First investment help

15 Replies

I’m not sure if this is the right section to post this question, but I literally have hundreds of questions and am extremely overwhelmed. ANYWAY: I am ready to jump in and buy my first investment property but I originally planned on fix and flip single family homes, and now I’m thinking I should not close off buying a house to rent. The problem is I do not understand how I get my money back with a rental? It is clear that with a fix and flip the money invested will come back once the house is sold and then I can re invest my profit, but if I put a 20%down on a rental how do I get my cash back out of that house to re invest? I have saved up 65k which I know is not a lot to some but to me it is and I do not want to put it all (or a big chunk) into one property to make an extra $300/400 a month and no way to continue investing... What am I missing here?
@Mandi Martinez Hi Mandi I am also new at this and in similar situation but I believe the Brrrr strategy is what you need to do: Buy, rehab, rent, refinance, repeat. In theory the concept is simple but you have to make sure all the numbers make sense for this to work. First you find and Buy a good deal where after all repairs you still have a good equity, then you rent it, you refinance to get all or most of your money out and last step is to repeat the whole process again. In the best case scenario you would get all of your money out when you refinance, have a cash flowing property with equity and best of all the experience and confidence to repeat the process again. Hope this helps, good luck. Here’s the link to article: https://www.biggerpockets.com/renewsblog/brrrr-buyrehabrentrefinancerepeatprimer/

@Mandi Martinez you want to "cash out refi" from your rental property after the property goes up in value.  lets say you buy a $100K home with $25K down.  You spend $10k to fix it up to make it nicer and the property value goes up to $120k.  Then in a year or two (and hopefully with some nice appreciation as well), you refinance your existing mortgage.  Your original mortgage was $75K, which should have reduced a little from your monthly mortgage payments, but now your property is worth $140K lets say.  then you can refinance a loan for 75% of your $140K, which is $105K.  the bank will give you cash for differential between the new $105K loan and the remaining principal balance of $75K loan, so you get your $25K down payment back basically.  Of course it's easier said then done as what property increases 40% in value in one or two years lol that's why it's important to buy at good price (below what it's worth) and force and appreciation (increase value more than money you spent).  hope that helps!

@Michinori Kaneko hmm ok that makes sense. I guess I just don’t want to sit for two years hoping for the home to appreciate just to get a profit of 200/300 a month. Am I thinking about it wrong? I want to change my mIndset so If Im not thInkIng about It clearly let me know. I just want to continuously reinvest, I don’t want all my money tied into one house..

@Mandi Martinez it depends right? you are not investing all your $65K into one property.  you can probably buy 2~3 properties with that amount of money (unless you want to go into even riskier investments). so think about $600~$900 a month.  that's a whooping $6000 CASHFLOW on your $65K investment.  that's almost 10% return, which doesn't include property appreciation and repayment of your principal.  Note a 2% appreciation on your property is a 8% return on investment to you if you only paid 25% for your down payment.  

here's the best part, once you cash refi out, you will get your initial $65K back (hopefully).  at that point, you still own the properties that generates $600~900 a month (maybe a little less since your mortgage will be higher now).  you get to use that $65k to buy another 3 properties, not to mention you probably saved up some of those cashflows.  

investing in rentals is not get rich overnight.  if you want quick money, flip is probably better (although there are good and bads - flip is a one time gain where as rentals are more of perpetual income or like an annuity). both requires time and lots of work to make it happen.  but that's why we get ahead of everyone else right? because we put the work in that others are unwilling to :) 

@Mandi Martinez

Hi Mandi I am new to this website, I just got in and see your post. I am also from Tampa bay! I imagine you must be excited about your first investment opportunity. I can send you XL spreadsheet file that will help you understand the expenses and projected profit. I use this file for flipping projects to see the investment potential. It is easy to use, you just change the purchase price and renovation expenses, the rest is going to be calculated by my formula. Did you think of the area where you want to invest? 

@Mandi Martinez Hello! I’m also new to real estate investing. The only thing I have done is listen to MANY of the BP podcasts (I do so at work) to try and learn as much as possible. What I understand of ‘buy and holds’ aka rental properties, is that they are an investment in your future. You will not see large immediate returns. Hopefully, if you get a good deal, you will see modest monthly returns but the great thing is that once you pay off your properties (after the 30years or whatever of your loans) you will have an even greater cash flow since you don’t have to be paying a mortgage (unless you get a condo then those HOA fees are forever). Also, if you do the BRRRR strategy like someone suggested and you have multiple rentals, then every little bit of income adds up. Now something to consider is whether you want to be a landlord and deal with that side of renting. If not, then flipping sounds like a savvy choice as well. Sending good vibes on your journey!

@Mandi

As a lot of people have already suggested about the BRRR and cash-out refi methods of getting your money back and that is a great way to do it. If you have to put 20% down are you buying using a bank? Think more creatively. Have you thought about going to local REIA meetings to network and find properties that you can buy using 5-10K. They are harder to find but but the more you network the more falls into lap. You could buy a property with little down and hold it with private financing "someones IRA" for a few years and once you refi to a long term note you might be able to pull that small investment back out. Even if you can't pull the money back out what is that 5-10K producing on a return. Say you put 10k down on a property and hold the rest on at 8% interest only.

$200 monthly cash flow

12 months

=$2,400/yr cash flow profit

10k/$2400 = little over 4yrs .  

So you could have your initial capital back in 4 yrs with the rest being infinite returns.  

also the saying goes you make your money when you buy is so true