My dad has saved 220k dollars. We want to start investing in real estate. We were thinking on buying a distressed property (all cash) and then fix it and cash flow for a while until it appreciates enough to sell it. We were also thinking about doing the brrr strategy so we don't pay gain tax. However, there is another method that I read which is instead of spending all the money on one property, to get 2 mortgages in 2 different properties, and divide the 220k in two and buy different properties. Since, they are going to be strictly for cash flow we are confident that it can be possible if we find the right bank or mortgage lender. My dad's credit score is 750 and our house is paid off the only debt we have is our car. Can somebody please help me think of a good strategy. Thank you so much!
@Bryan Rodas Hi Bryan. For a non-resident occupied rental you will need a 25% down payment plus your closing costs which are usually 3-5% of the purchase price but might be a big higher in NJ.
The mortgages will be based on your DTI, Debt to Income ratio which takes into consideration outstanding debts compared to your income and assets. If you are buying a rented multi family many banks will consider at least some of the rental income into this ratio as well.
I would recommend talking to a local bank or credit union to see what you can get pre approved for, this pre approval usually lasts 3-4 months. If you don’t think your timeframe is that fast you can get prequalified which will at least give you a ball park figure of what you amount you can buy. But you should start getting your documentation together so you will be ready when the time comes to submit it.
If neither you nor your father is handy I would probably steer clear of a BRRRR right now because most of the good contractors are all booked for the summer already which would give you holding costs until you could get someone to work on your property, materials are through the roof, and real estate prices are through the roof which means unless you buy a real dump you'll not be real likely to get something under market value. Some people still are getting stuff under value, I just think until you have a little experience it might be best to wait.
I think buy and hold is great, I’ve got several. I’m in a small market and if I had 40 more I could rent them all.
If you divide it in half and buy 2 that’s great, or a small multi if you can find one that works and get several rents might be better.
Thank you for replying. I am sorry, I forgot to mention we own a construction company.
Then if you can source a deal BRRRR away!
@Bryan Rodas Hey Bryan. Would love to discuss your proposed scenarios in addition to some other ideas for you. Shoot me a message.
I would start by talking to a loan officer at a bank to see what you can borrow. Then use some of the money to buy one place (20% down payment). If you own a construction company another option is to buy land and build a house on it. If you want to hold it for a bit, try to build something with a rental suite, so you have two units you can rent. Also look for something that might need a bit of work (not a full gut) and you can quickly add some value to it and then rent it out.
@Bryan Rodas It sounds like the BRRRR strategy is the way too go for you. By doing this you can refinance your property and pull all the equity you can out of the property so you can continue to grow. You might want to also think about creating a LLC to do all this under. You can get a business loan and better line of credit. If your looking too grow and create cash flow hold on to the properties. Selling them or flipping them is going to bring a lot of taxes. Good luck with everything and reach out if you have any more questions.
Of course your dad can BRRR two properties at once, assuming his funds are sufficient. If he's in construction I'd think he knows this.
Hi @Bryan Rodas , Welcome to the world of investing. It can be a challange but it can be very rewarding. I'm going to say what everyone else is saying to just to reinforce it. BRRRRRRRRRRR. There is a really good book titled just that "Buy, Rehab, Rent, Refinance, Repeat" by David M Greene. You can find it in the BPs bookstore or on Amazon. Its available as an Audible book as well. I listen to it while I'm driving around. The book gives an example showing how leveraging your money to buy multiple properties with mortgages instead of putting all of it in 1 property creates a lot more passive long term income. Flipping can be fun and generates some quick cash but once you stop flipping you stop getting paid. Once you have properties that generate cash flow all you have to do is pick reliable tenants (this is key) and take care of them. Since you guys are contractors the construction is the easy part.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you