I'm a newb! Please critique my plan!

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I'm a newb! Please critique my plan!

Scott Dongjin Lee
Member since 2020 · 19 posts · 9 votes

Hello everyone! Just joined BP website a couple of days ago, thanks to my friend @Jesse Hodges. Just a short introduction of myself, I am an active duty military member currently serving overseas. I'll be back in the states next summer and my wife and I have been saving up on the side to start our journey in real estate investment when we are back. (We also have two kids, one toddler, one infant). With that being said, I am a complete newb to this world, I am probably going to make many mistakes, but I am here to learn from everyone and get better at real estate investing as time goes by. I've been an active listener of BP podcast and have been reading Brandon's rental property investing (of course I'm going to read multiple times). So Here's my plan as of right now. Please feel free to fill any gaps that you see! 

I was initially sold on the idea of house hacking. Wanted to purchase a duplex or triplex, use other people's money to generate your wealth etc. However, it's been very tough to find any MFH near Colorado Springs (Near AF Academy to Pueblo) or Austin area (Georgetown, Roundrock, Leander). Most MFHs that I've found either need some major work (which I am afraid to jump right in with lack of knowledge in home improvement) or in a neighborhood that I really do not want to mess with at least as a beginner. (Do I really want to deal with tenant eviction when I'm deployed? hm..) 

Then I heard about long-distance real estate investing but the truth is, I can not commit myself to become a full-time real estate investor when I'm in the military. I know Brandon talked about commitment in his podcast but where I am in my military career and the job that I do in the military, I can not shift my primary focus from that to real estate investing 100%. Maybe when I become more knowledgeable in the real estate market later on, I can. 

So I started to look at SFH that I can potentially buy (2 Bds 2 ba that can turn into 3 bds 2ba) or 3bds 2bd that need some small home improvement to add value to the house. With the money that my wife and I saved, I can purchase my first property (250k-300k) with 20% down, make a few improvements and research the area more, then a year later, I can rent it out to another family while I begin to purchase another house with VA loan with zero down potentially. If I did the math correctly, with what my wife and I make, we can cover down on two mortgage payments even if the 1st property becomes vacant for a few months. However, it's not going to make a crazy amount of cash flow in the beginning. After 4-5 years (which is another moving time for military guys) after purchasing the properties, I will determine if I want to sell the house or keep renting out based on the appreciation and amount of equity that we've created over the years + cash flow.

My plan for the first house is doing 15 years fixed conventional loan but for the first couple of years, I was going to double down on the principal to lower the interest cost but the downside to that is we may not have enough saved money on the side to qualify for another conventional loan for the second property so I was going to purchase the second property with zero down VA loan.

So basically, one conventional loan + VA loan or two conventional loans (if this is even possible) to start purchasing SFHs to begin my real estate journey. I believe I can learn a lot from the two properties and study/research more to get ready for my next real estate investment.

If you have cash saved up, how would you start your real estate investment journey? Please let me know what you think of my plan. Thank you for reading!


-Scott-

 

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Dimitri Paspalaris
Investor · Rota, Spain · Member since 2019 · 156 posts · 68 votes
5y

Scott, I would do a single deal first before doing a second one to see if you like this investing method. In addition, I recommend a 30 year loan so you have more flexibility when it comes to payments just incase you have a rainy day. I have not house hacked yet, but I am going to for my next deal. Lots of people recommend this for your first deal to learn the foundational information on how to get deals and execute the buying process. I own two properties and I am doing the long distance military investor route so if you have any questions just ask.

-Dimitri 

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  • Dimitri Paspalaris
    Investor · Rota, Spain · Member since 2019 · 156 posts · 68 votes
    5y

    Scott, I would do a single deal first before doing a second one to see if you like this investing method. In addition, I recommend a 30 year loan so you have more flexibility when it comes to payments just incase you have a rainy day. I have not house hacked yet, but I am going to for my next deal. Lots of people recommend this for your first deal to learn the foundational information on how to get deals and execute the buying process. I own two properties and I am doing the long distance military investor route so if you have any questions just ask.

    -Dimitri 

    5Reply
  • Jeremy Gaal
    Rental Property Investor · Colorado Spgs, CO · Member since 2020 · 91 posts · 61 votes
    5y

    @Scott Dongjin Lee would echo Dimitri's response in getting a SFH first. I'm in the Colorado Springs area and the rents here are quite nice. I purchased my first home VA and it has been the house that keeps giving. The appreciation has allowed me to refi and am in the process of purchasing a new build rental property. There's a ton of analysis to do but you're gon a learn so much more by taking the plunge and buying. If you need help or have questions about the area feel free to reach out. Always happy to help a fellow brother in arms.

    1Reply
  • Scott Dongjin Lee
    OP
    Member since 2020 · 19 posts · 9 votes
    5y
    Originally posted by @Dimitri Paspalaris:

    Scott, I would do a single deal first before doing a second one to see if you like this investing method. In addition, I recommend a 30 year loan so you have more flexibility when it comes to payments just incase you have a rainy day. I have not house hacked yet, but I am going to for my next deal. Lots of people recommend this for your first deal to learn the foundational information on how to get deals and execute the buying process. I own two properties and I am doing the long distance military investor route so if you have any questions just ask.

    -Dimitri 

    Dimitri, 

    Absolutely. I am going to focus on my first deal when I’m back in states and then move on to the second probably about 1-2 years after. Good point on 15 vs 30 yr mortgage. What I would like to do is still pay extra every month if I can to lower the principal. But I know 30yr mortgage route will give me more flexibility. Thanks for your response! 

    0Reply
  • Scott Dongjin Lee
    OP
    Member since 2020 · 19 posts · 9 votes
    5y

    @Jeremy Gaal

    That's the plan! I was stationed in Carson from 2014-2015 before the unit move to JBLM in 2015 so I am pretty familiar with the area. I wish I got in the real estate game back then but I guess you gotta start somewhere! If you don't mind me asking, are you generating enough cash flow on SFH market in Colorado Springs area? I'm trying to find anything that would come close to passing 1% rule but it's hard to find.

    0Reply
  • Jonathan Schmidt
    Rental Property Investor · Colorado Springs, CO · Member since 2020 · 2 posts · 6 votes
    5y

    Scott, 

    Thank you for your service on this Veteran's Day! I'm also active military and new to REI. I'm also a family man with two pre-teen boys, so live-in roomates or renting bedrooms is not for me at this stage in life. I purchased a SFH in Northern Virginia with zero down VA loan, did a lot of home repair work ourselves (self-taught - thanks youtube), and four years later we moved out to Colorado. I refinanced my SFH in Virginia to a conventional loan and gained over $150k in equity. I self-manage the property from out of state (not as bad as people claim). It doesn't cash flow much, but it's a long term equity strategy since Northern Virginia is a very stable market with almost no new build areas.

    Now in CO we used the zero down VA loan again to purchase our current SFH. I'm also looking for another rental property in the area, however, competition is fierce, prices are inflated, and there's a crazy amount of new construction with no end in sight. I'm nowhere near an expert, but with interest rates so low, I would not bother to go with a 15 year mortgage or make extra principle payments. I would instead save that extra cash every month for 1) cash reserves (over-leveraging is the "unexpected" demise of most real estate investors) and 2) to save for a down payment and upgrades for your next investment property.

    The other slow and steady REI strategy for many military folks is to buy a fixer-upper in a great neighborhood (think schools and commute) and live and fix while you're stationed there. Then when you PCS you rent out that property (to another military family) and buy your next SFH in your new duty location.... then repeat. Most (not all) military locations have solid rental markets and over a 20+ year career (if that's your plan) you'll accumulate 6+ rental homes that should hopefully have some cash flow and equity. Then you can sell one or two for a big check to help with your transition to civilian life and possibly fund new REI deals.

    Anyways, just some thoughts. Again, I'm no REI expert, but as a new follower of the BP cult.... I would just urge caution for any new investor not to get too caught up in the hype and find yourself in a over-leveraged position in case the market does correct, especially during these uncertain COVID times.

    Thanks for your service and stay safe!

    RLTW, 

    Jon

    4Reply
  • Jeremy Gaal
    Rental Property Investor · Colorado Spgs, CO · Member since 2020 · 91 posts · 61 votes
    5y

    @Scott Dongjin Lee finding 1% deals are hard to find because the market has been absolutely on fire of late. To give you an example, my first house I bought in 2015 just appraised 30k over what I expected it to. Currently I cashflow quite well with it (that will change a bit come January but will still be cf positive). What I have been finding on average is most houses currently for sale will give in the neighborhood of 200/month cf. Obviously it can ebb and flow a bit with the market but for me as long as I eek out some cf I'm happy as this is more of a long term play for me.

    3Reply
  • Scott Dongjin Lee
    OP
    Member since 2020 · 19 posts · 9 votes
    5y

    @Jeremy Gaal 

    Thanks for the info! If I do end up in Carson area, I’ll definitely reach out! 

    0Reply
  • Jeremy Gaal
    Rental Property Investor · Colorado Spgs, CO · Member since 2020 · 91 posts · 61 votes
    5y

    @Scott Dongjin Lee sounds good! Thanks for your continued service!

    1Reply
  • Scott Dongjin Lee
    OP
    Member since 2020 · 19 posts · 9 votes
    5y

    @Jonathan Schmidt

    Thank you for your response! I can already tell that Colorado Springs area is going to be super competitive. 

    Great point on having cash reserves. I guess “Dave Ramsey” in me just kind of want to pay off the debt first as much as I can before moving to the next property but I know the BP movement is all about the generating cash flow and using every bit of extra money to gain more units. 

    The fixer upper method you mentioned is pretty much the BRRRR method right? you buy, rehab then instead of rent, you live there for a bit and then rent, refi, repeat. 6+ properties by the time I reach my 20? I think that's doable. I'm at my 7th year now so I probably have at least 2-3 PCS moves in the future. I'll definitely look into properties that needs some work as well. Just gotta educate myself more.

    Again, thanks for the great points! 

    -Scott- 

     

    0Reply
  • Adrienne Green
    Real Estate Consultant · Chattanooga, TN · Member since 2018 · 384 posts · 330 votes
    5y

    Hi @Scott Dongjin Lee! Welcome to the wealth building world of real estate investing.

    Overall, solid plan. Use the suggestions here to make it even better. You've been given a lot of great advice on this thread.

    One thing I'd emphasize to you is a key reason REI is such a great tool is leverage: you put as little into a house as possible, especially with the current low interest rates, in order to get leveraged returns. I don't want to hear you talk about 15 year mortgages or making extra payments on the principal! You keep that cash for more investments, and enjoy your leveraged returns!

    My only other tip is don't let analysis paralysis keep you from taking action: you understand the fundamentals, take action when you find a good deal.

    2Reply
  • Scott Dongjin Lee
    OP
    Member since 2020 · 19 posts · 9 votes
    5y

    @Adrienne Green 

    Thank you! I’ll definitely have to fine-tune my plan as I become more engaged with BP forums. 

    You’re absolutely right about taking action. Once I finalize my next duty location, I plan on reaching out to a few agents in that area to start the journey. 

    0Reply
  • Blaine Alger
    Investor · Waco TX / Conroe, TX · Member since 2017 · 376 posts · 228 votes
    5y

    Seems like you are off to a great start but I do have a couple critiques.

    First off, VA loans are awesome. They provide the best option for getting into a property/house hack for little money. I am just a civilian so I can offer too much guidance on the the military/investing combo but the VA is the route to go in my opinion.

    The main issue I have for your plan is plan is why the 15 yr mortgage. Maybe you can offer me some clarification but personally I would stick a 30 year FRM. And here is why:

    -Cash flow is king. With a longer amortization means less of monthly pmt which means more cash flow 

    -You can always treat a 30 year like a 15 year by paying more each month but you can't do treat a 15 year like a 30 year. 

    Just somethings to think about. Others will say stick with the 15 but I like 30's.

    Feel free to reach out, if you got any other questions.

    1Reply
  • Jonathan Schmidt
    Rental Property Investor · Colorado Springs, CO · Member since 2020 · 2 posts · 6 votes
    5y

    @Scott Dongjin Lee 

    You're absolutely right. My first REI property was part "house-hack" (live-in while renovating) and part BRRRR. I'm also a big Dave Ramsey fan and credit his principles with instilling in me the fiscal discipline at a young age to be in a position today to start REI. I know the BP community disses the Ramsey approach, however, his principles are more for people who are in financial trouble. I still believe in his philosophy of having a budget, live within your means, not carrying debt (except for a mortgage) and paying cash for everything (or credit if you pay the full bill every month).

    As a military guy and Ramsey-fan I would still encourage you to invest in a Roth IRA every year even while getting into REI. That way in 20-30 years from now you'll have your military pension, possible 2nd W2 income or pension, Roth IRA, Social Security (hopefully), and your REI portfolio. It's a sure way to diversify your wealth and ensure a secure financial future where you'll actually make MORE money while you're retired then you did while working. Check out the F.I.R.E. discussions on the BP Money Podcast. It's a great balance to REI and provides some good lifestyle advice....

    Again - welcome to the community and reach out if you end up PCS'ing to CO. 

    JON

    2Reply
  • Ryan Riches
    Real Estate Broker · Denver, CO · Member since 2018 · 87 posts · 66 votes
    5y

    Hey Scott, 

    I would definitely recommend House-Hacking to get started. That is how I got going in the COS market. If you expand your search criteria, you may be able to find something that has a walkout basement, ADU, or seperate entrance that would allow you to rent out a portion of your property.

    My wife and I purchased our first deal with 5% down and rented the basement on Airbnb. That more than covered our expenses and and allowed us to put minimal cash into the property. You could also rent to a long term tenant, or look into travel nurses. 

    0Reply
  • Maria Bakaj
    Real Estate Agent · Denver, CO · Member since 2020 · 103 posts · 65 votes
    5y

    @Scott Dongjin Lee Thanks for all that you do!  I saw you mentioned that if you go the 30 year mortgage route you would still want to pay down the principal a little bit extra every month.  My thoughts on this would be to definitely do the 30 year mortgage and don't pay down the principal extra every month.  Interest rates are so low right now and instead you can save up cash to grow your portfolio.

    The only time I'd consider paying down the principal on a home is if you are completely getting rid of the mortgage and aren't interested in buying another home at that time.

    1Reply
  • Scott Dongjin Lee
    OP
    Member since 2020 · 19 posts · 9 votes
    5y

    @Blaine Alger

    I appreciate the response. I agree with you on 30-year mortgage providing more flexibility to buyers. I'm doing my own study on VA loan benefits right now and after I read more into it, I would like to create another question on VA loan vs conventional loan. Again, thank you for your response!

    0Reply
  • Scott Dongjin Lee
    OP
    Member since 2020 · 19 posts · 9 votes
    5y

    @Jonathan Schmidt 

    Yup! I'm with you 100% on Ramsey's philosophy of having a budget, live within your means, not carrying debt (except for a mortgage), and paying cash for everything (or credit if you pay the full bill every month). Also agreed with ROTH IRA but I believe I'm going to start shifting more contribution to real estate cash reserves rather than throwing 20% on ROTH every month. (How long have you been in btw?)

    I really appreciate your thoughtful response. I was kind of skeptical of the BP community at first, thinking to myself that there won't be any military guys who I can relate to but I was wrong! 

    If I do get COS for my next duty location, I will for sure reach out! 

    Thanks! 


    -Scott-

    0Reply
  • Scott Dongjin Lee
    OP
    Member since 2020 · 19 posts · 9 votes
    5y

    @Ryan Riches

    I would actually love the idea of renting out a basement with a separate entrance or a little guest house out in the backyard. I think those are really hard to find however so I would have to do more research on my end. My wife loves the idea of air bnb because she gets to decorate and manage everything in air bnb world! I'll be on the look out for those properties. 

    Thanks! 

    1Reply
  • Scott Dongjin Lee
    OP
    Member since 2020 · 19 posts · 9 votes
    5y

    @Maria Bakaj

    Agreed! I am going with the 30-year mortgage. I just gotta somehow change the way of Dave Ramsey thinking in me so I can use that extra cash to invest in other properties. Thank you for your response! 

    0Reply
  • Sherry McQuageBusiness Member
    Real Estate Broker · Moore County, NC · Member since 2020 · 168 posts · 141 votes
    5y

    @Scott Dongjin Lee

    Hello,

    I read most of the replies... I used to aim for the Dave Ramsey have no debt mindset, too. Then I realized that thoughtful debt (think BRRRing) would over time grow my wealth faster and larger than saving and paying off everything.

    You can still minimize debt (credit cards, buying new cars, eating out...), and use real estate to propel your wealth faster.

    1Reply
  • Scott Dongjin Lee
    OP
    Member since 2020 · 19 posts · 9 votes
    5y

    @Sherry McQuage

    Thank you for the reply! 
    I guess the good news for me is my wife and I are completely debt free as of right now. No credit card debt, no student loans. We are going to have to purchase a new car back in the states but we already put some money aside to do a decent down payment so we can focus on the rentals. 

    I might have to start looking into BRRRR option with maybe househack for the first year. My goal as mentioned above, is creating a house that I'd like to live forever by the time we are ready to rent it out. If I have that kind of a desire, I'm sure it's more marketable to others as well.

    0Reply
  • Jesse Hodges
    Investor · Harrisburg PA · Member since 2020 · 24 posts · 6 votes
    5y

    @Scott Dongjin Lee welcome to BP my friend, finally. 

    0Reply
  • Kent Clawson
    Member since 2019 · 21 posts · 13 votes
    5y

    Hey @Scott Dongjin Lee, Welcome to the club. If you haven't figured it out already, this place is AWESOME!

    Ironically, I am just buying a 4 plex in Colorado Springs while living overseas. We had a rental property in COS back in 2009, but sold it a couple of years ago before I found BP. All my wife saw was some equity and wasn't stoked about the property (but the dislike of the property also stemmed from getting it under contract after I told her I would stop looking for rental property. Life tip: Do NOT do that ;- ) Any way we were out of the REI market, but have started to look to get back in and had all of the pieces come together for this one that I am taking down right now. I agree with @Jeremy Gaal that COS is tough to find a 1% type deal. Fortunately this one was self managed, and so the lease rates were actually below market (unlike all the others on Loopnet that say they are), so we will be at about 0.75% at close, but should be able increase at lease renewal next Spring. 

    At the time we got this under contract I was literally looking all over the country, but just happened to check back into COS mainly because I had a rockstar PM that I used before and thought if I could get back in the game remotely, that if I could use her it would take at least one unknown off the table. Fortunately it all appears to be coming together :-)

    Regardless of all that, with your plan, if you can get your wife onboard then I would suggest rethinking your plan. Dave Ramsey is dead on for most things, and there is no arguing with his plan if you want security, but if you are wanting to financial freedom sooner than later, you have to risk a bit. I would offset this risk by having a good reserve account (6-12 months). In your situation, I am with the chorus of go as long as you can with as little down, as fast as you can. Especially if you are planning to move out in a couple of years. 

    It sounds like financially you have been thinking a lot like my wife and I have for a long time, and that is to keep debt as low as possible and in all fairness, I think this is the best way to live your personal life. On this though, think like an investor and put things in terms of ROI and opportunity cost. If a 15 year mortgage shaves a 1/4 percent off your loan, but decreases your money available to save and invest, then maybe it is not such a great deal. Having cash available is always helpful. For example, this house we are taking down right now, is habitable as is (at least judging by the tenants it is ;- ) but has about $20-$30K that was identified in the inspection and that I really want addressed so that it passes the "Would I want my kids to grow up in this house." test At first I was looking to angle to get the price reduced so that I could get the work done to a quality that I knew, instead of some Craigslist crackhead. Then when I thought it through, if I got $30K off the price, it was going to take about $110 off my monthly payment. So what's the ROI of that? About 30 years. Instead, we are working with the seller to fix it, keep the price the same, and keeping that money for the next deal :-

    Anyway good luck, and let me know if I can help. And hopefully I can meet up at King Chef Diner with all of you BPers in the Springs and have a Grump or Green Chili Cheeseburger (which are the real reason that I wanted to invest in the Springs ;-)

    0Reply
  • Jeff SullivanPro Member
    Rental Property Investor · Dothan, AL · Member since 2020 · 32 posts · 10 votes
    5y

    @Jonathan Schmidt RLTW!

    0Reply
  • Scott Dongjin Lee
    OP
    Member since 2020 · 19 posts · 9 votes
    5y

    @Kent Clawson

    Kent! Wow, thank you very much for the great feedback. I'll continue to look for either duplex or triplex. I guess having a rockstar PM is definitely a huge plus. With that being said, I need to continue to network at my next duty location to gain a relationship like yours. More and more I speak with other BP members, I think the first thing that I'm going to do is utilize a VA loan to start my first step to the REI journey and then move to either MFH or another SFH with a conventional loan.


    I do have a slight hesitation with VA loan vs conventional loan right now but I gotta do more research on that. So far, while zero down is going to free up the money that my wife and I've been saving but I just don't like the idea that I'm throwing money away when paying for VA funding fee. I guess there's no workaround it unless you are 10% or more disabled or have a purple heart award. Plus both VA loan and conventional loan offers really low interest right now. This is definitely another topic that I'd like to create a forum for.

    If I do finalize my move to colorado springs, I'll be interested in joining you at the King Chef Diner. Oh the green chili... I miss you so much. 

    1Reply
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