Buying Equity to get started

5 Replies

I have been looking to get started in real estate for about a year now. I have a sound job and I've sold everything I have debt on except my house which I am refinancing so I can open a HELOC. I'm ready to pull the trigger on SOMETHING but I'm stuck in "analysis paralysis". With the money I make I will be able to afford a large enough down payment to where I can buy a house in my area and it be cash flowing immediately as a buy and hold strategy. I know "great investors" CREATE equity as opposed to BUYING it. The thing is I'm not a great investor, as of right now I'm not an investor at all and I have to change that. I'm already pre approved for a loan and can't take being without a rental property for much longer, but my fear of a poor decision has be stuck. Thoughts?

@James H Webb III Hey brother how are you and welcome to the family. I am also not a great investor which is why i have been doing alot of research and reading. I would say do the BRRR method and read @David Greene book. Since you have money to use you can BRRR a house easily and create equity that way and also you will have a buy and hold once you are finished. You seem like the perfect candidate to get your feet wet in the game with the BRRR.

@Anthony Ward that is definitely the method I would prefer! I’m sure I can find contractors, hard money lenders, find a distressed property, etc. My fear is that while I believe that’s the best strategy there are more moving parts that I will learn along the way and it could take me some significant time to get one rolling. Would it not be better to pull the trigger on something that needs light cosmetic work and get some skin in the game now, or try to figure out a different strategy and risk never getting started or not building equity for some time when I could start within the next 90 days.

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@David Greene that was exactly my line of thinking. I actually found a neighborhood within an hour of where I live where you can buy a turnkey property 3 bed 2 bath for 100k with the right agent. I called a property manager and he said a few of the houses I have been looking at he has actually sold in the past and they would definitely rent for $1000 a month! With my planned down payment my mortgage would be $550/month which makes room for property management prices and maintenance.

Do you understand the connection between the DP and the cash flow?

The connection isn't only from the direction of the DP to the Cash Flow...it works both ways, and it's that 2nd direction this is usually missed...and is the most important.

The cost of the property to you is what you pay out of pocket...not the Purchase price plus interest, since the tenant is supplying the funds (rent) to pay the mortgage payment.  This means the cost to you is only the DP...as long as you have positive CF.

The more DP you put up, means the more money you have to recover before you start making a profit.  Putting up more of a DP doesn't guarantee you're getting ahead faster, just because your CF is higher.  It just guarantees you have more money to recover.

What's worse, is if the higher DP turns a Negative CF property into a Positive one.  You're not really getting what you think you are.  In this case, all you've done is pay for all your negative CF up front.