What would you do in my situation?

Question

So, I have been interested and studying up REI for quite some time now since I graduated University in 2009.

Some background,

-27/m
-I teach abroad. 
-No debt. 
-No savings (treated myself to some long dream vacations/trips, now I am focused on REI & career) 
-Good credit.
-Can save 15-20k a year (conservative est. as I can save more if I go to the Gulf/ME) 
-Still a year or 2 away from making moves, but I am a compulsive plan / preparation freak.

Ok, so my goal is to hopefully quit my job and just do exclusively REI ASAP. A combination of flipping and land-lording.

So my the first questions I am pondering is

1) Should I use my first loan / benefits on a 2-3plex or go straight with a flip and look to get a rental property later?

2) Given the above question, and my circumstances above how should I go about the financing considering it will be my first time etc?

So essentially if you where in my shoes what would be your plan / strategy for going REI full time?

Thanks in advance.

Ali Slim · Answer

Now I am thinking the best thing to do is just go to the Middle East and teach and tutor full time and try and save 100k in two years. Then purchase 4-5 homes in the 85-115k range that rent for 1k. Seems you could get almost 2k after the mortgage payments. Then go back to Middle East for 1 more contract. Save and come back to do REI full time. Good CF every month with a sizable pool of money to begin with.

Easier said than done though!

Brandon Sturgill · Answer

FYI- If you plan on purchasing a semi-permenant property to live in while you begin your REI venture. HUD Good Neighbor Next Door may suite your needs (link below/ may need to cut and paste)

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/reo/goodn/gnndabot

Depends on location, but USDA has a rural development program  with zero down. If you are a "first-time" homebuyer, there are likely incentives in your area for SFH and MFH's.

Ali Slim · Answer

Thanks for the reply Adam.

I wont be working from abroad while trying to flip houses.

I plan to purchase a 2-4 plex then if need be go back abroad for a year or two to get some extra funds to allow me to flip houses. If I purchase a 2-4 plex and leave I will have a property manager which I carefully selected to manage the property and tenants while I am away.

When I return ill hopefully be flipping full time or if I have to get a teaching job state side until I can go full time in RE.

Adam Johnson · Answer

I've given this a little thought and have a couple concerns for your sake, which will require you to put some thought into it from a different perspective.  Working abroad adds a lot of challenges, which gets further complicated by being new.  Personally, I started (and continue) to buy properties near where I live.  I also manage them myself, along with my own staff.  Essentially, I have built a property management business alongside my portfolio.

You don't have to follow my footsteps exactly or even closely.  HOWEVER, your statement about waiting until January to talk to a bank tells me that you will have challenges ahead.  What happens when a tenant does a "midnight move"?  How long before you even know it is vacant?

You will likely need to hire a property manager to act on your behalf while you are absent.  I have my own thoughts regarding hiring of managers (see above where I said that I do it myself), but if you are careful in your selection, there are many out of state and out of country investors buying properties and hiring local managers.  This isn't impossible, but has it's pitfalls if you rush to hire a manager in one of your trips back home.

I'm honestly clueless how you can flip property from abroad.  This is a JOB all by itself.  I'm assuming you are referring to fix/flip, so the countless variables that pop up during the fix stage will likely burn through most/all of your profit margin with cost and time overruns unless you are there to DRIVE the job to the finish line.

A couple other options to consider, which may be more passive and might fit better for your situation - become a hard money lender, invest in notes/paper, be an equity partner with somebody you know/trust locally that can help drive the business in your absence.

None of what I am saying is intended to discourage you.  I wish I had started in real estate 15 years before I did.  I just offer these thoughts for you to consider as you try to determine how to get into the game.

Best of luck!

Ali Slim · Answer

I will go chat with a bank when I return to the US in Jan and see about the loan. Also need to link up with the local REIA and hunt down some legit HML's.

Anyone else have any suggestions or what they would do?

Colleen F. · Answer

If you want FHA talk to a bank about whether you qualify for a loan of the size you would need in the area you want to go to.  There are things they look for in terms of length of employment.  Someone looking at your specific financials would be able to advise better.    As for what you might not want to ask them about such as owner occupancy I would say if it is your US home and you use it as such without renting it then you are okay. It is when people rent a unit that is supposed to be owner occupied I have seen issues. Not always but sometimes. You might also be able to rent it as  furnished student sublet for less then a year but that also depends on how much you care about your stuff.  Think about how it all looks when you file taxes. They aren't policing it but it is always best to be above board in your business practices.

Anthony Dadlani · Answer

Ali,

I actually like your idea of keeping savings/personal capital in a long term investment property. As and when the deals come along you can always tap hard money lenders and other private investors to finance the short term flips.

You will have the best of both worlds.

Best of luck in all your endeavors.

Ali Slim · Answer

As of now I am leaning towards

1st) Buying a 2-4 plex with either the FHA or 203K loan with 3-5% down.

With that should I only get one that needs work or just buy one that is ok / liveable. Obviously one where the other tenants rent covers the mortgage.

This to serve as a base of operations & to not have to worry about having a roof over my head and eliminating my only major living expense. To allow me to focus on flipping.

Also, how do they monitor and know that you are living in the property? (owner occupied)

Would it be possible for me to just leave my unit with my stuff in it and go work abroad for 6 to 12 months to build funds?

Another thing I am wondering is how I would get approved and for how much considering my strange situation? (Primarily having worked abroad with cash saved up ie15-30K if I wanted to purchase a 2-4plex within the next 1 to 2 years. Suppose if I had to I could get a job teaching in the states.

That part is really confusing me.

2nd) Use a HML to flip properties until I have enough capital or other means to finance flips.

How does this sound?

Adam Johnson · Answer

Personally, I look at flipping as a "job" and rentals as an "investment" or "retirement" plan.  I do both but have started looking at increasing how much flipping I do as I look to reduce how much I am doing in my other day job.

Rentals will not get you rich quick, but when properly purchased can provide long-term stability.  You will need a lot of them to live off of.  If you have not yet found a place to live, strongly consider buying a multi-unit property and living in one unit.  This will reduce your own cost of living, making it easier to get ahead faster.  I wish somebody had suggested that to me a long time ago.

Another thing to consider is how YOU live.  As we prepare to "retire" into real estate within the next few years, my wife and I continue to trip our household budget.  I really don't know how we do it, but every year we find ways to reduce what it costs us to live without sacrificing quality of life.  We drive used vehicles, mine has almost 400,000 miles on it, and don't buy what we don't need.

Another thought to strongly consider - try to do deals with as little of your own money as possible.  Be careful and make sure every deal makes sense, but this will allow you to ramp up a lot quicker.  It will take a while to recover your cash when you put it into real estate, and this can make it more challenging when you hit bumps in the road.

You are wise to plan, but don't get caught with analysis paralysis and sit on the side lines too long.

Good luck!