2-8 Unit Buy & Hold

26 Replies

Ladies and Gentlemen,

I've read several books now on Real Estate Investing, including the "BiggerPockets Ultimate Beginner's Guide" (which, is a great read by the way).  Now that I've got a little knowledge under my belt, I'm almost ready to take that first step and start looking at properties.  I'm currently in the military and forward-deployed on a ship, so I won't be back for a couple more months... and in the meantime I'm trying to get as much done on the internet as I possibly can.  My goal is to buy a 2-8 unit apartment complex before March 2016, hold onto to it, have a property manager manage the properties (since I don't have the time due to my busy work schedule), and collect the rent. 

Here is why I am posting today, and this is my dilemma.  I live in Camp Pendleton, California... Right outside of Oceanside (San Diego area).  Obviously, being in the military I don't make that much money- which brings me to my first problem... Southern California is EXTREMELY expensive, as many of you I'm sure are well aware.  Now I've been reading a few forums and posts on Bigger Pockets, saying that you don't need to put money down in order to get into real estate- but isn't this extremely risky? 

Also, since I won't be living in California for more than a few more years- is it wise for me to buy here?  Do you guys think it would be more in my interest to look at booming markets that are more affordable, like Raleigh NC?  I was also thinking about Florida because I realistically see myself going to school there if I decide to get out. 

Anyways, I know this is all a lot of a questions and I'm sorry if it seems like I'm bouncing all over the place.  Bottom line is I really want to get into the real estate business, and eventually accumulate several properties that I buy, hold, and rent out for the long-term... but am having trouble on deciding where to start buying since I don't have more than 10,000$ and I'm constantly gone due to the nature of my job. 

Thank you all

Is there a place that you call home? where you have friends family and that you know people? Having a property manager doesn't solve all issues? I live in Knoxville, TN--- equals affordable. You really need to know an area before you spend money there. What neighborhoods are good- where the crime is? what is renting. I would start with a SFH just to get your feet wet and learn how to do things. If you are going to go to school in Florida I would think an university town like Tallahasee might be a good place.. student/ grad housing might be hot.. however IDK.. but on the coast- beach areas won't be affordable.

Originally posted by @Sarah Seaton :

Is there a place that you call home? where you have friends family and that you know people? Having a property manager doesn't solve all issues? I live in Knoxville, TN--- equals affordable. You really need to know an area before you spend money there. What neighborhoods are good- where the crime is? what is renting. I would start with a SFH just to get your feet wet and learn how to do things. If you are going to go to school in Florida I would think an university town like Tallahasee might be a good place.. student/ grad housing might be hot.. however IDK.. but on the coast- beach areas won't be affordable.

Well, yes- technically, Michigan would be my home but I haven't lived there for 7 years now.  My parents are there, and a handful of friends- but I personally won't be moving back there.  So, besides Southern California, I don't have a set 'home' at the moment.  Although Michigan may not be a bad place to look for properties.

I absolutely agree with you that I need to know the market first. Do you think talking with realtors over the phone, along with public officials and reading reports on the area's crime / school systems would suffice for enough research? Also, I'd look up the rental rates / values of the properties / living conditions / median income. I would screen as many properties as possible via online and through phone calls, and lastly I would fly out to the property for a physical inspection before I ever put anything in writing. An SFH might not be too bad of an idea, either. Thanks for the reply, Sarah... you've definitely given me a lot to think about!

My opion is wait till you know where you are going after the military. It sounds to me like you have a lot on your plate now. My first deal I used a FHA owner occupied on a duplex. FHA allows low down payments. Most commercial lenders require 20% down. 10k down will only get you a property for 50k. I also live in knoxville which is a relatively inexpensive market and 50k on a multifamily does not give you many options. Real Estate can be very exciting but don't jump on the first shinny thing that comes you way. Good luck on your endeavors and God bless.

If you're looking to get started now, why not start with something you know something about now, military housing? I agree with your assessment that San Diego is too expensive and I think looking in the Southeast is a good idea. Our population and job growth is doing really well down here at the moment. Pick some bases in Florida or NC you could possibly be stationed at and look at off-base 2-4 units you could potentially owner occupy. Use a VA loan for low money down if they'll let you do that while you're on a ship.

Originally posted by @Jeff Kehl :

If you're looking to get started now, why not start with something you know something about now, military housing? I agree with your assessment that San Diego is too expensive and I think looking in the Southeast is a good idea. Our population and job growth is doing really well down here at the moment. Pick some bases in Florida or NC you could possibly be stationed at and look at off-base 2-4 units you could potentially owner occupy. Use a VA loan for low money down if they'll let you do that while you're on a ship.

I was seriously considering that, especially areas like Jacksonville, North Carolina.  Seems like there will never be a shortage of prospective tenants seeing as it's one of the largest military bases for the Marines, and there's always a large influx of people coming and going. 

Only thing is, I won't be stationed anywhere else besides Pendleton, because I'm more than likely getting out and going to college.... So either way I look at it, it'll be a long-distance type of investment, and I can't get a VA loan unless I live in the property for at least a year.

Jimmy,

To start, the lower the amount of money you put down the lower the risk because if you loose the property for some reason you haven' t lost any of your money.

Getting in is difficult with no money down, though BP will make it sound quit easy.  I think this is relative.  For someone who knows the area and can do their own searching buying w/ no money down can be simple...still difficult, but simple.  

My suggestion would be to start small if you are going to invest here in SD.  I'd start with a 2 unit and get to know the ropes.  With your schedule it will be a balancing act.  Jumping in too deep with  8 units might be too much and will cost you more in the end.  

I had these three clients who were all in the military and were all friends.  They bought a 4 unit together.  One lived in it and the other two rented a place together elsewhere in SD.  They worked on fixing it up over time.  A little over a year later they called me saying they were ready to buy another property.  So we found a 2 unit.  The two that were renting else elsewhere moved into one of the units, rented out the other and then started working on fixing it up.  They are currenlty exploring the option of buying another one, but I suggested we wait because one of them might be getting stationed on the east coast.

I hope this helps.  Maybe this will spark an idea for you!

Karl

@Jimmy Watson , first, welcome to Bigger Pockets and more importantly thank you for your service Marine!!

If you are going to be stationed here for a few more years you should consider buying a property here with your VA loan. It's possible to buy a multi-unit property that you can live in and keep for as long as you want. Below I posted a link to a forum post started by @Mathew Deines about the multi-unit property he just bought in San Diego with almost nothing down. It's a great read and will give you all kinds of information about how he did it. Best of luck, Bruce

http://www.biggerpockets.com/forums/48/topics/218240-house-hacking-at-1-050-000---only-5-000-net-out-of-pocket---san-diego

Originally posted by @Karl Kyler :

Jimmy,

To start, the lower the amount of money you put down the lower the risk because if you loose the property for some reason you haven' t lost any of your money.

Getting in is difficult with no money down, though BP will make it sound quit easy.  I think this is relative.  For someone who knows the area and can do their own searching buying w/ no money down can be simple...still difficult, but simple.  

My suggestion would be to start small if you are going to invest here in SD.  I'd start with a 2 unit and get to know the ropes.  With your schedule it will be a balancing act.  Jumping in too deep with  8 units might be too much and will cost you more in the end.  

I had these three clients who were all in the military and were all friends.  They bought a 4 unit together.  One lived in it and the other two rented a place together elsewhere in SD.  They worked on fixing it up over time.  A little over a year later they called me saying they were ready to buy another property.  So we found a 2 unit.  The two that were renting else elsewhere moved into one of the units, rented out the other and then started working on fixing it up.  They are currenlty exploring the option of buying another one, but I suggested we wait because one of them might be getting stationed on the east coast.

I hope this helps.  Maybe this will spark an idea for you!

Karl

Karl,

Thanks for the reply, and that definitely does help!  I do have a friend here that is equally as interested in this as I am, but we're still debating whether partnering up together would be a good idea or not.  Regardless of whether or not I choose to do it alone, I think you're absolutely right (and one of several to tell me), that I shouldn't be thinking about more than a 2 unit property. 

Originally posted by @Bruce M.:

@Jimmy Watson, first, welcome to Bigger Pockets and more importantly thank you for your service Marine!!

If you are going to be stationed here for a few more years you should consider buying a property here with your VA loan. It's possible to buy a multi-unit property that you can live in and keep for as long as you want. Below I posted a link to a forum post started by @Mathew Deines about the multi-unit property he just bought in San Diego with almost nothing down. It's a great read and will give you all kinds of information about how he did it. Best of luck, Bruce

http://www.biggerpockets.com/forums/48/topics/2182...

Bruce,

Thank you very much! That article was a huge eye opener for me, and I had no idea that it was even possible to get a VA loan for that amount with low money down. Thank you again.

@Jimmy Watson: I am not sure if I mentioned in my post the amount of reserve money that we had to have in the bank. We had to have 6 months PITI in the bank, either liquid or semi-liquid (stocks/retirement accounts) reserves. For us that was around $36,000.

Best of luck to you! There is always a way! 

Originally posted by @Mathew Deines :

@Jimmy Watson: I am not sure if I mentioned in my post the amount of reserve money that we had to have in the bank. We had to have 6 months PITI in the bank, either liquid or semi-liquid (stocks/retirement accounts) reserves. For us that was around $36,000.

Best of luck to you! There is always a way! 

That kind of puts a kink in my plans... although I do have a TSP fund with close to 30K, so maybe that will work. Thanks for the great article and opening the door to some new possibilities that I didn't know existed before.

@Jimmy Watson

I am in the same exact boat as you. I am an active duty Marine as well. I have used the buy and hold strategy since 2003 but have stuck with single family homes. I just closed on my sixth investment property in June and would love to discuss further if you like. I have used VA twice, FHA once, and conventional three times. The key is owner occupancy if you have limited capital to put down. I chose SFH because I have a family but I understand the profit potential is not quite as good.

Your TSP balance can be used to count toward the 6 month PITI reserve so ensure your broker knows about that up front, which is a major reason I try to max that investment out annually, and you should too!

I know your area well and shied away from it on my last tour, just PCS'd away in June, but only bc of my SFH preferences.

  Answer a couple of questions and I can help you more with specifics:

1.  When is your EAS?  Ballpark is fine, just give me an idea of how long you will be able to live in it before you PCS or get out.

2.  How long have you been in?  I won't ask your rank in the public forum but length of service will help me to understand a little better where you are at.  

You're definitely on the right track and asking good questions.  -Kevin

I believe you can get a VA loan for as little as 0% down but I'm not sure if there are restrictions on the type of property or if its really an advantage to do so because your payment would be quite a bit higher. It may only apply to first time homebuyers as well so if your friend is military as well then maybe don't partner on the first investment that way you can both cash in on the VA loan?

Personally I've always wanted my first investment property to be solely in my name- just in case the partnership goes sour or there's problems that arise I will have at least one property that's completely mine. (Same reason I'm committed to staying single until I'm INDEPENDENTLY financially secure!) I'm kinda in the same boat you are in that I don't know where I will end up in a few years time but I've found what I believe to be a stable and strong rental market that has an excellent property management company with a lot of years of experience. I'm hoping its the right combination for success.

Originally posted by @Kevin Hunter :

@Jimmy Watson

I am in the same exact boat as you. I am an active duty Marine as well. I have used the buy and hold strategy since 2003 but have stuck with single family homes. I just closed on my sixth investment property in June and would love to discuss further if you like. I have used VA twice, FHA once, and conventional three times. The key is owner occupancy if you have limited capital to put down. I chose SFH because I have a family but I understand the profit potential is not quite as good.

Your TSP balance can be used to count toward the 6 month PITI reserve so ensure your broker knows about that up front, which is a major reason I try to max that investment out annually, and you should too!

I know your area well and shied away from it on my last tour, just PCS'd away in June, but only bc of my SFH preferences.

  Answer a couple of questions and I can help you more with specifics:

1.  When is your EAS?  Ballpark is fine, just give me an idea of how long you will be able to live in it before you PCS or get out.

2.  How long have you been in?  I won't ask your rank in the public forum but length of service will help me to understand a little better where you are at.  

You're definitely on the right track and asking good questions.  -Kevin

Kevin,

Glad to find someone with a very similar situation such as myself on here! The reason I was leaning more towards a duplex-4 plex is because I would need to get a VA loan for the 0 down bonus, and since I don't have BAH- I wouldn't be able to live in an SFH for an entire year unless I was collecting rent on it.

I put a pretty good amount in my TSP each month, but I'm not quite up to the level of maxing it out yet- although I'm getting closer to that goal. What exactly is a PITI reserve, by the way?

To answer your questions...

1. September 2017

2. 6 years, I'm a Sgt and hopefully will be a Staff next year, which would be great because of the BAH being added into my pay... but it all depends on if I get selected or not, which I don't want to bank on. 

@Jimmy Watson , VA loan is available if u live in one of the units but you are limited to 1-4 unit property. It will be 0% down required and closing costs can be in-bedded into the loan. Also TSP is a great tool for the loan...u can take a loan of 50% of your balance or $50k depending on what is less. You choose the repayment term up to 5 yrs & interest is around 2% but the interest goes into your account and you don't pay the bank interest. Its a great feature to have.

Originally posted by @Jimmy Watson :
Originally posted by @Kevin Hunter:

Kevin,

Glad to find someone with a very similar situation such as myself on here! The reason I was leaning more towards a duplex-4 plex is because I would need to get a VA loan for the 0 down bonus, and since I don't have BAH- I wouldn't be able to live in an SFH for an entire year unless I was collecting rent on it.

I put a pretty good amount in my TSP each month, but I'm not quite up to the level of maxing it out yet- although I'm getting closer to that goal. What exactly is a PITI reserve, by the way?

 

PITI reserve is Principal, Interest, Tax and Insurance. A mortgage lender will require you to have six months, usually, of reserve of these four amounts before they will approve a mortgage on a rental property. Since this will be an owner occupy, meaning you will live in one unit, they may be flexible on the six month requirement, but that will depend on the bank. Navy Federal, USAA and other big banks, will not be. This is why I never use those banks for my deals. I always use smaller local banks. All deals are not "standard" for them, they don't treat every deal exactly the same.

I think you are on the right track with multi-family houses. If I had my druthers I would do the same, but my family situation is different. My opinion would be to limit your risk, at least until you pick up E-6 and start collecting BAH. For that reason, the less units would be better, two being optimal.

@Bryan C. is right about the TSP option but I would caution you to use this as a last resort until you get a bit more money invested in it. If you have 36K in it right now, you can only borrow 18K of it. The VA loan is a far smarter bet in your current situation. All of your TSP will count toward your reserve though so you will be covered for a mortgage as high as 450K. That doesn't mean you will be approved for a loan that high, just that your TSP will cover the PITI reserve for six months for that mortgage amount.

Another option is to apply for BAH Own right.  Unlikely, yes, but still worth a shot.  If you are in good standing, and have a smart plan, and good reasoning for needing it, it may be considered.  Wanting to buy an investment property is not a good enough answer, but wanting to generate supplemental income in order to pay for school in four years would at least open a conversation.  Food for thought.

What areas are you looking at?

$10k is insufficient capital to invest in an 8 unit site.

I would recommend looking in your area, I don't care where you live their are always good deals within a few miles of you. Worry about out of town stuff later, for your first time at bat keep the property to and under 30 minute drive. 

Concentrate on properties where you can get conventional financing, you have access to VA loans so use them. 1-4 units.

Your in the armed services, you know how their housing works, maybe cater to that market. That could be your profitable niche.

Concentrate on making the first deal a home run, don't just do a deal to do a deal. Make money off it, and use that as a spring board to buy the next one. Once you get rolling you can start to look at the commercial stuff.

Jimmy, I'm not in the service, however I'm DoD as well. Have you considered using your TSP? I've been giving though to getting some properties once I get off the ship I'm currently on. And I've done a bit of research into taking a loan out on it. I know that you can get up to 50% or 50k depending on the lesser. And the interest rate will be the G fund's % rate at the time that you barrow it. That plus your 10k would open up the market a bit more. However I'm only suggesting that you barrow that money and all this is assuming that you do the TSP, and also that you'll be able to be doing the service long enough to pay it back. . . New to this site so I hope that I was at least a bit of help.

Originally posted by @Kevin Hunter :
Originally posted by @Jimmy Watson:
Originally posted by @Kevin Hunter:

Kevin,

Glad to find someone with a very similar situation such as myself on here! The reason I was leaning more towards a duplex-4 plex is because I would need to get a VA loan for the 0 down bonus, and since I don't have BAH- I wouldn't be able to live in an SFH for an entire year unless I was collecting rent on it.

I put a pretty good amount in my TSP each month, but I'm not quite up to the level of maxing it out yet- although I'm getting closer to that goal. What exactly is a PITI reserve, by the way?

 

PITI reserve is Principal, Interest, Tax and Insurance. A mortgage lender will require you to have six months, usually, of reserve of these four amounts before they will approve a mortgage on a rental property. Since this will be an owner occupy, meaning you will live in one unit, they may be flexible on the six month requirement, but that will depend on the bank. Navy Federal, USAA and other big banks, will not be. This is why I never use those banks for my deals. I always use smaller local banks. All deals are not "standard" for them, they don't treat every deal exactly the same.

I think you are on the right track with multi-family houses. If I had my druthers I would do the same, but my family situation is different. My opinion would be to limit your risk, at least until you pick up E-6 and start collecting BAH. For that reason, the less units would be better, two being optimal.

@Bryan C. is right about the TSP option but I would caution you to use this as a last resort until you get a bit more money invested in it. If you have 36K in it right now, you can only borrow 18K of it. The VA loan is a far smarter bet in your current situation. All of your TSP will count toward your reserve though so you will be covered for a mortgage as high as 450K. That doesn't mean you will be approved for a loan that high, just that your TSP will cover the PITI reserve for six months for that mortgage amount.

Another option is to apply for BAH Own right.  Unlikely, yes, but still worth a shot.  If you are in good standing, and have a smart plan, and good reasoning for needing it, it may be considered.  Wanting to buy an investment property is not a good enough answer, but wanting to generate supplemental income in order to pay for school in four years would at least open a conversation.  Food for thought.

What areas are you looking at?

 Sorry for such an awfully late reply- I was just deployed for the last few months and haven't had much time to figure any of this out... but now I'm hitting it hard and will be active on BP again.  

After reading what all of you said, I've narrowed my market into two areas- One will either be long distance in Grand Rapids, MI (because that's a 2 hour drive from my home-town, and with the research I've done on the area it's very affordable and booming at the moment)... or my second one would be within a 45 minute drive or where I currently live (Oceanside, California (close to San Diego)).  

I'm leaning more towards just using a VA loan at this point just for the zero down benefit- but I would have to get tenants into the property very quickly or I will go underwater within a few months time. Do any of you have any input on how difficult this process is to do? I know it's very risky, but if I want to break away and start investing I feel like this is my best bet at doing so (it's just based on finding tenants and keeping the place filled as often as possible).

I will definitely utilize my TSP in order to get a loan... also, I have tried applying for BAH own right and got rejected so that's unfortunate.

Originally posted by @Chris Field :

$10k is insufficient capital to invest in an 8 unit site.

I would recommend looking in your area, I don't care where you live their are always good deals within a few miles of you. Worry about out of town stuff later, for your first time at bat keep the property to and under 30 minute drive. 

Concentrate on properties where you can get conventional financing, you have access to VA loans so use them. 1-4 units.

Your in the armed services, you know how their housing works, maybe cater to that market. That could be your profitable niche.

Concentrate on making the first deal a home run, don't just do a deal to do a deal. Make money off it, and use that as a spring board to buy the next one. Once you get rolling you can start to look at the commercial stuff.

 I absolutely agree with you on the 10K being insufficient... and catering to the military market shouldn't be too difficult to do, as there is always a steady supply of renters in the area.  The only risk I run is that if the property remains vacant for longer than about 2 months, then I would have trouble making the payments, you know?  

Welcome back @Jimmy Watson

EOD as Landlord: If your tenants get out of line, you can remind them of HOW you dispose of explosive ordinance and remind them that you know where they park their cars!

(For those unaware: EOD in theater disposes of explosives using... more explosives.)

Anywho, have you given any thought as to how you will check this box from the VA Loan Manual so you can house hack (eg, buy an owner occupied multi unit using VA 0% down, and rent out the other units until you deploy, at which point you can rent ALL of them out)?

http://imgur.com/8errrow

Shortly after I started doing mortgages and getting interested in real estate I saw that little tidbit... aaaand I immediately found a BS source of minimal side income that on Schedule C of my taxes showed up as "Property Management Assistant." Boom, box checked.

Medium logo behlChris Mason, Bay Equity Home Loans | [email protected] | 415‑846‑9211 | https://www.bayequityhomeloans.com/chris-mason | CA Lender # 1220177

Originally posted by @Chris Mason :

Welcome back @Jimmy Watson

EOD as Landlord: If your tenants get out of line, you can remind them of HOW you dispose of explosive ordinance and remind them that you know where they park their cars!

(For those unaware: EOD in theater disposes of explosives using... more explosives.)

Anywho, have you given any thought as to how you will check this box from the VA Loan Manual so you can house hack (eg, buy an owner occupied multi unit using VA 0% down, and rent out the other units until you deploy, at which point you can rent ALL of them out)?

http://imgur.com/8errrow

Shortly after I started doing mortgages and getting interested in real estate I saw that little tidbit... aaaand I immediately found a BS source of minimal side income that on Schedule C of my taxes showed up as "Property Management Assistant." Boom, box checked.

 Haha, I don't think that would be within the legal limits of what California would allow!  I just looked at that link you sent and I wasn't expecting them to look for any experience on my end in regards to the multi-unit.  What small side job did you get that was able to show up as 'Property Management Assistant', and where would you suggest I look?  I'm really only free on the weekends and M-F after about 4 in the afternoon.  

Originally posted by @Jimmy Watson :
Originally posted by @Chris M.:

Welcome back @Jimmy Watson

EOD as Landlord: If your tenants get out of line, you can remind them of HOW you dispose of explosive ordinance and remind them that you know where they park their cars!

(For those unaware: EOD in theater disposes of explosives using... more explosives.)

Anywho, have you given any thought as to how you will check this box from the VA Loan Manual so you can house hack (eg, buy an owner occupied multi unit using VA 0% down, and rent out the other units until you deploy, at which point you can rent ALL of them out)?

http://imgur.com/8errrow

Shortly after I started doing mortgages and getting interested in real estate I saw that little tidbit... aaaand I immediately found a BS source of minimal side income that on Schedule C of my taxes showed up as "Property Management Assistant." Boom, box checked.

 Haha, I don't think that would be within the legal limits of what California would allow!  I just looked at that link you sent and I wasn't expecting them to look for any experience on my end in regards to the multi-unit.  What small side job did you get that was able to show up as 'Property Management Assistant', and where would you suggest I look?  I'm really only free on the weekends and M-F after about 4 in the afternoon.  

I'm going to remain silent on what my "Property Management Assistant" work consisted of. But it was correct on paper, tax returns, and everything.

How's that strip club next to the Oceanside bus stop doing these days? Do they need help with "managing rental units or other background involving both property maintenance and rental"? 

That was mostly a joke. Find some way to get your foot in the door that'll look right on paper. Maybe some landlord around here is 3 hours from Camp P that'll pay you to go do random odd-jobs at some of their SD/LA/Oceanside/etc properties and/or remind people in person that rent is due. I think we can call that Rental Property Assistant Manager without committing fraud, don't you? And if you find this person on BP and tell them that it's also to help you house hack, many will get giddy and be happy to help.

Medium logo behlChris Mason, Bay Equity Home Loans | [email protected] | 415‑846‑9211 | https://www.bayequityhomeloans.com/chris-mason | CA Lender # 1220177