Beginner steps for a beginner Investor

2 Replies

As a young man (20 years old) with dreams to own a large portfolio of commercial properties would it be best for me to use my money to begin investing in residential housing and then scaling to commercial properties or should I save up my money and dive directly into commercial properties once I have enough money saved to purchase my first commercial property. Any and all advice is greatly appreciated.

Originally posted by @Chance Hughes :

As a young man (20 years old) with dreams to own a large portfolio of commercial properties would it be best for me to use my money to begin investing in residential housing and then scaling to commercial properties or should I save up my money and dive directly into commercial properties once I have enough money saved to purchase my first commercial property. Any and all advice is greatly appreciated.

There are a lot of variables that go into these types of decisions. I put together a process that helps people chart their course through real estate investing. Let me know if this helps. 

 

What type of commercial property are you looking for?

A lot of people, agents included, don't realize that you can buy "Mixed Use" properties with FHA 3.5% programs as long as it's 4 units or less and more than 50% of the square footage is allocated to "residential use". Think of the buildings with an office or coffee shop on the 1st floor and a couple apartments above it. You could purchase it as a primary residence, live in 1 of the residential unit, and qualify for the low downpayment fha Loan. That could be an interesting way for you dip a toe into the commercial real estate industry.

In my market mixed use properties are cheaper than their all residential counterparts. For example I can find mixed use 3 unit (1 commercial 2 residential) for quite a bit less than a traditional 3 family. I think it’s because:

1. A lot of my residential/multi-family buyers aren’t comfortable with the commercial leasing aspect of the deal.

2. No one knows that they can buy these properties with low downpayment loans. Everyone I talk to thinks that they need 20-25% downpayment which isn’t true. 


I just helped a client buy a 5700sqft mixed use property using a 3.5% 203k loan for $275,000. It's a tripled decker, 2 offices on the first floor and 2 large apartments above (2nd and 3rd floor). Using the 203k loan we got him a 100k repair budget rolled into his mortgage. So he bought it for $375,000 and put 3.5% down on the total (price + rehab). The banks ARV came in at $500,000. So he'll have $125,000 of equity once the repairs are completed.

I hope this helps. If this is something you're interested in I'd recommend you start by finding an experienced lender in your area that knows the FHA/203k mixed use rules. They can help you determine which properties will and will not qualify for residential financing. Then interview and hire an experienced real estate agent to your team and you'll be well on your way!

Best of luck! It’s an exciting journey!

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