I'm a newb! Please critique my plan!

Flipper/Rehabber · Raleigh, NC · Member since 2020 · 7 posts · 0 votes

@Scott Dongjin Lee

Hey Scott, I’m new here too. I wish I would have discovered my interest in real estate while I was still Active, I’m glad to see you’re taking advantage.

Not sure if this helps, but while speaking to a lender this week I learned that you can use the VA loan twice. As long as the second property that you purchase becomes your primary residence you do not need to refinance or sell the first property.

Can anyone following this thread can confirm? And does this open new options for Scott?

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Scott Dongjin Lee

OP

Member since 2020 · 19 posts · 9 votes

5y

@Michael Vilardo

I believe that is correct. As long as you have served over 181 days of active duty during peacetime (90 consecutive during wartime), you must have had one of the three discharges, honorable, under honorable, or general discharge (anything other than that, they will question you), and as long as it becomes your primary residence. I believe there's a limit based on the area that you are going to purchase set from VA and you can not exceed that amount either. I'm reading the book called "Making the most of your VA home loan benefits" written by David E. Nelson Jr. It's an easy read, about 100 pages long. Please verify the information above on your own though, I never want to mislead someone with a false info!

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Michael Vilardo

Flipper/Rehabber · Raleigh, NC · Member since 2020 · 7 posts · 0 votes

5y

@Scott Dongjin Lee

I’ll check it out.

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Chris Pasternak

Real Estate Broker · Pueblo, CO · Member since 2013 · 368 posts · 303 votes

5y

I'll go against the BP grain here...

Go conventional 20% down on a 15yr fixed like you originally thought. Reasons? No PMI, no VA funding fee, less interest, payoff sooner. Rolling the VA funding fee into your loan or paying it up front adds unnecessarily to your costs.

Yes you'll get lots of leverage going the other ways discussed just don't forget leverage is a double edged sword and doesn't factor in things known as life. You've got a wife and two little babies.

Since you are familiar with Ramsey maybe your goal is everyday millionaire status. What changed?

Either way I wish you the best of luck buddy.

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Daniel SmythPro Member

Rental Property Investor · Rockford, IL · Member since 2019 · 471 posts · 342 votes

5y

The most coveted thing while in a duty station, is base housing. The servicemen more organized than I rented just outside the gate, or within walking distance.

An investor would do well to invest in off-base housing. Duplexes with an understanding that rentals are usually short term, are the best. As a Marine, only certain ranks were allowed to live off base. There is usually a housing allowance given the service member looking for off base housing. You set up the lease with payroll, and you get your money twice a month if you like, even in a temporary duty arrangement!

A side-by-side Duplex is best, because there is a better chance of at least one tenant paying rent.

Government housing allowances are more for married with children! Look for two or more bedrooms. Market to E-5 and above.

You will do well to have your property managed, as when your service obligations take away your extra time, someone needs to maintain the property and insure the empty beds get filled!

Good luck!

[email protected]

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Alexandre Marques dos Santos

Rental Property Investor · Member since 2020 · 215 posts · 137 votes

5y

@Scott Dongjin Lee

I will not critic your plan... seems solid. But as many pointed out, i would make few adjustments.

1) start with 1 property. The fact tou can pay 2 mortgages at once tells me ur financials are solid. But u lack experience. O e unit will give that experience while you are abroad. You will learn simple things while can study and learn other

2) i like the idea of saving as much as you can. I would, in your case, shorten the tenor of the mortgage, forcing you to save more. In 5 years you will have a nice equity to refinance and acquire a new unit and start boosting your portfolio.

3) acquiring 2 units might be easy to pay but might not be as much easier to get the second mortgage. That is because banks will consider income and expenses ratio, and expenses in the first house ( mortgage, insurance, taxes) will reduce a lot the ratio, triggering their limits. Or the rate might not be as good as you could have, so would not be the best investment.

Good luck on your journey.

1 Reply

James Carlson

Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes

5y

@Scott Dongjin Lee

Everyone's already had some great thoughts. I just wanted to highlight something @Jeremy Gaal said: "You're gonna learn so much more by taking the plunge and buying." I love the KISS method. Keep It Simple Stupid.

We tell our investor clients in Denver and Colorado Springs to try to make that first buy an easy win. That gets you excited about the process, keeps frustration at bay and ensures you'll move to the next and the next quicker. Me? I'd buy either:

A moderately priced single family home for $300k or so and rent it out. Boom, simple! Or ...
A moderately priced single family home for $350-$400k that has a basement with a separate entrance. A modified house-hacking. Rent that basement out to either a mid-term or long-term tenant (if it has a kitchen) or on Airbnb/short-term rental if it doesn't.

Either way, I wish you the best. You'll make a mistake or two, but nothing that you can't recover from. Dive in, start the process and move on to the next. Cheers!

1 Reply

Sam Bandak

Rental Property Investor · Denver, CO · Member since 2020 · 12 posts · 4 votes

5y

@Scott Dongjin Lee Thanks for your service! It's very easy to fall into the trap of paying off mortgages. Even though there are potential psychological benefits (i.e. peace of mind), IMO the financial benefits simply aren't there. I always ask people that are hell bent on paying off mortgages, what's your rate of return in that investment? And the answer is always 0%. Your house will appreciate (or do whatever it was going to do) whether you have 95%LTV or are paid off completely. Why not use the money to make money?

Here’s a perspective shifting article that explains the concept in much more detail.

http://richardaronwald.com/wp-content/uploads/sites/72/2016/04/HowtheAffluentManageHomeEquity1.compressed.pdf

Let me you know what you think!

Thanks,

Sam

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Scott Dongjin Lee

OP

Member since 2020 · 19 posts · 9 votes

5y

YES! I do agree with you. leverage can be a double-edged sword. I guess the point that I was trying to get across was, I wanted to at least have a solid foundation before starting my REI journey. If I was a full-time real estate investor, sure maybe I can go from 1 unit to 20 unit with a year and a half or something like other people on podcast episodes but I guess in a way I'm more conservative and a realist. Do I want to reach up to 20,30+ units one day? sure! but I'd rather not rush. You try to rush to your goal, you end up rushing to failure. With that being said, at least pay off the house early on so I don't have to worry about my family living on a street! Especially if I am just getting started with real estate, only focusing on cash flow to me is a dangerous move.

I think I'm going to mix to plans together and try to find a happy median point if possible. Never want to over-leverage and end up putting myself in a worse situation. That scares the **** out of me.

Thanks for the response.

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Scott Dongjin Lee

OP

Member since 2020 · 19 posts · 9 votes

5y

That's the goal. A moderately-priced SFH for $300-350k and do small home improvements then rent it out. Move on to the next but I probably will hold until I generate enough savings again. As mentioned above, I definitely don't want to over-leverage myself and get into a worse situation than before.

Thank you for the response!

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Scott Dongjin Lee

OP

Member since 2020 · 19 posts · 9 votes

5y

I hear what you're saying. However, I'm sticking with what my stable income can cover monthly in case there's any vacancy or any unforeseen circumstances. At the end of the day, there's no GUARANTEE that the house will appreciate. Most likely? I would agree. But as I have mentioned above, I'm trying to find a happy median point between Dave Ramsey perspective and BP perspective. As long as what my wife and I make can cover two mortgages, I feel that I am not over-leveraging myself. If one is rented out with longevity, well then I guess that's a great start for us to save more for our next property. Even then, I would be pretty hesitant to jump on my third property unless my family's income plus cash flow can cover the third. Appreciation like Brandon talks about in the book, is a bonus for me. But if I can fully pay off 5-8 properties that can generate $1000-$1200 a month by the time I retire, that's exactly what I want.

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Scott Dongjin Lee

OP

Member since 2020 · 19 posts · 9 votes

5y

@Daniel Smyth

That's really ideal. Duplex right outside of the gate and If I can rent it out to 2 x NCO families, wow that's a solid investment in my opinion. I'm pretty sure the CF on that duplex would be pretty good and military bases aren't really going anywhere. I like that idea even more because It's less likely for both tenants to move out at the same time. (Different PCS cycle etc) AND! I can definitely have a conversation with them to project the future vacancy based on their movement cycle.

Overall, I like that idea.

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Saundra Bethley

Member since 2019 · 4 posts · 1 vote

5y

@Michael Vilardo

Good morning Michael,

I'm a Property Manager, AF reservist and new to the BP family. I purchased my first two flat REI property last December using a VA loan. Couple of things I learned:

1) House hacking is the way to go! I am living free, my rental income covers the entire mortgage. I save $800 a month rent I was paying last year to cover repairs (hardly any) and emergencies.

2) The VA loan requires that the reside in home for one year minimally before acquiring a second property using a second VA loan.

3) According to my realtor who is well versed in VA loans you can use a VA loan multiple times (like every year or 2) to purchase a new home BUT, the VA processing fee increases with each purchase.

4) There is no cap for how much you can borrow, meaning the cap for a VA loan was $484,500 last year here in Chicago.

5) Just a suggestion.... Research and consider using Section 8 or a subsidy program like (HOW - Housing Opportunities for Women or Catholic Charities) as a means to secure guaranteed rental payments especially during these uncertain times. While these program clientele get/have bad reputations they are not all bad. Many Section 8 tenants actually take better care of properties then market rate tenants for fear of losing their voucher. Your stringent screening process will help you select the best tenant.

Take the leap! You just may land on a bed of roses!

Best wishes to you and your family. Stay safe.

Saundra

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Jeremy Gaal

Rental Property Investor · Colorado Spgs, CO · Member since 2020 · 91 posts · 61 votes

5y

@Michael Vilardo just so you're tracking VA lifted the limits I believe last year. You still jave to qualify based on income and credit score. I use the VA loan twice, the first use is still giving me lessons today. Would highly recommend it.

2 Reply

Jeremy Gaal

Rental Property Investor · Colorado Spgs, CO · Member since 2020 · 91 posts · 61 votes

5y

@Kent Clawson there are some great places to eat by King Chef these days!

1 Reply

Jay Berube

Property Manager · Bonita Springs · Member since 2020 · 32 posts · 16 votes

5y

Hi, Scott! You’ve already received some excellent advice from the BP community. I would just add here two educational resources that can help you to develop your investment strategy. As a newbie, you can learn a lot from the training Stacy Rossetti offers (https://stacyrossetti.com/). If you want to consider other options, such as developing an Airbnb real estate investing strategy, you can get inspired by what people like @Amanda Williams, aka The Traveling Realtor, did to build their passive income.

Good luck and welcome to BP!

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Michael C.

New to Real Estate · Denver · Member since 2020 · 75 posts · 81 votes

5y

I'm in Denver purchased first house VA lived in it about 2 1/2 years it wasn't the best deal starting out but a nice single family house. In that time the appreciation and rising cost/rents in the area allow me to cash flow a few hundred and have pretty good equity in it now. Also I saved enough to put 20% down on a triplex and will be house hacking after I finish fixing it up and renting my current house.
The thing with va is the house has to be in good shape so you are competing with every retail shopper. We made a bunch of offers over asking before our offer was accepted. I’d even look at some of the new construction, get exactly what you want without the competition.

I would first buy a nice move in ready Single family house with the VA loan, one that will also work as a Higher class rental later on (Nice neighborhood, good schools, somewhere you'd like to live). Then once you have your family set up, start looking for actual deals. You will be living in the area for a bit get a feel for the area, get your lender set up, find a good realtor and you will be ready to rock. Then once you find the investment property , if it takes you a few months to get it fixed up whatever it's not affecting you or your families living arrangements and not stressing you out nearly as much as living in a construction site or trying to rush into a bad deal.
Then you can rent it or move into it and rent the other.
That’s how I’m doing it, more of a slow and steady. Buy, live in it, fix it up, look for next, repeat. Now that in on my second it should go faster and faster each time with extra cash flow from each previous houses rent. Plan to live in this house about a year, year and a half, while fixing it up and saving for the next one. Keep going until I make enough to retire early and replace my income.

1 Reply

Scott Dongjin Lee

OP

Member since 2020 · 19 posts · 9 votes

5y

@Jay Berube

For sure! I'll check it out. Places like JBLM, Fort Carson, and Georgetown TX, Roundrock (Near Fort hood), might give me a pretty good location for Air Bnb. Just a thought as of right now but as @Michael C. mentioned above, I am going to set up my foxhole first for myself and my family and then I'm going to start my real estate journey in my next duty location. Until then, I'll be actively engaged in BP community to learn more and more. Tax advantages, LLC vs. CP, home improvements and rehab strategies, etc. Of course, we are saving every month to hit our target number by the time I leave South Korea. T

Thanks for the responses guys!

1 Reply

Scott RiversPro Member

Investor · Fayetteville, NC · Member since 2020 · 12 posts · 8 votes

5y

Welcome and hello everyone.

I'm sorta new to BP and purposeful REI. I'm deployed but in the process of buying a duplex. I also have 1 LTR in AL and I'm also looking to get an SDIRA up and running. Section 8 is money! That's guaranteed money coming in each month from the government; you can't beat that. If you have a section 8 tenant that's employed, they probably have to pay 10% of the rent. Cool thing is, if they're fired or COVID strikes again, no worries because the government will pick up all the slack. I've had Section 8 tenants in my Alabama property since ~2016 and they have never missed a payment; not that they can lol. Section 8 programs helps families in all kinds of neighborhoods (mine is A to A+) so don't let the stigma stop you from getting steady, reliable cash flow. I provide a great home, they take good care of my house, and Uncle Sam builds up my equity. I can't complain at all.

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James Wise

Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes

5y

Originally posted by @Scott Dongjin Lee:

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-

I would start with 1 deal before worrying about anything else. In addition I would buy something that already has your target bed and bath count. Converting a 2 bed into a 3 bed doesn't add as much value as you're probably thinking as you aren't adding any square footage.

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I'm a newb! Please critique my plan!

I'm a newb! Please critique my plan!

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