I'm a rookie who found a property & overwhelmed by next steps
To introduce myself, I've been on this educational journey for about 2 months now, from first reading of Rich Dad Poor Dad in October to joining BP last week. I feel like I'm trying to do it all at once: learning, practicing, researching, putting together deals. In my effort to analyze a "deal a day" I came across an apartment complex of which I'm familiar on the Mississippi Gulf Coast (the area on which I'd like to concentrate). Small multi family is what I'm interested in. I was originally thinking of house hacking a 4-plex, as that seemed the easiest (though it would require me to wait until I'm ready to move to the Gulf Coast). Also I didn't think that I should jump straight into commercial multi family as my first purchase. But then I found a 10 unit (all 2BR, 1BA) in an area that I visit a lot, and have actually seen before. I ran the numbers I could easily obtain through the Rental Property tool and the retuen looks too good to be true, which tells me I don't have the right numbers (or have missing numbers). My main concern is that the property has been on the market for almost a year, and the asking price has been reduced by a third in that time.
The 2 things holding me back right now are the question of financing, and the fear of wasting people's time. Why go through the process of putting together a deal before I know where I will get financing? Isn't that just wasting everyone's time? Right now I have no money for a down payment, and no idea where to get it. Why would a realtor or broker or even the current owner bother to talk to me if I don't have any money?
I do understand that right now I'm struggling under the weight of "I don't know what I don't know" mentality. And that I have to start somewhere. But I don't want to torpedo potential future relationships by wasting people's time.
Any advice?
Pepper...
@Pepper Bradford You have some valid concerns. Relationships are very valuable in this business, so it's important to protect relationships and not to waste people's time. However, you'll never move forward if you're not willing to fail along the way. Most people fail. The key is to get back up and keep chugging along.
You're right that the broker won't want to deal with you if you tell them that you have no money. Brokers get paid on commission and that motivates them to deal with people that can close. However, if the broker doesn't ask you that question, then don't offer the information. If they do ask it, be prepared with a good answer (don't lie, but frame your answer in a different perspective).
With a deal this size, it seems primed for a JV opportunity. This means that you can start looking for money partners (they could be equity partners or they could be private lenders that provide debt). You want to do that on an ongoing basis so that you have money lined up for future deals. Having a deal that you're looking at now or actively working on gives you something to talk about and it makes you more attractive to people that might want to work with you. Use the opportunity to network more and to meet new connections that could be money partners for this deal and for future deals.
@Pepper Bradford Welcome! Good to see another Mississippi person in the forum. I know of the 8 unit in Long Beach, but I am not sure I am familiar with the particular property you are looking at. If you feel comfortable, shoot me a PM with the listing or address and I will take a look and give you my opinion. I have a few lenders, one in Slidell that I met at the local REIA who has some nice options for financing. Speaking of, you should come to the REIA meetings on the first Tuesday of the month, they are a great opportunity to network with other investors on the coast and pick their brains.
Quote from @Charles Seaman:
@Pepper Bradford
With a deal this size, it seems primed for a JV opportunity. This means that you can start looking for money partners (they could be equity partners or they could be private lenders that provide debt). You want to do that on an ongoing basis so that you have money lined up for future deals. Having a deal that you're looking at now or actively working on gives you something to talk about and it makes you more attractive to people that might want to work with you. Use the opportunity to network more and to meet new connections that could be money partners for this deal and for future deals.
Thanks for this...I admit I was stuck in "chicken and egg" land: can't look at a deal without money, can't get money without a deal. At the risk of showing the depths of my inexperience, may I ask for what "JV" stands?
Quote from @Joel Case:
@Pepper Bradford Welcome! Good to see another Mississippi person in the forum. I know of the 8 unit in Long Beach, but I am not sure I am familiar with the particular property you are looking at. If you feel comfortable, shoot me a PM with the listing or address and I will take a look and give you my opinion. I have a few lenders, one in Slidell that I met at the local REIA who has some nice options for financing. Speaking of, you should come to the REIA meetings on the first Tuesday of the month, they are a great opportunity to network with other investors on the coast and pick their brains.
Where are the REIA meetings held? I'd love to attend. I'm still up in Central Mississippi, but it won't take much to convince my wife that we should take monthly trips down there! Will DM you about the property, as well as the one you mentioned.
Here are a few notes from me...
- It is awesome that you are analyzing a deal a day. That is such a great routine for beginners to practice underwriting. Keep that up for a while longer. It'll serve you well in the long term.
- House hacking a 4-plex is a great option for your first deal, especially because you don't have much money. You can use an FHA loan and put very little money down to do this deal.
- Speaking of not having any money, you need to start saving. Contrary to what some gurus like to preach, you can't and shouldn't get started in this business if you have zero savings. If you are having a hard time saving money right now, look for ways to reduce your expenses and increase your income. Set a savings goal and don't buy a deal til you get there. Should be at least $10k, but maybe more depending on prices in your market.
- If that 10 unit deal has been on the market for a year, and they have dropped the price by over 30% and its still not selling, then that's almost guaranteed to be a deal you want to stay away from. While there is opportunity in situations like this, it's probably not suited for a beginner. There is a reason that nobody else is buying it.
- On the financing front, call up a mortgage broker in your area and go through the application process with them. Confirm that you can qualify for a mortgage once you get some money saved up. They will look at your income and credit and be able to let you know within minutes.
Quote from @Scott E.:Thanks for all the amazing advice. I have to agree that part of your advice goes contrary to what I've read here. We're supposed to be able to buy a million dollar property with No Money 😄. My goal is to take a job on the coast & transfer my state retirement into a 401k that will enable me to borrow. My comment about "no money" would be better stated "not enough cash on hand". Most of what I can effectively use for real estate investing is stuck in a "no borrowing for any reason" state pension.
- If that 10 unit deal has been on the market for a year, and they have dropped the price by over 30% and its still not selling, then that's almost guaranteed to be a deal you want to stay away from. While there is opportunity in situations like this, it's probably not suited for a beginner. There is a reason that nobody else is buying it.
Your comment about the property was my #1 concern when I saw the age of the listing. Still, my hope is that being on the market that long will make them desperate enough to be willing to talk to me. Even if all I get out of this are true rent rolls and financials, it will be a great practice experience.
Quote from @Pepper Bradford:
Quote from @Charles Seaman:
@Pepper Bradford
With a deal this size, it seems primed for a JV opportunity. This means that you can start looking for money partners (they could be equity partners or they could be private lenders that provide debt). You want to do that on an ongoing basis so that you have money lined up for future deals. Having a deal that you're looking at now or actively working on gives you something to talk about and it makes you more attractive to people that might want to work with you. Use the opportunity to network more and to meet new connections that could be money partners for this deal and for future deals.Thanks for this...I admit I was stuck in "chicken and egg" land: can't look at a deal without money, can't get money without a deal. At the risk of showing the depths of my inexperience, may I ask for what "JV" stands?
Sure. JV stands for Joint Venture.
Joint venture. The most important thing is the ability to close the deal from the broker side. We, (brokers/agents) don't want to waste time and effort. If you don't have the credibility nor the money to pull the deal off, find a partner or partners who does have it. There are many ways to pull off a deal btw.
Quote from @Aaron Gordy:
Joint venture. The most important thing is the ability to close the deal from the broker side. We, (brokers/agents) don't want to waste time and effort. If you don't have the credibility nor the money to pull the deal off, find a partner or partners who does have it. There are many ways to pull off a deal btw.
I'm assuming that my best (or possibly only) asset at this point will be the deal itself. Which brings me to one of the biggest questions I've had so far. A deal is just information. Once I present it to someone with means and experience, why do they need me anymore? Can't they just do it themselves at that point?
@Pepper Bradford Bring value. Put in the sweat equity of how you will make that deal work. A business plan goes a long ways. For example, if someone presents a deal to me that is a solid business plan and has all the what if's figured out then I am going to take that person seriously. If that person has a stellar reputation then its a green light. The best case scenario you will get a deal going and even better, a partner for many other deals down the road. The worst case scenario, you learn the processes for it all and with a little savings you might be able to put a future deal together yourself without a partner.
Many times an investor will be busy doing something else and its not worth their time doing all the legwork to make a deal work. An attorney or a doctor, for example, that is paid multiples of six digits annually won't spend their time working on some deals but they will invest in it.
Quote from @Pepper Bradford:
Quote from @Joel Case:
@Pepper Bradford Welcome! Good to see another Mississippi person in the forum. I know of the 8 unit in Long Beach, but I am not sure I am familiar with the particular property you are looking at. If you feel comfortable, shoot me a PM with the listing or address and I will take a look and give you my opinion. I have a few lenders, one in Slidell that I met at the local REIA who has some nice options for financing. Speaking of, you should come to the REIA meetings on the first Tuesday of the month, they are a great opportunity to network with other investors on the coast and pick their brains.
Where are the REIA meetings held? I'd love to attend. I'm still up in Central Mississippi, but it won't take much to convince my wife that we should take monthly trips down there! Will DM you about the property, as well as the one you mentioned.
The meetings are held the first Tuesday of the month at the Gulf Coast Association of REALTORs building on Debuys Road in Gulfport.
As stated before, someone would team up with you on a deal because you bring value. You brought the deal, perhaps you plan to manage the property. Perhaps you are handy and can handle the repairs yourself. Maybe you do the books, there are a variety of reasons, but you have to determine where your highest and best use is and play on that.
Quote from @Joel Case:
Quote from @Pepper Bradford:As stated before, someone would team up with you on a deal because you bring value. You brought the deal, perhaps you plan to manage the property. Perhaps you are handy and can handle the repairs yourself. Maybe you do the books, there are a variety of reasons, but you have to determine where your highest and best use is and play on that.
Is there any danger of showing someone a deal and having them take the info and do it themselves, without me?
Quote from @Pepper Bradford:
Quote from @Joel Case:
Quote from @Pepper Bradford:As stated before, someone would team up with you on a deal because you bring value. You brought the deal, perhaps you plan to manage the property. Perhaps you are handy and can handle the repairs yourself. Maybe you do the books, there are a variety of reasons, but you have to determine where your highest and best use is and play on that.
Is there any danger of showing someone a deal and having them take the info and do it themselves, without me?
I mean I guess that's always a possibility, but the property has been on the market 240 days, so I have a feeling that most local investors who are actively looking and invest in that area have already evaluated it. It's definitely outside of what I would consider the preferred Gulf Coast area in MS.
Quote from @Pepper Bradford:
Quote from @Charles Seaman:
@Pepper Bradford Thanks for this...I admit I was stuck in "chicken and egg" land: can't look at a deal without money, can't get money without a deal. At the risk of showing the depths of my inexperience, may I ask for what "JV" stands?
You may not have the money for a deal but you should be able to determine ahead of time how much of a loan you can qualify for.
If you're not pre-approved and have no means of financing, why are you looking for deals to invest in? I would continue the education you're doing and try to either get pre approved or find some form of financing. Also worth considering that as a first time investor, it may be very ambitious to try to secure financing for a 10 unit property. Having financing in place will make a deal possible, right now any good deal you find is just an idea.
Hi Pepper. Hope you're still grinding away at the deals. I would love to know if you got anywhere with the 10 units. There are tons of obstacles between the first chapter of RDPD and cashflow. My wife and I are serial investors and there are many times I've had to pick myself up off the floor and remember to put one foot in front of the other. Regarding your question about stronger and faster partners no longer needing you after they have your information, there are protections you have once you have the property under contract with a reasonable due diligence period. I had many of the same concerns and held back from partnerships for many years. It's a great way to learn and I wish I had done it sooner.
@Pepper Bradford
There is no danger in someone going around you if you have the deal tied up and under contract correctly.
This means having a set of terms and conditions that matches the time needed to fully vet the property and get your financing buttoned-up.
Let me know if you need any help with this
Since the deal has been on market for so long perhaps the seller will finance it themselves to you? The seller may require a down payment, if the deal has a strong return this is where you can bring in a partner with cash. In place of cash, you can manage the property, do maintenance work and get tenants.
More days on market means the seller is more likely to provide seller concessions. These concessions can include major price drops, repairs or closing costs coverage.
It's great to hear about your journey into real estate investing. Starting with education and joining forums like this is a fantastic step forward. I understand your eagerness to learn, practice, and put together deals, but it's important to strike a balance and take things step by step.
Learning and building relationships are critical parts of the real estate journey. Establishing connections with partners, lenders, and agents early on can have exponential returns down the road. Approach potential partners and professionals with respect, a genuine desire to learn, and an understanding of their time constraints. By being open, transparent, and willing to put in the effort, you're likely to find individuals who are willing to assist and provide guidance.
For this particular deal, it seems that bringing in an experienced investor, preferably someone familiar with the area, could be your best bet. They can provide the necessary experience and knowledge to conduct thorough due diligence on why this deal has been sitting on the market for so long. Additionally, they may be able to contribute the funds needed to make the purchase. Deals of this size often catch the attention of private lenders who are more flexible than traditional banks.
Traditional or agency lenders often have stricter guidelines and may be more focused on larger commercial properties. Private lenders, on the other hand, can be more flexible in their lending criteria and may see the potential in funding a 10-unit apartment complex as it still qualifies as a small multifamily property
Remember, real estate investing often requires creative solutions. Be proactive in seeking out potential partnerships and explore financing options beyond your immediate resources.
Best of luck with your real estate journey!
One of the best ways to ensure that a deal is not "too good to be true" is to put the property under contract and begin to work with an experienced lender. Private lenders act as a quality control to verify that each investment is viable, as their business model is dependent on you being able to make payments.
To address your "no money" roadblock, you could partner with another investor or negotiate seller financing. I would also take a look at The Book On Investing In Real Estate with No (and Low) Money Down by Brandon Turner
