buy and hold strategy

13 Replies

Okay, I have put in the sacrifice of counseling addictions treatment for over a decade and honestly am not fond of subjecting to this slavery any longer.  Tired of working for a boss who may have other agendas. I have been researching and attended real estate club meetups for the 13 months.  Have a decent credit history, have 37k in retirement fund, and have connections to end buyers thanks to another peer of mine.  Having spoken to another real estate agent, he suggested I consider buying a property, live in it for a time, and rent it out to tenants to build a stream of income.  However, wouldn't that stream of income go towards a private lender (bank) since I would have to put 20% money down payment and the 80% give or take would originate from a lender?  Would I still profit in the long run, if I were to rent that house to tenants??   Suggestions? 


RE investor at Denver, CO

p.s. very well aware of the scarcity of house inventory in Colorado market, read at 5280 magazine, among other sources.  A seller's market for now.

@Robert Uceda , it seems like it would be that easy right? Well...real estate investing is not quite that easy.

The theory is. Buy a house, rent it out, make lots of money. 

The problem is that you have to find a house where someone is in a bad situation so that you can buy the house at a below market price. This is called finding a good deal. When I say good deal I mean like at 20 to 30% below market price. When you can find 'good deals' on a regular basis, you are set.

Going to some REIA meetings will get you in the mood to invest, but get some education. Read some books on the real estate investing. Read about marketing. Read about sales. Get familiar with what it takes to be an entrepreneur. Then you will be ready.

@Robert Uceda if you are living in the property then you only need about 5% down. Yes, that makes your payment higher. @Rick Pozos is correct that in order to live for free you have to find an under market deal. My thoughts on this are that you are going to live SOMEWHERE anyway, and you will probably pay SOMETHING anyway - so why not get tenants to supplement that. I am showing little duplex to someone today. Both sides are 2/1 and one side is vacant and the other is rented a little below market for $600 / mo. The property cost is $145000. Total PITI would be about $850 / mo. Even setting aside $$ for cap ex and vacancy my client can live in one side for way less than average rents. She can move on in a year or two if she chooses with very little money invested and rent both sides for a nice little profit.

Hello Robert,  Keep in mind that the IRS allows tax-advantaged retirement fund money to buy and hold real estate.  So, if you are under 59.5 years old, you may want to consider the account itself purchasing a property (with debt it sounds like) in comparison to distributing your retirement account and likely facing the early withdrawal penalty.  Our headquarters is in between Denver and Boulder if you would like to drop by for some information.

William, that sounds interesting about buying property with an IRS approved tax-advantaged retirement fund. What does that entail? I have an IRA (used to be a 401k from another previous employer several years ago) which I use with an Edward Jones retirement strategist to help it grow over the next 20+ years. However, I realize I may have to use it for a money down payment on a property, which I preferably want to purchase it and rent it out to tenants. Thoughts?


Terri, what do you mean by PITI $850/mo? is that an acronym for something I am not aware of? Definitely interested in purchasing it and rent it out to tenants. What would be the next step besides talking to my private lender?


Originally posted by @Robert Uceda :

Terri, what do you mean by PITI $850/mo? is that an acronym for something I am not aware of? Definitely interested in purchasing it and rent it out to tenants. What would be the next step besides talking to my private lender?


 Principal, interest, taxes, insurance. The four things you'll have to pay for if you have a mortgage. 

@Robert Uceda PITI is principal, interest, taxes & insurance (your mortgage payment). A 5% down loan is not available to an investor - it is something for owner occupants only - which is how you phrased your original inquiry. I responded to your private message. Not sure how the numbers work for a straight out investor - you'd have to run them.

The "mechanics" of it are that you transfer (no tax or penalty) your IRA to a provider like us that handles real estate as an investment for IRAs. You and your real estate team find the property that you want your IRA to purchase. (We do not give tax, legal, or investment advice; you, the account holder, make the investment and strategy decisions.) Your IRA makes an offer and subsequently closes on the property. Your IRA makes money from that property's rental proceeds as well as the possibility of appreciation instead of stock or mutual fund dividends and increases in value.

@Robert Uceda House Hacking is a great strategy to get started. You can put as little as 3.5% down with some loans such as FHA or VA. This will lower your entry point cost but it'll hurt your cash flow as PMI (mortgage insurance) becomes a monthly payment, potentially for the life of the loan. If you find a good enough deal, you may be able to live close to rent free and even in some cases you will actually live rent free ( that's where I'm at). It all comes down to the numbers so I suggest you get familiar with how to properly analyze a property and take it from there. You can read a million books, forums, posts, blogs to get yourself started so start searching! All that you learn can be easily applied to real life houses that you see pop up on Zillow, Trulia, Redfin, Realtor, etc. When you think you have it down and it works with a real life house, go for it!

Best of luck!

@Robert Uceda , if there are acronyms you are unsure of in the forums, mouse over them. BP automatically tags them with their definition. Your own post has PITI tagged. As you read through various posts, you will come across lots of acronyms that will automatically have their definitions added. Hope this helps.

Thanks for the input everyone! Now I have some ideas but truly need guidance more so on the proposition of buying a house or a mobile home! for that matter, so that I can rent it out to tenants and create a viable stream of income. Of course it's not going to be easy. That's why it has taken me 13 months researching all about finding that home to invest on, or other nuances of profiting. Would it be advantageous for me to pursue an FHA loan? I have decent credit and a sizable retirement account which I could use for down payment. It sounds like a great place to start is finding a house below market to not owe so much to the loan officer while I can profit from monthly income from tenants paying up, thoughts???

@Robert Uceda It depends on how much you buy the unit for. But in the long run, your home shouldn't be an investment in my opinion. It's a good way to see first hand how transactions work. And yes, some do end up renting their homes out when living in them and/or after moving out. If you're going this route, I'd focus on the fundamentals and what you're looking for as a homeowner. Though, if you still need to build up cash you may need to give it some time and/or try something else like wholesaling before you start buying and holding. Good luck with your plan! 

Rachel from San Antonio, thanks for the suggestion.  After much due diligence, and turning in the beloved 2016, 2017 tax returns, proof of income, etc.  my traditional lender informed me that with my high student loan debt spoiling the debt/income ratio, I only qualify for 175,000 and no more.   Time to revisit this home acquisition in 6-8 months when I can pay off my student debt by then.  

This brings me to my next question. Thankfully, I found a broker who is willing to help me round up distressed homes (fixer upper, TLC types) near the Denver area and its surrounding suburbs/outskirts.  What are some sensible ways to find financing to cover the $3000-5000 earnest money?  I would not be the fondest to utilize my retirement funds and prefer to rely on other reliable sources? 

Granted, not all distressed homes are alluring or promising deals yet, as I have to evaluate the cost of repair and look for comps to make sure high ARVs are in play. Any suggestions for the financing? so it doesn't come out of my pocket? I know I heard about FHA loans, traditional lender loan.

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