Seeking Novice Advice.
I read once: Your first purchase must be the most important one to success !
I have spent many hours searching what's the best way to start our real estate business and decided to start with single family homes. Originally our idea was to buy a property in Vegas area <$200K using our savings (20%) and renting out. As I learnt more I understood that the traditional method is not necessarily the worst, it will be the one that takes the longer for us to recoup our investment. It is our goal to buy a couple properties a year, I have a good job that can help me save for another property but it will take me years before I could put another 20% down.
After reading Mr. Green's book about BRRRR I understood this was the best way to get investment back or more to reinvest. However I am not still clear how to finance that property, certainly I dont have enough cash to finance the deal and then financing the restoration.
So here are my questions,
Savings (Cash on hand): $40.000
- How do I finance the rest of the funds to complete purchase?
- How do I finance the repairs?
- Where should I apply my savings to?
- Any suggestions of what material to read, hear, or watch so I can improve knowledge?
Finally , it is my understanding that once the rehab is done and I get tenants on the property. I can refinance the property and repay pay the purchase and rehab lenders. How is there money left for me to reinvest? Do I need a down payment when refinancing?
I truly appreciate all of your comments and suggestions.
#3 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
1)You will have a VERY HARD time finding a decent $300k property, probably closer to $400k. $200k went away in 2019-2020.
2) I think most agree that your first property is your least important property. As long as it’s not so horrible it chases you out of real estate. People used to pay $10-$50k to learn real estate. If you can buy one that makes $1 the first year, you’re way ahead and the future is bright.
3) the easiest way to get started is to buy yourself s new primary home with 5-20% down, live there for a year, and then rent it out and buy a new primary. Making it your primary gets you the option of 5-10% down and lowers the interest rate by at least 1/2 a percent. Saving you $500/year per $100k.
We evaluated the option of buying our primary home, but decided not to follow that route. It is important to mention we live in southern california and $40k for a 10% down wont set us anywhere with the current market. Unless I buy in the desert, inland or seriously far from work. Additionally we live in Orange County and I cannot move out of here for the next 2 years. It will be impossible to find a property in OC for $400K adding that we are a big family and need 3 to 4 beds.
The more we saved the more we needed in this market, reason why we decided to put our money to work in cheaper states, and postpone our own home. We would like to have a steady source of rental income to cover our own mortgage or bring extra cash while building wealth.
Rafael, happy you are getting in the game, brother! A few suggestions for you to consider:
1) Don't overhype your first property in your mind – this can create analysis paralysis. Your goal with your first property should be to buy a solid investment that you learn from. You take the knowledge and cash you gained from your first property into your 2nd, 3rd, etc.
2) BRRRR is a great method. Are you a contractor yourself? One of the biggest problems a lot of new people have with BRRRRs are the renovations take too long or are too costly. If you are qualified to do some of the work yourself, you have a leg up on everyone else.
3) You can finance a big purchase and rehab with a hard money loan. Essentially, hard money is a high-interest, short-term loan that is based on the sale or refinance of an investment property. Example: If a property costs $300,000 to acquire and $50,000 to renovate, your all-in costs would be $350,000. You can find some lenders who are willing to lend up to 90% of that acquisition cost ($315K loan, so you pay $35K at closing). You would be responsible for monthly interest payments and holding costs, but this would allow you to leverage a hard money loan to start your journey.
Absolutely do your own research and call around for different lenders' rates, but this is doable. DM me if I you need any clarification. Take care, my friend.
@Rafael P Martinez- consider with 1) putting min down and using your remaining cash to remodel or 2) FHA rehab loan