What is my next step? Any advice Greatly appreciated!

4 Replies

Personal info:

I am 25 years old. I currently work full time as an RN, a stable job in my area (rural MN) with fairly substantial opportunity for salary growth. My wife is a dental assistant, also a stable job. We are expecting our first child this summer. She would like to quit her job in one year and become a stay at home mom which is something I support. We are currently renting a house which is being sold in two months. We have been looking for a home in the area but have decided to live with my in-laws for one year until my wife becomes a stay at home mom.

Financial info:

Living with my wife's parents will allow us to save a fairly substantial amount of capital, I expect around $40,000, conservative estimate, in one year from our earned income. We are quite frugal in our spending...

We currently own a duplex which we purchased for $86,000 last year. It was poorly managed and after repairs we are receiving $700 for one unit and $750 for the other unit after phase one of our remodel. However, I am currently covering utilities at this time. I have been saving capital and making improvements to the property this summer, which include adding two bedrooms and one bath to one of the units, after which I will also no longer be covering the cost of utilities for either unit. After improvements my conservative estimates are as follows:

(included 8.3% vacancy rate)

Gross Income: $20,350

NOI: $16,185

Cash flow: 11,870

Cash ROI: 43.88%

Estimated ARV: $125,000

We would qualify for a UDSA rural development loan for our future primary residence next year which would require no money down in addition to lower interest rates. Taking into account that our earned income will be significantly reduced when my wife quits...

One thing that should be noted is that if I purchase another investment property prior to purchasing our primary residence, I would likely not qualify for a USDA rural loan...

I look at the MLS every day for deals and would like the cash available if one comes up, either for our primary residence or an investment. At this time prices in my area are listed, in my opinion, much higher than market value (they also haven't been selling). I have not found any reasonable deals at all lately that would allow me to cash flow a property.

Questions:

Where would you recommend that I place the money while we are saving? High interest savings accounts? Other options?

Should I take advantage of the no money down loan and use all our capital for investment?

How much leverage would you recommend for either my primary residence or buy and hold properties?

Should I use our duplex as collateral?

Since I am new to Real Estate investing, and finance in general, would it be more beneficial for me to find a partner and form an LLC, which would allow me to diversify my risk further? Do I look in other areas for properties?

I have big dreams and am willing to make sacrifices now for returns later...

Any other input about variables I may not be considering would be greatly appreciated!

Thank you!

Originally posted by @Joel Owens :
Maybe wholesale some properties between now and then to accelerate capital build up??

I understand the concept of wholesaling properties but have no experience in doing so. There is also limited market where I live because it is so rural. Population of about 13,000. We have a lot of lakes and vacation homes. Many of these lake lots and vacation homes have been bought up by investment LLCs in the last couple years following the crash and are having a hard time selling them right now.

I used to be a real estate agent but let my license lapse because I was not planning on using it with my job as an RN. I could get it back but would have to re-test. However, my mom is a real estate broker so I have not felt the need.

Aaron, congratulations on your upcoming baby. It sounds like you have a great start on your investing career.

I would recommend that you focus on your first duplex and the addition to your family for the next year. When you are ready to buy a home for your family then you can decide how much money you want to put down. That gives you the ability to take the low interest FHA loan with low down payment if you want. It would also be nice to have some extra cash to make improvements, increase equity and just give you peace of mind... plus a happy wife means a happy life.

If you feel comfortable buying another duplex after getting used to your new baby, maintaining a new home then you can decide if you want to use your savings to buy another investment property prior to your wife staying home. Some people have a change of heart after the baby arrives and decide not to 'sacrifice' now so waiting gives you more options. The last thing you want is more stress around the house if the investment becomes a money pit...

Good luck!

Originally posted by @Tom Eddie :
Aaron, congratulations on your upcoming baby. It sounds like you have a great start on your investing career.

I would recommend that you focus on your first duplex and the addition to your family for the next year. When you are ready to buy a home for your family then you can decide how much money you want to put down. That gives you the ability to take the low interest FHA loan with low down payment if you want. It would also be nice to have some extra cash to make improvements, increase equity and just give you peace of mind... plus a happy wife means a happy life.

If you feel comfortable buying another duplex after getting used to your new baby, maintaining a new home then you can decide if you want to use your savings to buy another investment property prior to your wife staying home. Some people have a change of heart after the baby arrives and decide not to 'sacrifice' now so waiting gives you more options. The last thing you want is more stress around the house if the investment becomes a money pit...

Good luck!

Thanks Tom, that is good advice. It is tough to just sit back and wait sometimes especially when you know that time is money when investing...

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