Investing Strategy/Financing question

5 Replies

Hey everyone,

I'm getting into real estate investing. I want it to become my primary focus and my primary source of income over the next few years. I have about $100k-120k in cash available for investment. I have good credit and zero income. 

My plan right now it to buy 2 foreclosed homes in Florida in middle-low income areas and rent them out. ~$50k, ~20-25% cap rate. After this is done, I will have 100% equity in 2 properties but only the properties to report for income. Will this put me in a dire financial situation? 

I have heard of "blanket loans" which is essentially a home equity loan over multiple properties. The last I heard, you needed 4 properties for this operation. Is that true?

Will some community/regional bank accept a person with 2 free-and-clear rental properties, good credit, no income, for a 20/80 mortgage? 

20 to 25% cap rate? What area are these properties located in? Also, what's the condition of these properties? Being that you have 100-120k in wealth, I would try to invest in properties that are in good areas and have high curb appeal. While the 20-25% cap rate properties look appealing, it masks the problems associated with buying a property so cheaply (Unforeseen maintenance costs, tenant turn over, and etc).

@Tyler McKendry  

If you have no income, I'm not sure many banks would lend at all, even with good credit.  Best bet would be to make some phone calls and ask.'

Good luck!

- Tom

Originally posted by @Jordan T.:

20 to 25% cap rate? What area are these properties located in? Also, what's the condition of these properties? Being that you have 100-120k in wealth, I would try to invest in properties that are in good areas and have high curb appeal. While the 20-25% cap rate properties look appealing, it masks the problems associated with buying a property so cheaply (Unforeseen maintenance costs, tenant turn over, and etc).

These would be in lower-middle income areas in South Florida. You can get something rent-ready for about 20% cap, otherwise they normally are a bit more run-down and need some fixing (few thousand).

I also agree that there will be more costs/turnover etc. involved with these properties. Insurance/taxes are higher, too.

To me, it makes sense to buy house(s) in cash (Either one property around 100k or two around 50k). Considering I have no income and no real estate history, I think it would be difficult to find reasonable financing anywhere.

I'm curious what sort of financing would be available once I have 2 cashflowing properties/100% equity/no reportable income. I assume banks wouldn't touch me. But perhaps private money at 7-9%?

@Tyler McKendry  

Honestly we have done very well but we have had great W2 jobs. Not having a W2 job is going to your heardest thing to overcome. Being poor right out of college with a great job is easier than no income. You best bet is leveraging those houses the best you can, again that will be hard as everyone will usually want a personal guarantee.

@Tyler McKendry  Putting all you cash into the property and leaving no cushion for unforeseen circumstances is definitely risky. What if something needs to be repaired? What if you get sued? What if someone in the family gets sick and you need the money? I am not trying to be overly cautious but utilizing all your money without a reserve or alternate methods to make income is risky, especially without prior experience in this field. I would definitely agree with investing a portion of the money and keeping 6 months living expense to the side.

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