Some Issues with Real Estate

4 Replies

Hi so I'm a beginner investor and have ran into some roadblocks.

(1) Me and a neighbor who is also a contractor are wanting to invest 50% each in real estate, not to exceed $30K each. So total 60K.

(2) My credit score is only 550, 610 if I pay off 3K of my debt, but I'm hearing it will be difficult getting a loan unless my score is above 720. My credit history is only 2 years old.

(3) In this case, I've thought about the BRRR method, where we pay for a property in cash, fix it up and refinance to put a down payment on another house. However, this would require me to quit my job which I don't want to do yet.

Maybe in 2 years when I'm making enough to be able to quit my job, and enough in savings to invest in a new home with partner.

What is the best thing I can do with our money of $60K?

Sidenote: let's say you buy a fixer upper for $40K, fix it up for $8K, now the house is worth $80K.

Also what are the advantages of BRRR vs Traditional?

You refinance it and take out a loan to purchase a second home. 70% of 80K is $56,000. So you buy another fixer upper for 50k, fix it for 6K, and refinance again to buy a new home.

This is how BRRR works, right? Am I describing it correctly?

Hi @Waleed Asad , you'll be able to invest in real estate in several different ways sooner and later, but a few of them will be much easier if your credit score is higher.  

The simplest path to growing your $60k at this point would be to be a Private Money Parnter with someone else's deal.  People are always looking for funding partners and if you can keep your capital deployed it would not be unusual to earn 10% a year like this, no matter your credit score or current job.

If you want to directly  own the real estate you invest in then you'll want to get the score up so that you can either use a loan to purchase it (either a mortgage loan or a commercial loan - they're both more or less based on you as the borrower), or so that you can refinance it.

Sidenote:  IF you buy a house for $40k and put $40k into it, if it is only worth $80k then there is almost no advantage over simply buying an $80k house.  Actually, it's mainly a massive disadvantage:  it is a more complicated, risky, and expensive path to owning that house.  

What you want to hit is this:  buy a house for $40k, put $40k into it and now it's worth $120k.  Now when you go to refinance it the bank says "okay Waleed, your house is worth $120k, we'll loan you 75% of that, so here is your $90,000."  Rinse and repeat.

@Will Fraser

Thanks you Will. That's very helpful. I suppose I just have to get my credit up then.

How do I purchase a property that will appraise significant after repairs are done?

Also, will be credit score be taken into account when getting a refinance loan?

@Waleed Asad Welcome to real estate! To get an overview of the BRRRR method, pick up David Greene's book BRRRR right here on BP. Then you can start filling in the gaps from there like (guides below):

Lending strategies for BRRRRs

How to avoid refinance issues

Here is also a guide on how DTI impacts your ability to get a loan (might help you strategize to raise your score). PM me if you have more Q's.

Originally posted by @Waleed Asad :

@Will Fraser

Thanks you Will. That's very helpful. I suppose I just have to get my credit up then.

How do I purchase a property that will appraise significant after repairs are done?

Also, will be credit score be taken into account when getting a refinance loan?

It's my pleasure!

Credit Score will always be important when purchasing using financing, unless you are looking at Hard Money Loans.

Finding properties that will be worth more after renovation is a big topic.  I'd recommend reading as many BiggerPockets books as you can and you'll get a sense of how to achieve this.