to bail you out) I'd consider it. Not bagging on you, but if you have high debt, I'd get that out of the way before thinking about moving on to investing. The deals will be there once you're more ready, but living on the street stinks. There are those stories out there about doing well on your first deal. I was one of them... but I had a handy husband, I had tons of contacts and we both had very good jobs to pay in case the tenants didn't. In other words, my first deal I was ready for. The problems that come up seem to be the rule and not the exception when you're not ready. Listen to a few Dave Ramsey podcasts on YouTube. My personal rule is something like this. Dave Ramsey for my personal finances, Robert Kiyosaki for my business finances. Never mix the two. If all fails and collapses, you want to have a place to live that you feel secure in. Do a debt snowball and get that out of the way. In the meantime, go to a bunch of meetings and make those contacts. They're invaluable. 

One other note, investing in a self directed IRA is very difficult to do. You're much better off with a 401k in these instances. You hear people saying all the time self directed IRAs are the bomb... more likely that you'll get bombed out with trying to use one. You need to have someone manage it, sign any papers if and when you find a property. You're not allowed to work on or with the property personally (you have to hire it all out) and the IRS is closely monitoring these recently.

It does not sound like you are financially ready to invest. First clear your debt and get your savings in line. Investing is not a path to get out of debt. You must first have the cash and financial income to support the investment.

One other thought.  you could consider selling your home and house hacking your new properties.  Either live in the single family home  or one side of the duplex.  Spending 55k with projected rents of $1500, say 500 per unit.  You live in one and get 1000 in rents.  By selling your home you have enough money for the down payment and rehab cost.  Your monthly nut is probably less than 800 and you can live free with about 200 positive cash flow.  

This gets you in the game of real estate investing.  It also is less risk as you just start learning how to become an investor and LANDLORD.  Good Luck.

At lot of great advice... I never thought about selling my house. That's an interesting thought. Thanks everyone.

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Totally missed that it was a mobile home. Sorry, Gina, you are correct. I'd still say get your debt in line first, however, house hacking is definitely where I'd point you. Sell your mobile and find a 2 or 3 family house to hack. Take on roommates even if you want to live free. But this doesn't sound like the deal for you... keep looking and get your finances in order. Once you're on solid footing, you'll be a star. Just be patient. Real estate isn't disappearing. Deals will always be there. 

The question is how tight does this deal make your finances.  So lets say it generates $200-300 a month in cash flow after all expenses.  How long does it take before that helps you pay down some of your debt or create a financial cushion?  

I would say get debt down, focus on getting cash in the door. 

Your in the right place Lady! Biggerpockets has calculators to really dig in to your numbers to sort out your deal; I use them constantly just going by the 50% rule your take home is 750.00 passive. The New York in me would put three mobile homes on my 2 acres and rent them out. Your debt to income is really not a deal breaker you have to shop around for financing, the Brrr strategy is something you may want look at there multiple podcasts on bigger pockets regarding it;  Your definitely on the right track keep asking questions and take action!

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