building funds to buy rental home

[Joseph Greer]

Hello all, I recently discovered real estate investing and so all of this is very novel to me. Since I have discovered this world I have become determined to buy homes and rent them out. However, most homes in the Phoenix area are very expensive and way outside of my budget. So, I'm looking for ideas on how to gain the capital in order to have enough to make a down payment on a home in the gilbert/chandler/ queen creek area. Any ideas would be greatly appreciated. I am also looking for the REIA of the area...

[James Conaway]

Buy a 2/3/4 plex using FHA with 3.5% down, move into one unit. Have the other tenants pay the mortgage and expenses. Save the money you would use in your budget for rent/mortgage towards next purchase.

[Doug McVinua]

@Joseph Greer Welcome to the world of real estate investing and Gilbert, AZ. My wife and I love the east valley area as well, we moved from Iowa 22 years ago and absolutely love Arizona.

Investing starts with 1 for 99% of investors and often that first one is one they live in or lived in because you can purchase with low, low down payments. I just moved a couple into a purchase this week in east Mesa, AZ that received their $500.00 earnest money back at closing. Their total out of the pocket cost of purchasing was the $300.00 home inspection fee and they are now going to be paying $200 less per month than when they were renting. Does it always work that way, of course not but we can often keep it minimal? Minimal as in 4-5% of the purchase price total cash out of pocket versus 20-25% as an investor.

It's 100% ethical and legal to purchase a property with the intent of renting it in the future. Your mortgage (note and deed of trust in AZ) allows you to rent a single-family/condo/townhouse etc after living in it for 1 year. You purchase a property, live in it for 1 year, update the property to make it sharp and rentable in the future and you purchase another one a year later and rent the 1st one out. You rinse and repeat this process a few times and then your options being to expand in different paths that we can cover at that time.

@James Conaway brings up another good pathway which is to purchase a multi-family and live in one of the units. The beauty of this idea is that you purchase with owner-occupant financing and many times end up almost living there for free with the same low cost of entry.

Of course, you can also use retirement funds, gifts from family, win the lottery etc.

[Brendan Miller]

@Joseph Greer, I also live in Gilbert and am a buy and hold rental property investor. I would recommend doing a primary residency first if you don't already own. You can pick a primary for 3.5% down using an FHA loan. A duplex or multiunit property is a great way to go since you can get a residential loan on properties up to 4-units, but I'm not sure if that works with your family situation.

The other advice I'd give is make sure you are living on a budget and saving up for investment property down payments in the future if you're serious about it. Most lenders will require a 15% down payment on investment properties, and that'll require PMI which is expensive on investment properties, but that highly depends on your personal financial status. Down payments of 20% or more will eliminate PMI. Most lenders will likely require you to carry a reserve account (i.e. 6 months of expenses on hand), my particular lender requires 6 months, which I'd recommend anyways.

As for REIAs, there is a PHX REIA Facebook group that you can join which is a good way to make local connections and staying active like this in the BP forums!

Feel free to PM me if you have more questions or would like to discuss further!

[Joseph Greer]

@Doug McVinua is it possible to rent out a home before living in it? Is there a law that only allows a person to rent it after it’s been owned for a year? Or can a person rent out a home immediately after purchase?

[Brendan Miller]

@Doug McVinua, I’m an Iowa native too and also live in Gilbert!

[James Conaway]

Originally posted by @Joseph Greer:

@Doug McVinua is it possible to rent out a home before living in it? Is there a law that only allows a person to rent it after it’s been owned for a year? Or can a person rent out a home immediately after purchase?

There is no law that prevents you from renting a property out immediately after purchasing it. You do not have to live in any property prior to renting it out. 

The problem comes in with the down payment for non owner occupied purchases. You will typically have to put more money down (20-25%) because the lender views it as a higher risk loan than owner occupied. If you are having trouble coming up with the down payment, owner occupied is the path of least resistance from the down payment perspective. You can purchase with as little as 3.5%...

[Joseph Greer]

Thank you @Brendan Miller

[Doug McVinua]

@Joseph Greer James Conaway @James Conaway answered the question perfectly. You can absolutely rent immediately but the financing is different and requires more funds for the down payment which is the reason many start with an owner-occupied and convert it to a rental.

@Brendan Miller Midwesterners are the best! We are from Storm Lake, Perry, and then Urbandale for 10 years before making it to Arizona. You?

[Brendan Miller]

@Doug McVinua, I was born and raised in Storm Lake. Lived there until I went to college at UNI in Cedar Falls.

[Cole Britting]

You can also invest out of state or in a market further away from Phoenix if prices are too expensive and you cannot seem to make the numbers work. That is what I plan on doing as the market I live in is very expensive. There are a ton of books on this, but Long-Distance Real Estate Investing by David Greene was very helpful for me.

Hope this helps and best of luck!

[Melanie Johnston]

@Joseph Greer to answer your questions on REIAs, the big one in Phoenix is AZREIA, which just happens to be holding its monthly meeting Monday night, 12/14, virtually. You can learn more here: https://azreia.org/

Members include newbies and seasoned investors, so there is always someone to learn from and network with. And they have training programs to help new investors get started.

Tell them I sent you.

Having been to several PHXREIA meetings before the pandemic, that is comprised mostly of high-level wholesalers. Steve Trang's Real Estate Disruptors is another good group--and Facebook page.

Hope this helps,

Melanie

[Joseph Greer]

@Melanie Johnston ohhhh I wish I could be there, but I have work tomorrow evening! With the meeting being on zoom is there a recording of the meeting? If not I’ll try to find a way to make things work. I really really appreciate the invitation to the meeting! It really means a lot!

[Melanie Johnston]

@Joseph Greer if you sign up for the meeting you will be sent a link to the recording, according to AZREIA, who I just reached out to. They say they stop recording before the "Haves and Wants" section when members share their deals, but record the main section, which includes a detailed market update.

You can pay $20 to register for a single monthly meeting or they have a special membership price now that lets you sign up for a year's membership for $60 and then pay $10 per meeting. Go to their site for a full breakdown of membership options.

Hope to see you at a future meeting!

Melanie

[Shiloh Lundahl]

@Joseph Greer in my opinion, you shouldn't buy a rental property unless you have about 20k in cash or available credit. The reason why is you many need to fix the property and have proper reserves to take care of any emergency item that come up. With that being said, it is possible to buy properties in Arizona still without using much of your own money. This strategy is often referred to as the BRRRR method.

I'll be going over a BRRRR property that we just put on the market. Purchase price was $62,500. The rehab was about $25,000. We plan to rent it out for $975 which should make us about $300 a month is monthly cash flow.

We are going to go over the deal this Wednesday at our meetup in Mesa. You are welcome to attend the meetup. You can click on this link: https://www.biggerpockets.com/... or go to the networking tab on the menu bar and then click on events to check out the local meetups hosted by investors in your area.

@James Conaway, @Brendan Miller, @Doug McVinua, and @Melanie Johnston are all welcome to attend as well if you would like. It is a great place to network and we are also broadcasting via zoom. 

[Tanner Sherman]

@Joseph Greer “if you really wanna do something, you’ll find a way. If not, you’ll find an excuse.” -Jim Rohn

I am the type that works 4-5 jobs before I’ll cut down my expenses. I have found ways to make money doing things I normally do. If I get called out of work because of snow, I take the opportunity to go snowplow. When I’m driving home from work, I turn on DoorDash and make some deliveries to pay for gas. Same as when I’m going grocery shopping or Christmas shopping. I turn on DoorDash and it usually pays for the things I buy.

Leave your ego behind, get humble, bust your butt and find opportunities and more will follow.

[Melanie Johnston]

@Shiloh Lundahl thank you for the invitation. I wouldn’t mind getting the Zoom link to try to attend virtually. I’ll see if that’s available on your registration.

Melanie 

[Jessie Keating]

@Joseph Greer I am in the same boat - looking at Gilbert and intimidated by the market right now. I remember buying my current home, I DID have to sign something that said I intended to live in the house as my primary residence. Now, I don't know how they would enforce that but I am not trying to gamble with it either. 

I have been saving for years, and I am going to be cashing out some stock in March-ish to buy a rental, hopefully close to downtown Gilbert. BUT I insist on buying a home below market value and doing some renovations, so it might take me a while to find the right one! 

[Aaron Lietz]

Originally posted by @Jessie Keating:

@Joseph Greer I am in the same boat - looking at Gilbert and intimidated by the market right now. I remember buying my current home, I DID have to sign something that said I intended to live in the house as my primary residence. Now, I don't know how they would enforce that but I am not trying to gamble with it either. 

I have been saving for years, and I am going to be cashing out some stock in March-ish to buy a rental, hopefully close to downtown Gilbert. BUT I insist on buying a home below market value and doing some renovations, so it might take me a while to find the right one! 

Hi Jessie,

I too discovered this some years ago (that buying retail, in most cases, just wasn't worth it for my goals). The market is too hot and cash buyers swoop in on great retail deals very quickly. It sounds like buying wholesale is going to be your way. Develop relationships with local wholesalers (and private/hard money lenders). Get put on their buyers list and you just might find a property that fits your criteria (off market). Keep in mind though, these deals also go very quickly but you won't be competing with the entire retail market. 

[Dexter Belling]

Joseph, I'm in the same boat! Wanting to invest in the Chandler/Gilbert area seems really difficult right now. The idea of house hacking is awesome except that this area has almost NO duplex, Triplex, or quadplex opportunities, (Only sketchy areas in Mesa have a few). What this area does have a lot of is travel nurses/doctors, pilots, tradesman who come to phoenix for a short period of time. I am focussing on housing that can accommodate short-term housing for these professionals, and it may be a home that they can share with another investor like yourself. For that reason, I am looking for homes that would be ideal for roommate situations. 2 bed + 2 bath or greater occupancy. let me know if you want to talk more. I work with wholesalers to find ideal properties and I'm only a couple of months away from becoming a licensed agent.

[Allie Pfannenstiel]

@Joseph Greer

Well first of all I LOVE Dave Ramsey Financial Peace Course to get you ready to buy your first property

1. Save $1000 emergency fund

2. Pay off all debt (non mortgage debt)

3. Save 3 to 6 months emergency fund (monthly expenses x 3 or 6)

4. Put %15 of your money away each month for investing 

I strongly believe you need to put yourself in a good financial position before buying your first property. If you don't have your own funds yet and you want to make some quick moneys

1. Door knock 

I made 20k wholesaling the 4th property i knocked on 

I also have a friend who wanted to get into wholesaling who used to be an ADT door to door guy and he made 30k in his first 60 days of door knocking on my team. 

2. Mobile Homes

These are super cheap and low barrier to entry. One of my friends bought their 2nd rental property with me and decided he wanted to have a side hustle so got his license under my husbands mobile home brokerage and has made over 20k in his first 90 days just by finding sellers driving through parks, and messaging people on fb marketplace, offer up, and craigslist. 

If anything, focus on finding the deal and the money will come! Someone will be willing to partner up with you if you truly have a deal.

[Allie Pfannenstiel]

@Dexter Belling Yes to the house hacking out there. I helped my twin sister buy a 3/2 condo on the market in mesa in 2019 for 165k. They put $4950 as the down payment. They pay approximately $995 a month in principal, interest, taxes, insurance and HOA. They rented 2 of the rooms on roomys.com for $600 each for a total of $1200 and lived in the third room for free.

After a year they found a seller finance deal in tucson off market with 4 bedrooms and 2 bathrooms so they rented the 3rd room out for $600 dollars totaling $1800 and moved to tucson. Their mortgage there is $1000. They rented 2 rooms for $500 and lived for free in Tucson. 

They are now moving to Costa Rica January 14th and have already rented their house out in Tucson for $1500. 

There are so many ways to play the game! Just got to get started.