Hey, need a little advice here. I've been wanting to by my first rental property, and as I newbie to investing, of course I started wholesaling. I've been wholesaling for about 6 months got a couple deals in the works but recently I bumped into an agent and i realized I had strayed from the goal of getting a rental. So I have like no savings because I'm spending everything on marketing, and i'm wondering if i should continue to do that. Should i roll the dice and hope i get a big wholesale deal or put my energies into saving money and maybe working overtime so i can afford the downpayment myself.
what do you think?
Hi Kay H.
I think about this a lot myself too. Having actually closed a few deals I now have a nice little sum and it does beg the question - reinvest in marketing or get the rental that will have cash flow? I've decided - for now - to reinvest in marketing and tighten the belt on our personal finances side in saving for the rental. One of the "issues" I have is I really want a rental purely for cashflow in Baltimore which means I need cash to acquire and get it rent ready. Maybe I'll rethink as I start expanding my search and also acquiring my real estate agent license to a property where I can leverage my money into the rental.
To make money you have to spend money if you're a wholesaler so to keep the momentum going I'm expanding my targets a little and reinvesting about 35% back in to marketing for the moment . . . with the hopeful result that my wholesale spreads will start to improve with better negotiating and estimating on my part.
For me, the big thing is I don't spend the money unless I have it. As much as it would suck if I didn't get a deal off my next marketing round to pay myself back, at least I can sleep at night because I'm not in debt over it. If you're not in this situation I would tread carefully.
I would continue to wholesale and put at least 15% of every deal you get done back into marketing. That way you can put away the other 85% into a savings account (this is what i'm doing). Once you acquire enough to have your safety net, then jump into rentals. I'm a firm believer if you don't have cash reserves to take care of things if they go wrong, than having a rental can break you.
Also, look for creative ways to obtain your rentals if you go for them, not just through the MLS. When you get a wholesale deal that looks good for rental, see if you can work out some owner financing where you only have to put a small amount down. If you find the right owner financing deal you may be able to work out great terms (ie. no payments for a year with 5 year balloon).
You also might want to look at lease/options down the road since they take little money to get into usually but provide not only cash flow, but up front money and back end sale profit. These do however take lots of tracking and good systems in place to handle.
Hope this helps.
I agree with @Jason Collins in regards to the percentage to put aside for marketing and having reserves when it comes to owning a rental. Continue to wholesale and build that capitol up. Never know you may have enough for TWO down payments.
yes. that makes sense. what i have been doing instead is spending the extra money on marketing so that now i dont have any savings. not a good idea.
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