What would you do? (Starting out)

Question

Here’s the scenario:

Image you are a complete beginner.

You have $40,000 cash

Another $14,000 in a savings account

And can draw on approx. $50,000 HELOC in your primary residence.

Assuming your goal is to BRRRR, how would you best use these resources to start? What would you hold in reserve? Would you try get more of other people’s money?

John Teachout · Answer

I'd buy a property for all cash, renovate yourself out of pocket, then place a tenant in it and self manage it. That will give you a great real estate education.

A single family home is an asset that's pretty easy to get out of if desired so it's a good way to start in my opinion.

Christopher Wasowicz · Answer

@Ducarmel Francois Jr

I am excited at the prospect of partnering to tackle large deals... one day. For now, I do not have the experience that I feel would make me an informed and competent partner. Please take no disrespect and let us keep each other in mind. One day, soon, when I feel I have a better grasp of the fundamentals of REI, I would be glad to partner on a deal. :)

Ducarmel Francois Jr · Answer

@Christopher Wasowicz

Hi Christopher, i m looking to do a  BRRRR on my first deal as well following Brandon s tips pretty hard. I m also looking to partner on my deals. I have a few that i m working on and i m getting good leads would you be interested in partnering. We can connect and go over numbers see if this works out?

What do you say potential partners!?👍🏾

Ducarmel Francois Jr · Answer

@ Christopher Wasowicz

Well said, I totally get and respect that, I am really passionate about REI so far and I will be around BP don't be shy, and give me shout.

Brendan F. Nagle · Answer

@Christopher Wasowicz

Based only on the info in your post. Purchase small sfr or duplex in a small town. Pay 20-25% down and pay for rehab. Brrrr it once rented out and refinance as much as you can out. Your first deal will cash flow while keeping your money in your account. And ready for the next deal. Good luck with your real estate journey.

Nathan Williams · Answer

there's also varying degrees of rehab.  If you are just starting out I believe there's nothing wrong with buying a property that may be closer to market value but needs very little work done to be "rental ready".

As an out of state investor I dont have the stomach to take on big rehab properties, instead I've found good condition homes that have made solid returns on purchase price

Spencer Cornelia · Answer

@Christopher Wasowicz Since you've limited this topic to BRRRR....

IMO, the easiest way to truly BRRRR is to use all cash and HELOC.  because you have no track record, any hard money loan is going to be very expensive and take away the opportunity to BRRRR.

The downside is that things are going to go wrong and you don't know how wrong they can go.  Once you use up all cash and HELOC, you're opening yourself up to losing everything.  If you underestimate expenses, you could find yourself in a pickle really quickly.

The upside is that your costs are going to be low enough to allow you to BRRRR nearly any property that needs a lot of work.

For your situation....

spend the next few months networking with every wholesaler in your area

Find a deal where your purchase price and rehab is under $100k

Make sure that you can refi into a 30 year loan AND the expected rent is ~1.2 of expected PITI.  Confirm this before purchasing the property

That's just one option.  Personally, I would aim to sell your first rehab project as things will go wrong, your budget will be broken, and you'll need to leave money in a deal that cash flows a week's worth of groceries.

To answer your questions...

What would you hold in reserves?  Since I would highly recommend using cash/heloc over a hard money loan, everything you have will be reserves, including credit cards (which I hope you have access to)

Other people's money?  I would let others know when you have a deal locked down so that if something awful were to happen and you were like $8k short of finishing the project, they can loan the money and receive some equity.

Christopher Wasowicz · Answer

@John Teachout

This is essentially what I was thinking. Wasn’t sure if I should mess with my primary residence via the HELOC, but yes essentially I wanted to use my first purchase as a education project. I’ve managed property, but I’m interested in the analysis, rehab, and relationship building. Thanks

What would you do? (Starting out)

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