Advice for young investor on first purchase

15 Replies

Hi everyone,

My name is Robert Clark, I'm 22 years old, from Chicago, finance major attending SIUE in Edwardsville, IL (STL area) and I'm ready to jump in the real estate game head first! I have many goals and this is my dream to become a successful real estate investor. I'm here to learn from people who have the same goals and interests as me. Whether your successful, or only a couple steps ahead of me, I'm sure you can still teach me something. Any advice would be highly appreciated.

I plan on buying my first property within the next year. I'm looking at multifamily properties as well as 2 bedroom 2 bathroom condos. I will have the help of my mother for this first purchase. She has a good job, great credit, and home owner so I know I will get approved by many lenders.

My question is regarding an FHA loan. Would it be recommended to put a down payment of 20% for this first purchase? and then when I graduate in 2 years, use the FHA loan to buy my second property without a co-signer. Also my first purchase is in a college town and the prices of the properties I'm looking at range from $40,0000-$100,000(Not to expensive I guess). And for this 2nd property purchase in the future I plan on having a well established career, and spending a lot more($300,000-$625,500) in a bigger city like Miami or Los Angeles. Would it be best to hold off on a FHA loan for this 2nd purchase? Should I get it with my first purchase? Can I get it for both? Any advice would help tremendously. Or maybe someone has a complete different strategy and that's something I'm also willing to hear. Please respond at your earliest convenience.

Thanks

Robert Clark

Hi @Robert Clark and welcome to BP. You may want to look into FHA 203K loans, which involve rehab projects, something that is very common with investment properties. I'd speak with a loan originator who deals specifically with FHA loans, there are plenty on the forums. We're based in South Florida, so when you move into our territory, let us know how we can help!

@Gregory Emmer Thank You! I will definitely be look into it, and I will remember the name when I move to South Florida! 

@Robert Clark Welcome to BP! I caution you on the condo purchase just from HOA rules and costs. Some of the associations around this area are challenging to deal with. Make sure the condo association has not restricted the number of rental units it will allow. Also ask to see their financials to make sure they have enough reserves for capital expenses like roof repairs, sewer repairs, street repairs, etc.

I love the Edwardsville area from an investment standpoint if you can find a decent price-point, but that's a real challenge. It's probably one of the most expensive $/sq ft in the county. With good reason as everyone want to be there and average rents are about 20% higher than most of the county.

@James Syed might have some input for you as well. He's very active in this area.

@Ronald Perich

Thank you for the referral. I appreciate it.

Wanted to talk to you about 6 unit in Alton, IL. It's already under contract now. The asking price was reduced to $148,000.

I wanted to ask your opinion about that neighborhood because the street look rough that it was on. Its' too late now.

James

Hi @Robert Clark ,

I bought my first 3 flat in Chicago right out of college two years ago and its been a huge learning experience. I don't have much of an education to offer you since I'm still new to this myself but what I do suggest is reading the BP Book on Purchasing with No and Low Money Down. Gives you a great high level information on everything from leases to loans... It specifically covers FHA Loans as well as the positive and negative aspects that comes with them. Your first property is quite the adrenalin ride so enjoy it as much as you.

-Josh 

Originally posted by @James Syed:

@Ronald Perich

Thank you for the referral. I appreciate it.

Wanted to talk to you about 6 unit in Alton, IL. It's already under contract now. The asking price was reduced to $148,000.

I wanted to ask your opinion about that neighborhood because the street look rough that it was on. Its' too late now.

James

 I looked at that one and passed because it doesn't fit my profile. There was no living space on the outside of the residence which I really want. Also, as you talked about, it is in a rougher part of town. Not a warzone by any means, but rough. 

But if you are still interested, you should contact Dennis about a contingency offer. Never know if the contract will go through.

Robert, money is cheap right now but what will it cost when you get your next home? I'd say FHA 203k now as mentioned above. Also if you're heading to the LA area 300k is not going to get you much you might want too bump that figure up depending on what area you will live in. I just saw a 3/1 for 700k.... it was nice but only 1200Sqft

Robert Clark I've been investing for about a year now. Let me know if I can help

Originally posted by @Ronald Perich :

@Robert ClarkWelcome to BP! I caution you on the condo purchase just from HOA rules and costs. Some of the associations around this area are challenging to deal with. Make sure the condo association has not restricted the number of rental units it will allow. Also ask to see their financials to make sure they have enough reserves for capital expenses like roof repairs, sewer repairs, street repairs, etc.

I love the Edwardsville area from an investment standpoint if you can find a decent price-point, but that's a real challenge. It's probably one of the most expensive $/sq ft in the county. With good reason as everyone want to be there and average rents are about 20% higher than most of the county.

@James Syed might have some input for you as well. He's very active in this area.

Thanks! I would appreciate any advice from you or @James Syed since you guys are very active in this area. Would there be any possible way to get a 6 unit property with little to no money down? I know the max for FHA is 4 units, But I was interested in that 6 unit for sale in Collinsville, IL listed at $245,000. It looks like it could be a profitable investment. I'm not sure of the area though.

Or if either of you know of or come across any 2-4 units that look like quality investments please let me know. Cities relatively close to Edwardsville. (Glen Carbon, Maryville, Collinsville, Alton, Wood River)

Thanks

Robert Clark

Originally posted by @Josh Sartori:

Hi @Robert Clark,

I bought my first 3 flat in Chicago right out of college two years ago and its been a huge learning experience. I don't have much of an education to offer you since I'm still new to this myself but what I do suggest is reading the BP Book on Purchasing with No and Low Money Down. Gives you a great high level information on everything from leases to loans... It specifically covers FHA Loans as well as the positive and negative aspects that comes with them. Your first property is quite the adrenalin ride so enjoy it as much as you.

-Josh 

@Josh Sartori Thats awesome! What neighborhood in Chicago? Im from the westide, west suburbs. Grew up in Westchester, IL

Originally posted by @Joey Noel:

Robert Clark I've been investing for about a year now. Let me know if I can help

Thanks! Ill Keep in touch!

Originally posted by @Paul Neeb :

Robert, money is cheap right now but what will it cost when you get your next home? I'd say FHA 203k now as mentioned above. Also if you're heading to the LA area 300k is not going to get you much you might want too bump that figure up depending on what area you will live in. I just saw a 3/1 for 700k.... it was nice but only 1200Sqft

Yeah that seems like the best option, I just wish it was more to choose from in the market for this college town area. Its more so 2 units, rarely any 4 units. I guess I have to be patient.

@Robert Clark

BP is full of useful resources such as forums and blogs. Welcome to the Bigger Pockets community-be sure to check out all the awesome BP blogs under “Learn.”

@Robert Clark If this really is a six-unit building, you will not be able to finance it using FHA. That doesn't mean you couldn't get it by using partner money or having a friend/family member come in on the deal. You could probably get commercial loan with some local banks if you could bring in a partner at 20% and you at 5%.

But be wary of going into this by the skin of your teeth. You will need repair monies escrowed (even if informally). There are going to be a bunch of unexpected costs you'll come across as you start managing the property. 

You will be more challenged to keep the lower level units rented. Even with the nice windows at ground level, residents tend to prefer above-ground. And they'll be more worried about security.

The area itself is mostly rentals, so you won't have too many problems with neighbors calling about your residents. I don't know this area well, but a quick driveby doesn't show any obvious signs of lurking criminal activity.

This is an agent-owned/listed property so you might want to have your own agent represent you. Not questioning the ethics of the agent/owner at all, but you want to have someone representing you on this. The owner has multiple investment properties and is seasoned. You need someone on your side helping you.

It appears as though residents pay electric and gas. Couldn't tell about water and sewer. Parking might be a concern. Doesn't seem to be enough off-street parking for the number of units.

You'll have to really run the numbers on this one. Rents will be somewhere around $525/m or $35K/yr (with one month vacancy factor). Debt service will be $19K on $200K 15yr note. Taxes are $4,300. Water/Sewer/Trash at $2,400. 35-19-4.3-2.4 = $9,300 left to pay yourself, insurance, and repairs/CAPEX. If you get a 20 yr note, you'll add $3K to yearly income. Not a lot left to squeeze on this one. Can you get higher rents? Maybe. I don't see you cutting costs too much; there's a lot of fixed costs baked into this.

You're probably better served by looking for a house-hacking opportunity at this point. Much bigger selection in the area and you can take advantage of more creative financing opportunities, including the 203K loan.

Best of luck in your search!

hi robert. welcome to BP and real estate investing. one thing you have going for you is your age. i have always regretted not doing this much sooner in life. that being said, you do have a lot to learn. there are so many ways to buy real estate in this world, we all simply could not list them here in this forum. most are very creative in nature. FHA is definitely a way to buy, yes, but there are so many other ways. buying in the conventional manner, i. e, seeing an agent and buying a house on the listing service, is ok, but your best deals are not there. in fact, your best deals aren't even listed, anywhere!!! you will find your best deals just driving around, and checking preforeclosure lists, etc. tax sales are a great way to find hidden gems. i do not know how good you are at doing the fixer upper thing, but distressed properties are a great way to start. they usually require little money to purchase, and give you great experience at rehabbing a house, and in the end, quite often, yield the best rate of return. keep one thing in mind. i admire your desire to grow big by expanding into LA and other high dollar areas, but remember, high dollar areas do not necessarily mean a high dollar return. my advice? find your best, unlisted, low dollar deals and stick with that game.

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