Dip the Toe: how does one begin?

26 Replies

I seem to have a grasp on my end goals in life. Many of them have fallen into my lap, many of them I've worked hard for, but many of them I feel could be started now but I don't have the know how. Real estate investing is one of those. In my case, my wife wants a house before a rental property. So I see the amount in savings decrease. Then we have a baby, decrease. Then, and only perhaps then, will I have 10-20k in 2021 to buy my first property. HOWEVER I am sick of putting off what I see as inevitable. I have the drive to learn and thus succeed, but the finances, in my naive mind, is fixed and I will never be able to begin. I need a concrete method to be able to learn, in order to sell myself to investors, in order to bring them deals and subsequently bring myself passive income.

@Evan Smeenge , why not try to house hack a multi-family? You live there for a year or two, then move out and keep it as a pure investment.

Understand that your wife wants to buy a house 1st. This does that, plus gets the REI ball rolling. Show her numbers: how little your monthly nut will be when your tenants are paying all or most of your mortgage and house bills. Then the extra income you'll have each month when you move out of the multi. "Sure would be nice to have a rental property that throws off $500-600/month once the baby comes along."

@Jaysen Medhurst yes.. I agree... However here in Chicago to afford something like that, we would have to go into a F- location. Thoughts?

Still leaving Illinois: An exodus of people and money
https://www.illinoispolicy.org/reports/still-leaving-illinois-an-exodus-of-people-and-money/

@Evan Smeenge You could also maybe Wholesale until you reach enough capitol to invest into a rental. I'm new to Bigger Pockets and it seems like Wholesaling has a "sketchy" reputation, but honestly if you hustle you can make some cash and build your education towards real estate in general. The house hacking is also a great idea so I think you should look over your options, figure out what works best, and simply execute.

BTW, ALL.. this post was really supposed to look like this:

I seem to have a grasp on my end goals in life. Many of them have fallen into my lap, many of them I've worked hard for, but many of them I feel could be started now but I don't have the know how. Real estate investing is one of those. In my case, my wife wants a house before a rental property. So I see the amount in savings decrease. Then we have a baby, decrease. Then, and only perhaps then, will I have 10-20k in 2021 to buy my first property. 

HOWEVER 

I am sick of putting off what I see as inevitable. I have the drive to learn and thus succeed, but the finances, in my naive mind, is fixed and I will never be able to begin. I need a concrete method to be able to learn, in order to sell myself to investors, in order to bring them deals and subsequently bring myself passive income.

@Evan Smeenge

By that standard No time is a good time . If your in park sitting around your driveway waiting for all the lights in town to turn green before you go your going to never get ahead . Real estate is something you can’t really dip your toe in . It’s more like jumping off a cliff and building an airplane on the way down before you go “splat!”

@Dennis M. But @Brandon Turner said that real estate investing ISN'T a jump off a cliff it's more of a hike or a walk on a path.. a journey to say the least.

@Evan Smeenge

Well Maybe for him it was a walk in the park . Not for me or my fellow investors I know ! Being on a budget trying to survive and then saving any extra like crazy for a long time .. then taking all that hard earned money and start buying up distressed properties is scary risky and a big step into the unknown !atleast it was for me . I’m not saying it won’t pan out in the end ,but it’s not as easy as some people would have you believe .

Evan, maybe your wife is onto something. If you haven't bought a first home yet, maybe it would be good to find one. A great way to start is with a primary home with equity because that can create a lot of great options. If you find something with a little equity in it you could take out a HELOC in a year or so to move forward with another property. You might grow out of that home in a couple of years after kids and rent out that property. Starting off with a good primary home with Equity, or a possibility of creating equity would certainly set you up nicely.

Not to mention the experience you would gain from the purchase.  

Some people are just not ready to dive in head first and that is okay.  There are smaller steps that can move you in the right direction.

Have your wife reach Rich Dad, Poor Dad by R. Kiyosaki.  That should wake her up!  What she wants is a sure recipe to the Rat race.  House, kids, life struggles, death!  Is that what she wants?  House hack or buy a rental first in a cheaper market out of state, like the south.  Continue to rent and save money in your area.  You will improve your debt to income with rental income showing on your tax returns two years in a row so that bank financing will be easier subsequently.  The first is the hardest.  Good luck.

Don't be dipping no toes, that water is cold.

Swan dive, and make it look good.

I see a lot of options in Chicago but I don't know what area you're looking at. One example

You can buy it with as little as 3-5% down. I've seen grants recently that will pay $5,000 towards closing with no requirement for you to repay!

5% downpayment

with current rates your payment would be around $1,600. A cursory glance tells me you could probably rent two units for around $3,000 a month which would cover expenses and  you could live for free. You would need to set money aside for maintenance and such but $200 - $400 a month would be plenty and that's still cheaper than rent or a mortgage.

These number are based on a two-minute search so I can't say how accurate it is but it certainly seems plausible.

Stop talking about what you can't do. Find a way to do it. Start by visiting several lenders to see what options are available and what you could qualify for. Get that locked in and then find a REALTOR and start searching in earnest.

@Evan Smeenge . Also for the record not sure how much 10-20k will get you in Chicago or most anywhere else, especially in 2 years. I say jump in now but get your wife on board first

@Evan Smeenge I know the feeling, I did the house hack back in 2016 but didn't realize it had a name at the time. All my co-workers were buying houses, so I thought it was time for me too. But what I saw was them getting a piece of property and paying a mortgage, at this time I didn't know how much becoming a home-owner would benefit you. Beside not having a landlord. And taking on a lot of responsibility. So I had to change it up a little, I start looking into what roles do a landlord play, do I have to buy a house with my loan or could I buy a building with it. They basically cost the same in many factors. I was just like you, where do I start, how do I start, is there someone that could teach me how. And everything came pointing back to me. I was going to be the one to have to start the process, teach myself and piggy back off others. First and most importantly find out if you are ready for homeownership, if your profile fits the criteria then following the next steps in the direction you're looking to go in. If you're looking to be a landlord or flipper or just an investor in real estate. Just remember It's so many ways to go with this. So now it's 2019 and my building is fully occupied and has positive Cash flows, it pays for itself and puts money back into possibly other investment. Which I'm currently looking for. But just like you, I fell back to where do I go from here. The only thing I came up with was repeat the process just on a higher level.
@Carlos O Gomez yeah, my wife is an strong *** woman, I am not in a place to "wake her up". She knows what she wants and I want to provide that for her. So, unfortunately that is that.

Then, unfortunately, since "that is that," you're going to be buying a house. At least try to convince your wife not to buy a house that costs more than twice your combined annual income. If this too is a lost cause, like househacking is, you'd better take real estate off the table as a lever to pull to get you to financial independence.

There seem to be a number of obstacles standing between you and the well-known, proven paths to FI that begin and end with the woman you want to take along with you on this journey. The most certain thing that we know about the challenge of achieving financial independence through real estate is that having a spouse who doesn't want to take the journey with you is the kiss of death to that journey.

My wife doesn't post on this site, but to give you a sense of what the other side of the coin looks like, she actually brought us our first deal. At every step of our journey, she has had my back. None of our rentals properties or our impending househack would have been possible without her.

Talk to your wife. Stop thinking in absolutes, all-or-nothing. Going from running on the hamster wheel of life to changing your destiny is most likely going to require a strong woman by your side, as it has for me. A strong woman can see reason and can find the value in things like househacking and frugality. You can face the challenges ahead as husband and wife anchoring each other in the bedrock of marriage. You cannot and should not face them as a rowboat in the darkness that a tsunami breaks over.

@Jim K. I didn't mention that I talked to her last night and we agreed to look for a house hack first for 3-6 months before we looked for something else. She was intrigued by the FHA 203(K) loan. Would you recommend this for our start?
Originally posted by @Evan Smeenge :
@Dennis M. But @Brandon Turner said that real estate investing ISN'T a jump off a cliff it's more of a hike or a walk on a path.. a journey to say the least.

Based on my experiences, which occurred a few years apart from each other rather than both at the same time:

(1) Owning a home has its rewards, but it's also a full-time job. No landlord to call when something goes wrong. I also thought I had worked through my budget carefully, but I was still stretched to the limit financially. Homes were selling for high prices relative to my professional salary and the market was slow because banks were not lending (double-digit inflation at the time). I managed to buy only because of seller financing. I went through a couple of rounds of layoffs soon after I moved in (the little-known "personal computer bubble" of the early 1980s had popped). I managed to survive, but I had all I could do to stay employed and keep my house from falling into disrepair (it's amazing how water manages to find so many ways to leak).

(2) Starting a business is sometimes called "taking the plunge" because you give up your job safety net. You really only exchange perceived security for perceived freedom when you leave a job to start a business. Money manages to go out faster than it comes until you can get established, which can sometimes take years. People at companies I dealt with when I worked in Corporate America would not return my phone calls once I left my job (which is hard not to take personally). I had to go back to an employer-based job a year later, but I did it in the field of technical writing, which was the new direction I wanted to go. I had to be creative to get my first assignment. I needed to show my portfolio to get an assignment, but I needed assignments to get a portfolio. Marketing and sales skills are critical survival skills in the world of business. A few years later, I became a W-2 employee of a temporary help agency. This business model was the one that worked best for me because I could outsource my marketing and invoice collection tasks to the agency while I focused my time on being the best technical writer in my field.

My takeaway: Prepare as much as you can while you are still employed. Some of this preparation falls in the field where you want to go (real estate or whatever). Some of this preparation falls in the area of personal finance (pay down or off your debts and build up your cash reserves). Attend networking events to meet people, read up on the subject (books are inexpensive, especially when compared to training seminars), develop and refine your business plan (an ongoing process that never ends), and so forth. Think of this phase as toe-dipping. Then the day comes when you have to be your own mama bird and push yourself out of your nest. You either fly or you don't.

Yeah, you should have mentioned that littld tidbit, Evan! That's a very good sign.

I think the 203k rehab loan is a bad deal for aspiring first-time househackers. I think you should instead go for the traditional 203b program. I have to disclose that I have never used either program.

But when I looked at the 203k program years ago, it was obvious to me as a moderately experienced handyman that it existed to make contractors money, not to benefit the poor schmuck getting the loan. In the interim years, as my expertise and cynicism have grown, my opinion has changed. The program exists, as I see it, primarily to pass money along to organized crime. It is inconceivable to me that a "203k consultant," as is termed the general contractor running the debauched scheme, would choose to become one without milking the program for every penny he could get out of it, and, by natural extension, the aforementioned schmuck. How many kickbacks anybody with some imagination could squeeze out of a 203k loan for his drinking buddy subs and cousin broker boggle the mind.

Look at the math here, Evan. With 3.5% down for a 203b, if you look anywhere other than the big money centers in the Chicago area, you can find at least a duplex that lets you live very cheaply, and will cash flow positive after a year, when you get out and rent the other side. Of course, you may want to live in an exciting neighborhood with exciting neighbors who drive pricey cars and host wine samplings and brag about public elementary schools that will rocket their brats straight into Harvard in a capsule made of melted-down silver spoons. Where lots of people are very grateful to Mommy and Daddy for the economic outpatient support they provide to allow them to live in such a very A-class, exciting neighborhood. I suggest you become deeply suspicious of such neighbors and places to live.

Find a place where your kids will never come running to you crying that the neighbor's kids made fun of them for not wearing the right jeans, and you'll be fine (memorable example provided courtesy of C. and M. Jensen). This is a 1-year commitment, not a lifetime sentence, although if you buy right you could be stacking the cheddar for decades from your first househack.

@Evan Smeenge Thanks for sharing. You weren't super specific on what your goal was with the rental property. Fix flip? Buy and hold? Regardless, just because you don't have the money doesn't mean you can't be successful. Find a partner that has money/experience and find a way to add value. Before you know it you will have a track record and "proof of concept". It is at this point investors will want to give you money and trust you enough with it. 

@Scott Morongell Scott, this is exactly what I want to do. However, how do I get to the point where investors want to give me money? How do I get the initial experience?
Originally posted by @Evan Smeenge :
@Scott Morongell

Scott, this is exactly what I want to do. However, how do I get to the point where investors want to give me money? How do I get the initial experience?

 Find someone in your market already doing what it is you want. Find a way to create value to their team. Document your track record and create a credibility book on all transactions you have done. Document the good, bad, and ugly. Be transparent. After you know what your doing and have some credibility behind you start raising capital from friends and family for your flip or whatever your looking to do.

Originally posted by @Evan Smeenge :
@Jaysen Medhurst yes.. I agree... However here in Chicago to afford something like that, we would have to go into a F- location. Thoughts?

 I don't think this is true.  Typically multi-families like a two or three flat go for the same, sometimes even less, than a comparable single family home.  You can find MFs in great neighborhoods that cash flow and are enjoyable places to live.  My wife and I have been doing so over the last six years.  I am an investor in the city and study the city's neighborhoods and housing market extensively, let me know if you'd like to discuss things further.  

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