Buying First Multi - Which strategy would you implement?

Question

Hi BP,

I have a question, I'm looking to buy my first multifamily either Q4 of this year (right around the corner) or Q1/Q2 of 2017. Here's my dilemma. I've only got about $20k saved up. I've spoken to mortgage brokers, etc., and I need about $10k more just to qualify for an FHA loan. Chances are I will be in a neighborhood a bit away from where I grew up and currently work, not a fan. So here are 3 strategies that I've been considering and I'd like to see which one you all think I should go with or if you could recommend any to get me over the hill!

1: Keep saving capital/living frugally (what got me to $20k in the first place) until I have enough to make the move. (IMO this may require me to watch time past me by with all of the current strategies to get in somewhere)

2: Try to find a seller financed multifamily, maybe somewhere in my area or 20-25 minutes away.

3: Use this capital as marketing dollars and begin wholesaling. I've heard great things about what wholesaling can do in regards to building capital. I do not want to oversimplify what it'd take to be successful at this though.

Thanks,

JD Martin · Answer

I vote for #1, with you living in one of the units when you manage to score. Good job on saving $20k, that is quite impressive as most people (including most people I know) can't manage to save 20 bucks, much less 20 thousand.

Zach Quick · Answer

@Craig Moore My two cents would be to keep saving. The more you save up the more serious you can look at better properties.  This will also give you more time to hone your analyzing skills for the property/location.

95% of the time people who are able to get seller financing on their first deal is because it is the kind of property or price that 95% of people won't pay for, if that makes sense.

Another 10-15k won't take you as long as you think.

Rob Harris · Answer

Hey Craig, glad things are moving odin the right direction for you.

With your dilemma, in my humble opinion, it comes down to priorities AND what your end game is for this purchase.

If you have the opportunity to get into a multi-unit (4-units or less) positioned in a manner that will allow you to have most of the investment paid by others (making your note payment for you and allowing you to save more of your personal capital) that's a god thing.  Using traditional conventional financing for this and having it in your portfolio will help demonstrate to future lenders that you have moved forward with a solid investment strategy, especially if the numbers are strong and you bought it right.

If you have "strong" wholesaling opportunities to make some quicker cash, thats a good option, I would just make sure you don't get caught up to where if you have carrying cost you get eaten up and lose time... IF you jump into wholesaling you need to make sure you have a solid understanding and some wise council to help you through to make sure you don't get burned.

Seller finning is great, but they may want more cash down than what you have available??? - I don't know the numbers in your market, so you would have to assess if this is probable....Going conventional would allow for a second position note holder but if there isn't enough equity in the property to make it a viable option for the secondary note holder, you probably won't get to much traction there....

If you don't have a specific property on your radar right now, you may want to get your hustle on to save and make that extra cash to go in stronger to your financing entity.  Get Pre-Approved before you even make a future offer to strengthen your buying position with a Seller.  I have gotten plenty of pre-qual letters form potential Buyers of my properties and honestly they don't carry much weight with me. Pre-Approved "usually" means they are more serious and already been at least partially underwritten by a banking institution, which means more meat on the bone to me....

Hopefully some of this helps! - Rob H

Craig Moore · Answer

Let me rephrase - I would like to replace my income with real estate by then. But, is it really that difficult? I can understand why but really?

Craig Moore · Answer

Anyone else? What would be the drawback of wholesaling? Thoughts on that strategy?

Thomas S. · Answer

What business are you planning on starting for your self employment income. You need to keep in mind getting financing to continue investing will be much, much more difficult without a job paying a good income. Being self employed can be a serious detrainment to investing.

Craig Moore · Answer

Graduated with little to no debt last year and I'm still living at home (23 y/o). Future looks bright but as we know...nothing is promised. 24 will be the magic age.

Rob Harris · Answer

@Zach Quick mentioned some great points.  And if you don't have much that would conflict with you diving deep into learning how to REI in a wise way.  Start analyzing deals routinely to sharpen you skills so when the ones that pencil strong that are "real" deals, you will be in a position to move on things quickly and wisely.  For the most part, the numbers should guide your decision making supported by the market and associated local factors that would make a property a wise investment!

I would suggest you also try and find someone local who is experienced and may be willing to mentor you. Networking, network, network,,,, this will pay you non-monetary dividends that will turn into future monetary dividends.

Craig Moore · Answer

Wise advice. Only reason I'm posting this is because I'd like to be self-employed by the age of 30. I'm 23 now. So when I say "time passing by" I mean, 30 will be here before I know it. Essentially, I'd like to move now if I could.

Craig Moore · Answer

Thanks for the answer, Rob. To be honest - I don't have many priorities that would conflict with REI. No kids, etc. (the whole spiel...) I'd be interested in seeing if I could have someone invest for me, but that has yet to be seen.

Buying First Multi - Which strategy would you implement?

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