Soup to nuts guide by experienced buy and hold investors.

Specialist · Westlake Village, CA · Member since 2010 · 1k+ posts · 781 votes

9y

Don't wait, time is precious. Get educated & research your target farm areas to buy & hold. Know who the other investors are in your target area by searching public records. Learn how to identify high equity & profitable deals to either buy & hold yourself or with a money partner/lender.

Have 1-3 buying strategies to your arsenal so that you can make deal with your own or others peoples money.

1) Wholesale by assigning contract

2) Seller Carry for cash flow

3) Subject to existing financing

Also what is extremely critical is to learn how to manage rental properties if you intend to be a buy & holder.

Best of luck

4 Reply

Gunnar Sevart

Lender · Falls Church, VA · Member since 2016 · 41 posts · 22 votes

9y

@David Fields I empathize with because I too have similar attributes to yourself. I have an average annual income, decent credit (680), 17k in available credit, 13k car loan, no savings and lots of book knowledge on wholesaling and rehabbing (I love RK as well and have all his stuff).

I began working with a Hard Money Lender to put me in a position to provide value (financing) to already established real estate investors. When I market myself for my company I also let people know that I always "know a guy" (Like other investors, contractors, title companies and realtors) who will be of use to that person. I now come across the occasional deal and while I am not able to act on them myself, I pass them off to the investors, contractors and realtors I know. People will then see me as a center of influence even if I do not have the capital or equity partners to close deals myself. In the process of saving money and credit, I am putting myself in a position to find more sources of deals as well as possible equity partners and close on a deal myself.

Basically I am trying to get as many other people rich as possible. I hope this helped the slightest.

2 Reply

Adam Johnson

Rental Property Investor · Holley, NY · Member since 2011 · 507 posts · 347 votes

9y

Originally posted by @David Fields:

So I was wondering if there is a real "soup to nuts" guide for beginning investors that are looking to buy and hold rental properties when they are starting from $0 and have no wealthy friends or family to rely on for non-traditional investment loans.

In my case, this summer I will have a credit score nearing 700 (650 right now), Debt to Income ratio around 40%, 11.5k in available credit (over 5-6 different accounts) with less than 9% utilization, no accounts in collection, one old public record for a medical bill. I make around 30-40k as a 1099-self employed, and I have a car loan around 14k. Right now, I only have a few hundred in savings. As you see, although my credit is at an upward trend and I have very little debt not counting my car, my capital is very small and has no velocity other than the monthly contributions after expenses. I think many people just beginning in real estate are at this point or are even worse off than I.

Immediate Questions:

-What steps should be taken now?

-Keep saving and wait till next year when capital and credit are stronger? If so, where's the best place to park the money for maximum growth? How much would you say is enough for single-family and/or multi-family down payments in Cincinnati?

-Try to find a private lender (not hard money)?

-Try to partner/birddog deals found till independent?

In summary, if it was you, where would you go from this point?

The quick and easy answer to your question about the soup to nuts guide - to my knowledge, it doesn't exist. My experience is not much different from yours. I've been at it for 10 years, learn something new every day, have a strong balance sheet, and struggle with my paycheck every single week. My paycheck comes from my holdings. I am happy with where I am at, but always want more.

First a real quick bio on me - I started real estate investing in 2007 ish, about the same time the real estate mortgage market was imploding and you couldn't get money from anybody. I went to a free seminar on "making money in real estate", which was really a live infomercial to get you to sign up for one of several guru programs for $ 5,000 plus (AND they accept credit cards!). My wife and I instead went to the bookstore, spent $ 40 on books to get started, and began learning. At the time, my credit was horrible due to a business bankruptcy a few years prior, we had no money, we were in debt up to our eyeballs paying off debts from the business failure and we wanted a better life for ourselves where we would never have to worry again about money. Fast forward to now - we DO have a better life for ourselves as a result of our real estate investments, and we still worry about money every single day. Hey, nothing's perfect right?

First, regarding the "guide" you are looking for. It is really going to be your own guide. Yours will be different from mine (and others), but will likely share some similarities. I don't believe in the different "programs" you can buy to learn how to do it quickly and easily. You will lay out a ton of money/credit for a day or a few days of a crazy amount of information. In my opinion, it is probably 10% usable and 90% fluff. Skip those programs and do what you are already doing - read books, read and follow forum posts on topics of interest here on BP, and network with other investors or would-be investors. That learning will be the same 10% usable and 90% fluff, but it will be a heck of a lot cheaper, preserving money to put into actual investments. Most of the books can be found used too. The words in the book are exactly the same as a new book, but you will save money buying used books.

I learned a lot from the Kiyosaki books that I have read. I have also learned a lot from reading Robert Stanley books (Millionaire Next Door, etc.). Neither series is a "how-to" guide exactly. They do, however, teach you a new way to THINK. From what you posted, you are already starting to come around to a new way of thinking. It is an attitude that develops in all of the successful investors that I know that I trust implicitly with their advice. I know dozens of investors, but I only trust a couple for true and sound advice. Those are the ones that "get it" in my opinion.

Few comments to consider:

sounds like you are on the right track with the credit score. That is golden. I started with a horrible score, but worked my butt off to improve it. Read up on creative financing deals, owner financing, etc. I've used a lot of that very successfully
Credit utilization of less than 9% is ok, but could be better UNLESS that utilization is for investments that will return more than the cost of the money. If it is for personal expenses, fix them so you don't use any credit at all. For example - you use a credit card creatively to work your investment, say to buy new plumbing on a new rental property so you can rent it out. You figure that investment will return you 20% on that cost, and the interest rate is 15%, that's good use of credit. On the other hand, you could use the same credit card to go out and buy new blue jeans because you want some, same 15% interest rate - bad idea unless you are a blue jeans model and that purchase is going to make you money greater than the 15% interest cost.
regarding the note above - if you are using credit to increase your credit score, check with your own trusted adviser first. You might instead consider making charges and paying them off every month to show utilitization still, but not pay the interest. I think that still helps build your credit score but saves you interest cost, but I'm not positive
live BELOW your means!!!!!
Public record for medical bill - if you can fix this and get it removed, do it. Although it may not necessarily prevent you from borrowing money, if you have a tricky deal you are working, this could tip the scales the wrong way. I carried bankruptcy on my credit for 10 freakin' years. I was doing deals in the second half of that period of time, but they became easier once it dropped off my report
Car loan - grrrrr. Sell the car and buy something you can pay cash for. Many will disagree. My wife and I have a very strong balance sheet. We could pay cash for many different cars. Instead, she drives a 16 year old Toyota with over 130,000 miles on it and the imprint of a deer in the hood. It's paid for, it gets us safely from point A to point B every day, and our money and credit is available to put into investments that return money. I drive a very nice heavy duty pickup that our BUSINESS pays for. I also use that heavy truck for my business to pull trailers, haul job materials, etc.
You say you have very little debt "not counting my car", you still have to count that car because lenders will. It counts.
You ask what you should do now - get out there and start looking for a deal. Learn how to do your NUMBERS well, the numbers never lie. I still own the very first duplex we bought. I call it my "ugly little duplex". It really isn't ugly, but it isn't anything special when you drive by. It is a money maker though, so we keep it. In the beginning, you will need to look at a LOT of deals and run a LOT of numbers. Most will end up in the garbage can, and should. You want the "duh" deals, the ones that even a dummy can make money on. You will wait in the weeds for a while, grow impatient, but wait anyway. A very wealthy investor once told me "if you find the right deal, you won't have any problem finding the money to pay for it".
Private money versus hard money - who cares where the money comes from or what it costs - "if you find the right deal, you won't have any problem finding the money to pay for it". Plug the cost of the money into the deal, regardless of the source or the cost. If the numbers work, do the deal. If the numbers don't, move on. You are buying NUMBERS, not properties.
Partners/birddogging - both possibilities. Most important - get out there and get to know people. Talk with them. It will improve your confidence and make you a better investor
Where to go next - keep going. I think you are on the right track

3 Reply

Ash Patel

Full time investor · Cincinnati, OH · Member since 2013 · 405 posts · 312 votes

9y

I am a Cincinnati Native as well. Have you considered house hacking? Maybe buy a house and load it up with some rent paying roommates. After you build some equity, hopefully you can move on to the next one.

1 Reply

David Fields

OP

Real Estate Investor · Cincinnati, OH · Member since 2010 · 23 posts · 1 vote

9y

@Adam Johnson, thanks for the reply. I too was interested in getting into real estate around 2007, but the banks were no help and I had some bad experiences with hard money lenders, so my wife and I decided to go the way of stability and worked on getting ourselves back in financial shape. We rebuilt our credit scores, bought a home through FHA back in October 2015, and I had to get our car because I work as a courier driver and I needed a dependable newer car with decent gas mileage. Our credit utilization will be almost 0% in a couple months, I just know that 9% and less is the best place to be credit score wise. The medical bill is already in process of repayment. We try to live below our means, but with 3 young children, that's easier said than done. About the money. I have already analyzed a few deals and I find good deals it seems every other week. Properties (some already rehabbed) that should cash flow well even if they're managed by a property management company. I'm a firm believer that if you do the math, the math will tell you what to do. I can't pull the trigger on these deals with my current situation, so what would you suggest on those? It's so maddening to know how to spot deals but not be able to benefit from it.

0 Reply

Lisa Hoover

Specialist · Charlotte, NC · Member since 2016 · 111 posts · 95 votes

9y

Hi David You didn't say much about YOUR CURRENT PERSONAL living arrangements ? I am writing a soup to nuts book and you seem to fit the profile of my " highly motivated beginner investor" a little debt good credit young family no rich relatives fully employed so if you will please share with me: your current home status? rent? own? for how long ? and is your wife fully employed at home with the children or outside the home? you can pm me if you prefer i'm 60 selling off all of my properties this spring summer and fully retiring and i never did rehabs, duplexes, rough areas, I promise you, there is a way without fear where you control every step and investing meshes with your current lifestyle (vs dominates it) Look forward to guiding you (NO CHARGE) : )

3 Reply

David Fields

OP

Real Estate Investor · Cincinnati, OH · Member since 2010 · 23 posts · 1 vote

9y

@Lisa Hoover, We live in a 3/1 house in the Woodlawn area which my wife was able to acquire through FHA. It is only listed on her credit, but I'm signed on the agreement even though it isn't reporting on my credit. We've been here since October of 2015. I don't know what you mean by fully employeed, but I'm considered self employed since i get paid through 1099. My wife is unemployeed and in the process of going back to college for a degree towards Cancer Registrar. I don't mind sharing openly on here because I've been quite the introvert since the last real estate crash and I need to reach out and make some connections. Any guidance is appreciated.

0 Reply

David Fields

OP

Real Estate Investor · Cincinnati, OH · Member since 2010 · 23 posts · 1 vote

9y

@Ash Patel, I don't know if that's an option for me because I might be locked into my wife's FHA loan on our current house. I would love to do the plan I hear where people buy duplexes/4-plexs through FHA and live in one unit, then refinance it a year later and move into another, but I don't know if it's an option for me.

0 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

your undercapitalized and insufficient income to really get going in the industry as an investor.

my suggestion would be to take your real estate licensing exam.. go to work for a resi or commercial broker on their team.. and you can do this part time.. IE weekends .. and earn while you learn.

you get instant credibility and you surround yourself with others that are in the business doing deals.

you don't want to surround yourself with others that have no money and are in search of how to do this business... 95% of those with the situation you posted simply fade away and never do anything in the industry... and 50% of all agents fade away.. but you still learn the details and laws of your area and you never know when that mover and shaker takes you under their wing...

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Lisa Hoover

Specialist · Charlotte, NC · Member since 2016 · 111 posts · 95 votes

9y

Hi, I agree with Jay.

Usually you can find inexpensive realtor broker pre-licensing courses at ($185 6 weeks of 3 nights per week 6pm to 9pm= 80 hours) at your local community colleges-- you HAVE TO DO THAT!!!

I'd rather explain why on the phone and you do the math of a typical purchase with pencil & paper as i talk you through it.

OK, that aside-- you have a LOT going on so it won't be easy--but nothing worthwhile ever is. We are talking. LIFE-CHANGING ACTIONS here.

STEP 1-20.

You need to get you personal home rent-ready... not overboard updating, just rentable... clean and painted etc.

Fix any leak faucets, loose doorknobs etc NOW, so that when your PERFECT tenant moves in, they won't be calling you to fix those.

Put in new 5 Year Lithium Battery (write the date installed ON THE OUTER SHELL) of SMOKE DETECTORS (draw faint red stripes across the front outer shell of smoke detectors-- red means fire or smoke-- when the smoke clears (if the house didn't burn down) it's ok to reset the smoke detector and finish cooking dinner.

ON CO DETECTORS (draw faint gray stripes across the front outer shell of a CO--teach your tenant the gray stripes mean DEATH-- if that alarm EVER starts beeping, they are to immediately raise windows , open doors and call you---even if its 2am--- A REPAIR MUST BE MADE or people can DIE-- little children and elderly go first. : (

ok... so get your house RENT READY.

Being undercapitalized makes getting that first great rental property hard, but not at all impossible! You can PLAN ahead and execute this plan extremely successfully.

For you, here's the blood, sweat & tears decision:

It doesn't sound like you are in a position to buy your next personal residence? (only buy a single family home, condo or TH.. NOT duplex , NOT a rehab 1940 bungalow etc)

KEEP IT SIMPLE. YOU ARE BUSY.

If you ARE financially able to buy, great, I will coach you in WHAT and WHERE to buy it. You can easily rent your current house out and guess what... the tenant will be a reflection of you-- probably another young working family .I will help you set up a timeline so you know what to do when for timing!! so this transition is an opportunity to build your cash fund.. only 1 or 2 days of vacancy AND 0 bad tenants can be tolerated!!. You have time to plan.

When you have a lease in hand, the BANK/LENDER does not count THE MORTGAGE of your former primary residence against you. So now you can qualify for your next house.

You will have to pack your personal items, and move to YOUR NEXT HOME OR -->APARTMENT.

That's right, if you are not in a position to BUY your next home now-- it is better for you to RENT an apt for yourself AND rent out your former residence ( it just became a great rental property!)

While you are renting an apt~ 8 mos) and scraping every penny into your Property Fund, GO GET YOUR REAL ESTATE LICENSE.

Then a real earning opportunity will be yours as you are your own buyers agent on your next buy.

So one year from now ,SPRING 2018, you could have a brokers license, some savings built up, a great tenant that probably wants to renew the lease on your former residence (at a slight increase ) and now you are ready to BUY YOUR NEXT INVESTMENT PROPERTY ( it will be your primary residence for at least a year) BUYING THIS TIME LIKE A ***SMART *** INVESTMENT SAVVY REALTOR-- you will never buy like a first time homeowner, again--but you will buy newer, easy to take care of, highly rentable , APPRECIATING properties that attract good quality tenants. YOU CONTROL EBERYTHING.

***Ok ill be glad to talk you thru this BUYING SMART part, on the phone...you will be amazed at the knowledge and power you have to buy SMART once you activate your Brokers License.

Ill send you a colleague request and we can talk any Tues or Thurs-- i allocate those days for helping beginner investors. Did I mention that I personally have trained well over 100 total beginners (from all over the US and foreign countries! to get their first

and more US Rental Property.)

So i've seen about every situation i think : )

It is very fun and very emotionally rewarding for me and a LOT of work for the client-- Take Heart--- each buy and lease-up gets easier, absolutely!!! 10 years will fly by and you'll be so glad you have acquired say 5 quality newer, always rented properties that should have almost doubled in value. That makes it all worthwhile.

1 Reply

Adam Johnson

Rental Property Investor · Holley, NY · Member since 2011 · 507 posts · 347 votes

9y

@David Fields I understand about the car. Something to consider in the future, if you are self-employed and an LLC or corp., buy the vehicle in the business name and have the associated debt in the business name. That way, when you fill out the Personal Financial Statement that goes along with every mortgage or loan application you do, you aren't lying by not listing it and it no longer counts against your personal debt ratio. I should have first said "I am not giving legal or accounting advice, consult your own advisors". That is also a step you can take now - ask for a referral from trusted friends/mentors to a decent real estate attorney, insurance person, and accountant. Start building your "team", even before you need them. I like to interview at least 2 or 3, just like a job interview. These are the people that you will trust your fortunes with. Good team=good advice. You are not going to do much to your score being at around 9% utilization. My point on that was more to help you keep personal living expenses tight. Glad to hear you are on the medical bill.

Kids make it more challenging, but not impossible. Our 2nd kid was born the day after I finished a large construction project that I was almost certain would ruin us financially. I never got paid a 6-figure balance that was owed to my company for completing the project. It caused us a lot of financial hardship for a number of years. That was 14 years ago. Our kids have seen us come from a very tough spot to a decent spot as they grew up. From an early age, we sometimes said "no" and sometimes came up with alternatives to things they wanted. Some things they wanted they never got. But the lessons they learned were lifetime lessons. It is tough as a parent to say no, but it is far more important to learn and teach how to live within or below your means. Everything should be on the table for consideration - can you get by with a less expensive cable TV plan (or no cable at all), can you save money by replacing burned out light bulbs with LED bulbs, can you mow your own grass instead of hiring somebody, you get the idea. Think outside of the box...for everything. We learned to do this out of necessity and 14 years later, still live that way because it simply is smart to do. Consider your home a "business".

If you are finding "good" deals every couple weeks, your deals aren't strong enough, in my opinion. Others may disagree with me, that's ok, my way isn't the only way. I've used the following description to explain it before. In my eyes, there are 2 ends of the spectrum, the sniper or the machine-gunner. The machine-gunner blasts offers out everywhere and hopes he hits one, or buys as much as he can in hopes one will be a real winner. The sniper, on the other hand, sits and waits in the weeds, sometimes for months or years, waiting for the perfect shot, lines it up and takes it. That approach has worked very well for me. It can get frustrating (I suck at patience), but it has allowed us to build substantial equity over the last 10 years of investing.

To explain further, continue running numbers on deals, but raise your own bar to the point that the only deals you would actually buy are the no-brainer deals. The mentor that once told me "if you find the right deal you will always find the money" shared that lesson right after tossing 4 different deals I had brought to him in hopes of financing them. I worked my tail off to present them and show my numbers and 15 minutes later they were in the garbage can. I didn't give up, I asked why they weren't bank-able, he told me, and I continually got better at putting numbers together and finding better deals. Eventually I started hitting solid, base-hit deals with numbers that just plain worked well. I still own those properties.

The advice on the real estate license by Jay and Lisa makes a lot of sense. I earned my sales license and later broker's license shortly after starting out. I did so to learn as well as to increase my credibility when presenting myself as a professional. I do virtually nothing with my broker's license currently except for deals that I am principal of. Keep in mind this does add new challenges regarding disclosures, etc. You will also want to work under a broker that knows investment property and is tolerant of your investing activity. My first broker demanded that I pay her a commission split on a property that I bought personally that was for sale by owner. She did absolutely nothing, had nothing to do with the sale, but still dug into my pocket. I found a new broker shortly after. I think this makes sense to at least consider. You will gain knowledge as well as grow your network.

I don't necessarily agree with Jay's comment about waiting to begin investing, but I don't disagree either. I'll try to explain by using a general example - every time a national "guru" passes through our area, I see all kinds of dreamy-eyed wanna-be investors show up at our local REIA meetings. Some of them get fleeced by the gurus, who convince them to run up their credit cards to pay for the "program" that makes it easy. (real estate investing is pretty simple, but not easy) Some of them actually buy a property, many of them pay too much for that property just because they were excited to buy something. Most of them end up doing nothing. If this is something you want to do, don't slip into the "doing nothing" category, but also be very careful before jumping into buying something. That goes back to my comment about doing the "no-brainer" deal with numbers that are just plain smokin'. That type of deal doesn't come along often, but you won't find it if you aren't looking at all. Use the "ok" deals just as practice on paper. My point here is to not do nothing. Get out there and do something to move forward, even if it is tiny steps forward.

Lisa shares a lot of great thoughts too. However, a couple things to look into further. I would not consider renting out my own personal residence for a second as an investment property. Why? The numbers will never work. I bought my first personal residence in 1997. At the time, I needed additional building and land space for my business. That drove me to the property that I purchased - it fit my situation so I bought it. A few years ago, my wife and I looked at our situation and determined it was too expensive, I didn't need the land or extra building anymore. We considered renting it (we had been paying on it for 16 years) and ran the numbers, it would never work and create positive cash flow. We sold it and bought another house more appropriate for our current situation. In the process, we lowered our monthly housing expense and related utilities/taxes/etc. by about $ 500/month. Our current home is also a horrible investment property. It would never make us money and we would never consider renting it out. Numbers don't lie. Read any Rich Dad book - your personal home is a LIABILITY, not an asset. If you had first run the numbers on your home and the numbers told you it worked as an investment, THEN you decided to buy it, I would change my perspective. I would be willing to bet that you bought your home because you liked it for your personal residence. Nothing wrong with that, but don't confuse it as an investment, it isn't.

I also caution you further on renting your home out as an investment property based on the fact that you have an FHA mortgage. Review the mortgage and note documents carefully first. There may be restrictions regarding it being rented out, they may require it to remain owner-occupied.

Please note that none of my comments are meant to minimize the comments made by Jay or Lisa. Something you will learn over time is to take a little information from multiple sources to develop your own best action plan.

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Soup to nuts guide by experienced buy and hold investors.

Soup to nuts guide by experienced buy and hold investors.

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