How can I get capital to start buying real estate?

Question

Hey guys, I am a senior in college and would like to start buying properties for renting and to get my foot in the door as a local real estate investor in my area. I have read many real estate books, visited my local REI club, made a few contacts, and know that I can build great wealth through real estate. Since I am currently a student, I dont have much free time to make money either through a job or through things like wholesaling and being a bird dog. I dont have much money, but I have a pretty good credit score.

- Am I going to be able to get money through loans from banks, mortgage companies, private investors?

- Or am I just going to have to put my real estate investor dream aside until I save enough money through a real job that I will hopefully get after I graduate?

I know the criteria for getting any kind of money as a loan from anyone for real estate has gone up because of REO's, Foreclosures, etc...

Thanks

Jon Holdman · Answer

How about asking this variation on the question:  "How can I get capital to start buying stocks? [I] would like to start buying stocks for dividends..."    Get a job, any job, spend less than you make and start saving.  Real estate does have the advantage over stocks that you can buy a $100K house with only about $25K in hand, but you have to have a good paying job before anyone will give you a loan.  As far as the job part of this equation, there are lots of real estate related jobs, like wholesaling or brokering, that don't require too much cash to get started.  That may or may not be the best option for you.

Now, its possible you might find a great deal where you can do something creative, like owner financing or subject to, and get into the deal with much less than 25% down.  Those deals are very hard to find, and you say you have little time to find a deal.

Even if you find such a deal, you need some cash.  Rentals have a way of suddenly demanding cash either by needing something fixed or having tenant issues.  Fannie Mae thinks six months PITI is a good guideline.

Champak Shah · Answer

Hello Daniel -- You have some good comments and suggetsions. Some are good.

First I have a few questions / Comments :
What town are you living in ? Big city or very small college campus ? --How is the prospect for a job after graduation ? When do you really graduate ? What field you will be in ?

I can write three or four pages --but will try to make it short-- Since you are really serious about making Real Estate as  a Career --and Wealth Creation Dream -- by the way is lot better than stocks --if you learn to do right things.

First forget about the land. Unless in specific state or area --It is hard to flip or wholsae land --because usually requires more money down --lenders do only 50% LTV on raw land-- there is no tax write off  and there is no cash flow 
( income ) to pay mortgage. So initially stay away from land.

Forget about all negative stuff --about finaning etc.  " If  there is  Will  there is  a Way". You may have to work harder and think outside the box --be creative.

I also assume that you are still single and no kids-- so you can live cheap for few years --no new fancy cars and no TGIFs ---

Saying that --the best idea -- specially if there is no hope for job in your field  in your  area or if you dont want to do job -- you can stay on campus ( part time student ) or near campus --
and live real cheap- and concentrate on doing some deals make cash --have a goal to have $50,000  liquid cash in three years --

Next - Find Investors / Buyesr or Silent Partners  first --that could be doctors, dentists, lawyers, your professors, advisors, parents, unlces, parents friends , other relatives, some rich students in your class --

Prepare a small business plan --strategy -- so you can explain and convince when you meet them.  For example--you are a main working partner-you find deal, supervise or do actual physical work to fix up then resell or rent it out and manage for three years --when sold after three years --you split profits --- give them good return, as well as tax shelter -- do some numbers based on available proeprties in your area. Make sure to include yoru fees -salary for finding the property, fixing it up ( painting),
managing etc.

If you have no time now--wait till graduate and stay in same area-- you know the campus and other students --

Find a largest --old house you can find in the area --not to far from campus --may be from an old perosn --who can sell you with owner financing NO down or Lease Option. You can do amster lease and sub lease to six or eight studnets --you can live in one bedroom and take care of house --this will have excellent cash flow for you to live good --monthly income -- ieka rooming house

Also you can find a four plex-- with some investor as partner --for down payment and owner financed or bank loan based on Investors credit and income --you can live on one side and rent three other rooms or apartments --to two students in each --

Your Q1 --about loan -have few comments above by others. Only way possible is to ahev partner.

Q2--You do not feel like you have job available in your fireld. Are you planning to move ?

I mentioend --partner or equity sharing with invetsors / doctors.

There are some companies that will do funding and partnership - profit sharing with you -but you have to buy their course--

You need to learn spend more time in BP and other  Real Esatte related Forums--learn more about -how to find motivated sellers, how to negotiate, how to convince them that it will be  a win-win for both and sae them credit-how to intervies tenants, Tenant Landlord laws in yoru state --city rules-- etc --

Yes  Real  Estate is good --"Get Rich Slowly " 
but surley game--if you can handle Tenants headaches--vandalism and cash flow problems --there is always a solution to a problem.

Now for Long Term Carreer as RE Investor or Consultant --- even after graduation --first get a real estate license and work for a Reputable Real Estate Broker --who is willing to train you and get you leads -so you make some commision--- Or become an appraisor for steady income--or join a Commercial Real Estate broker-- in Commercial may take some time to get your first deal through --but you will make enough to survive one whole year --

You can also approach --real estate closing attorneys - become a paralegal to do title search etc-- so you learn lot of issues such as  Contracts and court recording system -- you can do this part time and work on deals part time --this is all after graduation 
 
NEED TO WORK 70 TO 80 HOURS PER 
WEEK FOR FIRST FREW YEARS.

May want to read some real  estate investing books --such as " Nothing Down -
by  Robert Allen  and other books or  Courses at Library or borrow from other 
Investors.  Some REI Club members may have taken such courses or have attended 
Boot Camps-- and have audio cds and dvds -- you can borrow.

You can also get a Co-Signer for a loan from Investors --if they dont have cash or dont want to invest cash.

I hope this will help--may be little bit too much,
Good Luck.

Rhonda Epperson · Answer

Have you looked into Seller financing as your start up?  Then you can flip the property using very little of your own money. When you have built up a nice cash flow, you will have income To purchase more.  You might want to start with some land deals that flip faster and with less down.

Daniel Bradshaw · Answer

Thanks to everyone with their input, I will continue to go to my local REI club meetings and hopefully build some more relationships with investors.

Christmas is coming up and I will have a lot of free time then. I am considering purchasing bandit signs and try to start wholesaling or flipping contracts as they say.... The only question I have about something like this is.... When i aproach the seller do I tell them straight up, "I myself am not going to by your house, but i have many investor contacts that will. Just assign your house to me and I will assign it to them." or do I play the card "I will buy thise house..... yada yada yada... Assign the house to me and I will purchase in a few days" meanwhile finding a real estate investor.

I hope all of that made sense... Haha

Thanks

Christopher Davis · Answer

Hey Daniel,
  Keep going to the local REIA and let people know what you are trying to do. You may find someone who is willing to take you under their wing. There may be someone who needs a person to do some leg work or research and is willing to show them the ropes and even pay for these services. This is a great way to build relationships that can lead to partnerships and make contacts that lend money or owner finance or ......?
If you show people your initiative,ability to learn and willingness to work they mat invest inyou or  with you .
  First you must build the relationships though
  Chris

Bryan Hancock · Answer

Hi Daniel...and welcome to BP!

You probably aren't going to like this, but you are likely going to need to wait and save some money on your own to get started.  It is good that you have a good credit score, but you won't have to income to qualify for traditional mortgages.  You also wouldn't want to qualify even if you could because you won't have the cash reserves to weather large expenses that come up with owning a rental portfolio.

Private investors are still a possibility, but they will likely want to see that you have done some deals and are not wet behind the ears before they lend you their money.

My suggestion would be to try to find a job after you graduate, build up a little money, and do your first deal.  Continuing to learn and work with local investors is never a bad use of time though.

Good luck to you!

Daniel Kirkpatrick · Answer

Either birddogging or assigning contracts

Brian Davis · Answer

Daniel

As another newer investor I would think it would be a great idea to set aside 5-10 hours a week for a work for knowledge trade with your " big fish " from your local rei club. What I mean is if you are truely interested in REI call him up and explain that you are willing to pretty much do anything in exchange from some hands on training. I mean he might send you out to clean up a yard with a crew or knock out some drywall or cut some grass with a crew he has. For him it's free  labor and for you its training since you can talk to his workers and will learn his cost for demo / rehab / yard work. Have him show you how to find potential deals at the courthouse and offer to go to the courthouse for him and find him deals. I know it doesn't sound ideal because of no pay but you will see first hand who he works with pay rates, time it takes to get things done, percentage of deals vs leads in your area. Once you have worked with him for a month or so ask if he would give you blank copies of his different purchase and sale, rental , work contracts that he had drafted up for his business.. This will save you money from needing  to have them made yourself when you start doing deals. Once you have some money saved up and him as a friend find a good deal and present it to him as my friends parents have a house for sale that I am interested in but since You are my mentor I wanted to see what you thought or hey maybe we can partner on this deal. It lets you take the next step and keeps him as a safety net..

I know in my personal experience that I have made decent money over my life and I have wanted to do real estate for the last  10+ years but recently I took  the plunge and sold my other business inventory off paid all my bills in advance through next January and paid off all my past debts and am working on fixing my credit currently around a 640 to try and get it to a 720+ by years end and I have a decent working capital of around 40k in cash now. And even with those things I would still jump at the chance to work for and learn hands on from a seasoned investor who has decent morals.. Who is willing to let me learn in exchange for my energy / enthusiasm / and willingness to do anything to better myself and chances of becoming the best investor I can be..

On another note I am friends with the manager of my bank and offered to help them clean out foreclosed properties for 250-500  plus cost of dumpster for entire removal of inside trash and as part of that service I will take photos of the rooms and house for them so they can put it on the books for sale.. Why would I work and do this for them. Simple it gets my foot in the door and lets me know about foreclosures first and I can bring in a contractor to figure out cost of repair etc and my pictures serve as a second purpose... If I do get a contract on the house from the bank I can post the house for sale to other investors with pictures I  already took including a copy of the repair estate and an appraisel of market value  of the ARV..

These are just my thoughts as another newer investor. I am sure alot of the other guys here have tons more advice.

Brian D
Shurlock Homes LLC

Daniel Bradshaw · Answer

Hey guys, sorry it took so long for me to reply. Ive been busy, Midterm Week....  In reply to CHAMPAK SHAH, Im living in Baton Rouge right now and I am attending LSU. It is a huge college town and I am majoring in Business Finance. I should graduate next fall. I am graduating one semsester late because I have been taking electrical engineering courses and have considered double majoring. We'll see....

Job outlook seems to be ok. I know a couple of people in insurance. I know you can make alot of money if you are good at that but i do realize its mainly commision. My passion seems to be in Real Estate because everytime Flip This Hosue or DIY network comes on tv I can stop watching it. Electrical Engineering also really interest me and that is why im seriously considering double majoring. I have read around 6 real estate books so far, including: caroltyn sheets, robert kiyoski, ect.... I know that having multiple streams of income can be the key to building great wealth, thats why along with a steady job starting off I would like to buy and hold houses for rent and then maybe getting into flipping after I get my feet wet.

I am apart of the local REI club. I am considering calling one of the "big fish" from the club and asking him if i could job shadow/learn from him over the weekend. He is a serious investor and seems to do alot of houses all the time. Would this be a good idea?

Any more comments would be greatly appreciated.

Thanks

Brian Wall · Answer

Daniel,
How is your credit?  If you don't have much of a credit history to speak of, I would start working on that now.

Perhaps adding your name onto your parents CC, having then cosign for you, etc.

It is very important in this business to have excellent credit.

Sure, there are things you can do, if your credit is "shot", like birddogging & such, but I can tell you it makes thing much easier if you have excellent credit.

Brian

How can I get capital to start buying real estate?

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