First deal Financing

[Cal Tucker]

Hello to all,

I am currently in a situation where I am planning to go into my first deal at the end of next year. I am currently 18, and although I do have a partner to go in with, we don't have a lot of capital. Between the two of us, we will likely have around 15-20k saved and ready to put in at the time. I am wondering what the best way we could finance our first deal is? For context, we will be looking to hopefully do the BRRRRR method on a multi-unit, but if we can't afford that, we are also interested in out-of-state Section 8 housing (we are both in CA). Does anyone have any advice? Or experiences similar to mine? I'd love to hear your input.

Thanks!

[Dan H.]

Some thought:

- $15k to $20k is not nearly enough

- lower cost rehabs are seldom worth the effort.   For example, new paint will add a value about the same as a professional paint job.  Similar for new flooring.   
- you need to add a lot of value to justify the terms hit for a cash out refi.

- section 8 is a difficult market segment.   Between rough tenants, inspections, and payment issues both from the housing association and the tenants it is far different that the picture some gurus imply (or outright state).  

- Highest value adds are in high cost RE markets. In 2024 I added a half bathroom out of existing space on a property with ARV in excess of $2k/ft (in mission beach, 2 blocks north of the dipper). Per comps this addition added $50k of value (seeing your in San Diego, I suspect you find this valuation less surprising than many would find it). How much do you think adding a half bathroom out of existing space adds in a less expensive market such as detroit, Cleveland, Dayton, etc?

- you are currently renting in San Diego then an ideal brrrr if you have the capital and skill to pull it off is ideal.  After refi you have extracted all of your investment and own a high value asset.   You will live in a unit that may need supplementing at a point a little higher than rent (including for all sustained costs including PM and vacancy) but you are banking the equity pay down.  In addition, most years will have appreciation and rent growth.   So instead of rent increases each year, your cost to supplement is very likely to decrease each year (when was the last time you got a rent decrease in San Diego).

I want to point out that pulling off an ideal brrrr is not easy.   It requires work and skill.  It is far from passive.  I have done quite a few; I am on site everyday.   I am willing to do what is necessary to get the job done correctly.   My last really large rehab (near 6 digit) I had 2 separate contractors not finish and one of those contractors I had used for more than 5 years probably dozens of times.   It is unlikely everything will go to plan.  Recognize this otherwise it will be easy to get frustrated.

by the way my son is also looking for a local small mf to combine brrrr with house hack.  He is 23 and graduated from UCSB almost 2 years ago.  He currently lives in a unit in Pt Loma that he and his crew rehabbed just over 1 year ago.   It turned out exceptional.

Good luck