Real Estate Agent · Pittsburgh, PA · Member since 2015 · 33 posts · 14 votes
Hi Everyone!
I appreciate and look forward to everyone's feedback.
I am looking to get into real estate investing in Pittsburgh, PA. I don't want to invest more than 15-20k. With my capital being limited, I have taken interest in the BRRRR strategy. However, using a hard money lender with hopes that the ARV, appraisal and lender will cooperate with my plan makes me nervous - I guess that is just the cost of doing business..
I have also considered trying to flip first to build more capital. Again, I am more than likely going to have to use a hard money lender. Should I be this wary about using a hard money lender or am I overreacting?
I have picked these strategies as I believe they will help will scalability. The last thing I want to do is buy 1 or 2 properties and be stuck building up another nest egg to purchase my next.
With that, my question is: If you were a 23 y/o looking to get into investing, but didn't want to corner yourself, by means of limited capital, what approach would you take?
@Kirk Zandier given your available capital and your lack of experience, if you are flying solo, a live in flip or a house hack is the way to go. These are fairly low risk strategies. However, based on your question my approach would be to wait to invest and instead focus my attention on networking by going to every REIA meeting you can, ask every person you know if they know a RE investor they can introduce you to, etc until you meet someone doing exactly what you hope to do. Find a way to add value to them and ideally a mentoring relationship can naturally unfold. This is the safest way to embark on a a new investing strategy. An experienced person can speed up the learning curve and greatly reduce your risk. This isn't true of RE only, this principle holds true of all business in general.
Yes, I am leveraging the current times to determine exactly how the next deal will come to life. The following are two strategies I am running side x side to make this happen:
1) Once my 1 year homestead requirement is up, I will at minimum look to Copy & paste the same process I used on the first to acquire another duplex with an FHA loan. This time around I will likely look at FHA203K as an alternative option which will drive more equity through further rehab/improvement.
2) As I look to ramp up the process quicker than 1 deal per year, I am dialing in my deal analysis/networking skills to be able to identify great investment opportunities & pull in partners should a great deal arise. This is where I am currently spending majority of my efforts as I hope to begin partnering with passive investors on a few deals while simultaneously building up my portfolio with owner-occupied units per the strategy above.
The goal of both of these is to slowly begin building equity in order to begin proper BRRRR investment for the long-term.
@Brett McManus I have been looking into the FHA 203k loan as well. There is a similar Fannie Mae product: HomeStyle Renovation Mortgage - I believe this version has a little bit less red tape. Have you talked to any lenders in regard to the 203k?
@Kirk Zandier house hacking is by far your best option to get started. I've done it three times now (still living in my third) and it's what's helped me accelerate to owning over 15 buildings now (mostly small apartment buildings).
Without house hacking I would have never been able to build the knowledge and stable financial base to grow.
Hey Jon, just kind of jumping into this forum but I was interested in what caused you to buy some properties in Amherst. I am from Chicopee, MA (Western Mass near Springfield). I understand that these may be good properties for renting out to college students (Umass Amherst & Amherst College). I go to the University of Rhode Island and was very interested in what you think about renting to college students.
@Anthony Angotti House hacking really does seem to be the safest method when starting out. I guess there is just that temptation to find home run deals, but better to play it safe the first time around.
@Anthony Angotti House hacking really does seem to be the safest method when starting out. I guess there is just that temptation to find home run deals, but better to play it safe the first time around.
In the current market I don't think you find home run deals you have to make them through your own creativity and effort.
I was in a similar situation not too long ago and I tend to agree with @Brian G. on this. I think you can go one of two ways:
1. Find a mentor or partner through networking and reduce your risk by leveraging their experience. You will need to bring them value, because if they are worth their salt, they probably have others contacting them asking for guidance too. I would find a mentor that is focusing on the asset class you would like to work on and get very intimate with the numbers and finding these types of deals. Once you come across a deal, you can offer to do it together. If they agree to this, you may be able to leverage their experience in many different ways: from less expensive lenders to less expensive contractors, timing, etc. If they don't go for the partnership, give them the deal and ask to be involved without making any money (or a small finders fee or small profit on the backend). The experience you would gain going through this would be far more valuable than the money you would make doing it on your own IMO.
2. Dive in on your first deal anyway you can. Most people have to take out hard money and I tend to agree that a flip would be the best way to grow your money faster. For flips to work it's all about timing and minimizing costs so make sure you have enough cushion in the deal you decide to pounce on for the inevitable mistakes that are made on everyone's first couple deals. Also wouldn't be a bad idea to get very intimate with your costs by having a contractor or subs give you pricing on a similar project (even if you don't really have it) before you close on the one you will actually do.
In either scenario, you will have to get very intimate with the numbers and bake in a contingency for error (which happens and is totally part of the learning experience). Just make sure the errors are not fatal and remember taking action is better 'waiting for the right time'.
@Josh Gorokhovsky I am definitely making more of an effort to expand my network and find a mentor. I am typically someone who jumps into things, not carelessly, but quicker than most. I want to be cautious with my first real estate deal as I don't want to get burned, however, I also don't want to fall victim to inaction/analysis paralysis. With advice from those like yourself, I am starting to build a decent plan! Appreciate your thoughtful comments!
Did you find a mentor when you started out? Or did you jump into a deal by yourself?
@Kirk Zandier of course my man! Paying it forward as someone (many) has done for me.
Yes I was fortunate to find a mentor 5 years ago and I followed a similar path to what I laid out. My first deal as one I found direct to the seller, brought it to a different investor I knew and asked to received a percentage of the back end profit as well as be involved and associated with the deal. Along with the money and experience, it also gave me some credibility with agents and investors. The mentor I met in the beginning is now a partner of mine on many deals and a life-long friend.
I think that a house hack maybe your best bet. The cool thing about investing, at least it is for me, is finding more capital from other sources. Eventually, you'll find more good deals than what your pockets could support. That's a great problem to have- it can help change your perception and increase the opportunities you come across in the long run.
For example, instead of being the end buyer, you could find a deal for another cash buyer (wholesaling). This is great because you would not have made a large capital commitment, yet still see a reward for your work. Overtime, this will build your resources. More importantly, you'll have more confidence purchasing your next rental because you've analyzed more deals and seen the results from it!
I hope this helps. Good luck and I'm happy for ya!
Echoing what everyone else has said - House hack or live in flip...minimize your risk, learn as you go, no time pressure as you will have with hard money. When you're done, you may even be able to buy and hold it as a rental and move to the next deal while taking advantage of the owner occupant loans from living there.
@Kirk Zandier Just in my spare time. I have a full-time job as an insurance consultant
Hey Jon,
Let's connect. I also live in Bethlehem, more specifically fountain hill. I am owner occupying a 2 unit building that I used an fha loan. Also looking to buy a 3 unit.
Would love to have more real estate connections in Lehigh valley.
1. Anything with a high CoC or CAP rate should have a higher vacancy rate than 5%. I use a conservative 10% in my future analyses.
2. The right property manager is critical. For C or even B class properties, don't try to cut costs on property management
3. Continue to find ways to increase rents or total income. For example, make tenants pay water, sewer, trash. Or, build storage units in the basement or common space to rent out