Plan A is a bust. Now What?

Question

Hello Everyone,

A couple weeks ago, I mentioned I was going to be tkaing the plunge into REI by house hacking a duplex. This past weekend was my first time going for showings and boy was I surprised. At my price point the unit I thought were decent turned out to be awful (water damage, exterior damage, rats). I could not see myself living in the area or these homes. This was extremely discouraging and realized I have to revise my REI plan.

So, I am looking for any input on what to do next. I am thinking about purchasing a SFH or a townhome in a twin cities suburb and putting in some value-add upgrades and selling in the future. So similar to a live and flip. While doing this, what should I do with my savings? Should I look for properties still (I am considering investing in my home town Grand Rapids, MI)? Should I look for a partner to make the investing barrier easier? Should I pay down my debts (car and student loans) so that investing can be easier in the future?

Looking for any feedback going forward or any relate-able stories!

Thanks!

Randy E. · Answer

If you currently have an automobile payment and you need more cash to begin your REI career, you should sell your car and buy an inexpensive car with cash.

I can't speak on "confortable" neighborhoods in your area, but I will agree that most RE investor newbies experience a reality check between what they think they can afford and what they actually can afford.  I won't advise you to rethink your expectations, but changing your expectations of A neighborhood versus B neighborhood versus C neighborhood may prove helpful.

But first, sell the car.  The more years you have remaining on the loan, the more urgency you should feel to unload that monthly drain on your bank account.

Jacques Cyr · Answer

@Sean Sloop... couldn't agree with @Tim VandenToorn more... He knows the market, and is a great resource. I've recently moved to GR, and starting to get homes under contract, and moving forward. (Also working on options down in Kalamazoo as well. Back to one of your original questions: Partnering can be a challenge, but rewarding. The biggest "rub" for me is the initial split. I'm a greedy Bast@ard - ha... and being relatively new to the game, I'm still of the mind-set that "I want it all". Ha... though that's changing. Just got off the phone with some investors out of Denver / Boulder, and we're working on the details to form a remote partnership. Don't get me wrong, I've known these guys for several years, and both are reasonable individuals. We just want to make sure we have all the major details sorted out... with protections for all along the way.

What's up with the Twin Cities, from what I've heard seems to be a solid market? Why the gap? (Not sure what your target range is, though I'm betting we have the same challenges here in GR - basically, that 'mental  chasm' that we have to cross when investing of "would I live here....?" (But the reality is there's usually a market).

Good luck, and DON'T give up. "Get up" and do it. :)

Cheers,

JC

Donald Cooley · Answer

Don't give up @Sean Sloop. Stop looking at how things aren't working and change your thinking to be how can I make it work. There are so many ways to busy into this business, you just need to find one that works.

Personally, because of a short sale just under 3 years ago, I can't get a mortgage. I kept listening and reading and asking questions here on BP and found a way. We went seller financing, minimum down set our rate, set our payment and closed the deal! It was rented less than a month later and cash flows about 300 a month. Point is off you want this bad enough you will find a way! Keep pushing and keep hustling it will happen! Good luck with getting moving!

Tim VandenToorn · Answer

Sean, come to Grand Rapids!!  =)

Malik Welch · Answer

@Sean Sloop

I would get Prequalified then Go driving for dollars and me personally I'd skip a duplex. Go for a 3-4 unit in the best location you can afford. You may find an older landlord that has been thinking about selling. Either buy it on terms and agree to cash him out at a later date. Or simply offer to buy it with a new mortgage . Use the rental income to snowball you're student loan debt down.

Jay Hinrichs · Answer

@Sean Sloop   I am not a retail lender but I was reading one of our trade journals as I like to keep up.

and for FHA loans.. the new underwriting rules require 2% of your outstanding balance to be used monthly against your DTI

So if you have 25k in student loans that will be 500 dollar hit to your DTI  which is pretty significant for most.

Sean Sloop · Answer

@Jake Thomas Unfortunately, I will have to postpone investing in GR; however, it seems lots of people have high remarks for the city! Which is great to hear.

@Jay Hinrichs Would you say that paying down my student loan should be a priority then?

@Lawrence Henkel III That sounds similar to the plan that I may try to pursue now. I am excited to find something that I can add some equity to and increase the value. I had big plans to buy my first duplex, save up and buy my second, etc. I will have to reevaluate now and see what the best plan to proceed is.

Jay Hinrichs · Answer

@Sean Sloop  I would get prequalified  student debt Hammers your DTI

Jake Thomas · Answer

@Sean Sloop sell the car, buy a cheap beater and come to GR. It's easier to invest with no consumer debt and it's easier to invest in GR. Great group of investors here willing to help.

Plan A is a bust. Now What?

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