Help Purchase First Rental Property

6 Replies

I want to start investing in rental properties. I have $40k cash and was wondering what's the best way to invest this money.  Any help or ideas would be appreciated  

As with every situation, it depends. First and foremost, what is on your list of priorities when it comes to real estate? Do you want immediate return on invest such as wholesale or flips? Or do you want a monthly cash flow with a nice tax write off around tax season? When you have made your decision on your priorities then we can have further discussion.  

My goal would be to build a portfolio of homes that will generate monthly cash flow.

Ok so you are into the long game. Good for you. Now I don't know how your current life status is, but I will give you suggestions based on upon your possible life circumstance. The key thing I would want for you is to be able own a small portfolio with the $40K you have. Being that the new Fannie & Freddie guidelines is that for all investment properties now require 25% down payment, 1 property alone could tie up your almost all your cash and that's excluding closing cost. So here it goes:

1) Single with no wife or children: House hack with an FHA loan, lower down payment which lets you be able to use the other cash left to leverage for another property.

2) Single but engaged or Married with no children: House hack again with an FHA loan, but move out once the 1 year stay requirement is over, and rent the other unit out. After that you either you and your wife or would be wife can use rest of cash to buy own primary residence or do another house hack.

3) Married with children:  Buy your own primary residence, small, easily maintained property with low down payment and use as much first-time homebuyers programs out there to reduce use of personal cash. Then wait a year or two before deciding to purchase a rental property. I say wait a year or so because with children, expenses fluctuate and I would want you to wait at least a year to see how good of a management you have over the finances before taking on the landlord endeavor.

Hi, Tony,

  I don't know the price range in your area, but my favorite strategy is to try to find an seller who owns their property free and  clear (i.e. no mortgage). Use as little as possible from that $40K for a down payment  and have the seller hold the note at an interest rate that makes sense and allows you to have a positive cash flow.   OR, borrow private money at the same interest rate.

  I have one investor who has invested (loaned me $) on four of my properties to date. He is a retired police officer with his money in his credit union collecting maybe 1%. I offer him 5.5% interest only loans. I also delay the first payment for 4 or 5 months to give me time to rehab the property. It works well for both of us. He likes the arrangement so well he has told his friends about it. Don't be afraid to ask. You are doing the seller or private investor a favor.

Be creative. Can you get an unsecured line of credit. I have a line with my local credit union for $100K with 5.25% interest. Banks have their place , but I try to avoid them whenever possible. I would also suggest joining your local REAI (real estate investment association) For a very modest membership fee you get access to a wealth of education and networking.

Just some suggestions.

Good luck

Originally posted by @Rick Stein :

Hi, Tony,

  I have one investor who has invested (loaned me $) on four of my properties to date. He is a retired police officer with his money in his credit union collecting maybe 1%. I offer him 5.5% interest only loans. I also delay the first payment for 4 or 5 months to give me time to rehab the property. It works well for both of us. He likes the arrangement so well he has told his friends about it. Don't be afraid to ask. You are doing the seller or private investor a favor.

Good luck

 Rick, did you find it hard to propose those terms to your investor? I'm looking for the same type of deal. I want to do some flips to build capital but have none to start with. I'm afraid of hard money because repayment can start right away. I'd love a delayed,  interest only deal to account for rehab time.

Hi, Elizabeth,

 No, it is not hard. I feel I am doing them a favor. I don't ask people  to lend me money. That has a negative connotation. Lending assumes risk and possible loss. I ask them if they would like to INVEST in a my project. Folks like to invest. It promotes a mental assumption of gain. Don't  be afraid to ask.The answer to every question you don't ask is "No!"  Asking with the correct words and intonation often results in "Yes".

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