I just about finished this book and found it to be pretty incredible to read and learn from. For any newbies out there like me, this book was really helpful and explaining how people build and create wealth from REI.
As a 28 y/o, I have spent the last few years saving so I could get into real estate. I have come to find that having a bunch of money isn't really necessary for get into the game. What I am finding is that the money I have saved can perform risk mitigation in the event that more vacancy comes up than I calculated or if something needs a big rehab job out of nowhere.
My question is to figure out how to leverage this money most efficiently without putting too much leverage in my portfolio. I don't want to find myself foreclosed on in a few years because of overextension and greed. Does anyone have a way of calculating how much debt I can take on using income, money saved, current expenses, etc?
Here's a good webpage explaining the front-end and back-end ratios that you'll need to be aware of click here
Keep in mind that there are exceptions, special circumstances and special programs that could help you with debt.
If I were you I'd start shopping for loans (get preappovals) and have the loan officers break down their calculations for you
Good luck to you
Thanks Zaid! I have been speaking with a mortgage lender and he has been pretty cool but I am afraid I will need to use hard money as I don't have any credit (never borrowed anything before)...
Skip the hard money and go for seller financing. It's way easier in my opinion to convince a landlord to hold paper on a multi-unit than it is a homeowner with a single family house. Landlords are used to getting an income stream and trusting others with their property. I've bought 7 duplexes, a triplex, 5-plex and a couple of SF's on land contracts over the past few years. 3 of those deals were NO cash down. The others were no more than a few thousand per property.
The deals are out there!
Wow. That is amazing @Brandon Hicks
I was literally on a hard money lenders website here in austin when I checked me email and saw that this message had posted. I didn't even consider doing selling financing from the landlord.
I am going to look at a few duplexes this week and I will ask every single one of the landlords if they would be willing to do that.
Just be careful with the calculations of appreciation in that book. I think he was overly optimistic in the returns he was getting, and it was written during the bubble. Solid strategy though, I would just be a little more conservative with your expectations if returns.
@Brandon Hicks How do you typically structure your owner financed deals?
Yes @Luke M. It appeared he was quite optimistic with his equity build up.
And yes @Brandon Hicks I would like to know how you structure them as well. Inventory in Austin is low and cash buyers are a plenty so finding them is going to be difficult but I will definitely ask every one of them if they are open to it...Is it worth giving them a rate that is between banks and hard money (say 8% ) for the first year or so to entice them?
I typically buy off-market properties by marketing directly to owners of properties I like. Once I'm to the point where I'm ready to make an offer I normally start with a letter of intent. Here is some verbiage from my letter of intent on how to structure the down payment with no cash....provided you can get the seller to agree to it...........
" The down payment is to be made up entirely from credits for prorated property taxes, prorated rent for the month closing takes place and security deposits that you have collected from the current tenant(s). The land contract note amount will be the balance owed after the above credits have been subtracted."
So far I've purchased 11 properties on land contract. All in the last 36 months. Typically I structure them with 20 year amortization and 5 year balloons. I do have a couple duplexes I did on 12 year amms with 5 year balloons and a house on a 15/5. Rates have been as high 8% on my 1st contract deal, which I've already refinanced with a local bank. My 2nd deal, a package of 3 duplexes was at 7.5%. All the others have been done at 5%, with the exception of a house at 6.5% and a 5 plex at 6%. So the rates have good overall considering the low down payments.
I'm getting ready to submit the package of 3 duplexes and the 2 duplexes on 12 yr amms to my local bank to refi them all into one new commercial loan. To do deals like this you either need to find very motivated sellers or be able to sell them on YOU and your ability to run the property and pay them. It gets easier to do once you've done a few deals and have built a track record. I gave them a copy of my credit report in the beginning but for my last several deals I just gave them a list of sellers Ive bought from on contract for them to call and verify what Ive told them.
Wow. @Brandon Hicks That is incredible. 11 seller financing properties in three years. great job!!
@Brandon Hicks Thanks a lot for the helpful information. I'm currently marketing to off market multi's myself and trying to accomplish what you have. Please share the details once you refinance the other properties. Good luck and great job!
LOVE that book. One of my all time favorites!
@Brandon Turner I got the idea to read it from one of the Podcasts. I don't remember the person's name but this was their answer for favorite book.
I am new to this concept of buying duplexes. I know the comments were written 3 years ago but perhaps i could revive the discussion and move it further. I want to start puraching buy and hold properties. I was thinking that strating with a duplex instead of a SFH. I am reading the book by Larry B. Loftis. When I mention that I want to invest in duplexes, people say oh those are hard to find. Well that doesn't deter me. I think it is a good way to get started with less risk.
funny thing about them Duplexs, I've ones two for almost 20 years, and have never not had rent coming in, a few times half came in, never none! It's made me sleep better.
Don't give up on the traditional financing path, even though you lack credit/fico now, you should build up credit by getting MC/Visa use weekly and payoff weekly. Minimum need 740 fico to get best rates. If you 2 years landlord experience, you can use 75% of lease agreements, provided units have tenants, towards the debt payment. Lenders look for this on your Fed tax return, schedule E ( rents/royalty). If you are just beginning, then partner with another established person to get your 2 years.
@Brandon Hicks Sounds like you are wholesaling to yourself? Do you market with mass mailing of fliers? What is your success rate percentage?
How did you find those deals?
Wendy and I are searching for a four-plex to house hack. Finding deals is our biggest challenge thus far.
Thank you much, and congrat on the properties
@Kareena Heath thanks for reviving this discussion! I just bought the book and will begin reading today! How is it going?
Driving around and then mailing to owners of properties that I liked.
What is your most reliable source for absentee and or out-of-state owners?
Walking for cash is a great out for us to find the properties. There is a wealth of info we pick up with every walk. What are the best ways to get the owner contact info?
I buy from other landlords @Eric Anderson . Rarely are they out of state and they're all absentee as far as them not residing at the property.
Hey @Christopher Sica . What's the name of that book? I don't see it in your first comment. Also how did it go since 3 years ago?
I need to check it out