All Forum Posts by: Clark Kirkpatrick

I'd call around to a bunch of lenders first and find one who understands investors, then get your pre-approval letter from them.

Don't get more that 1 pre-approval. I did this and it's really dumb. You'll get several "hard pulls" on your credit report and that drops your credit score.

Then everyone will take you more seriously because you've shown that you can qualify for a mortgage!

Hi Riley!

Different people take different approaches to this problem, and there's no one correct answer. 

That said, in my view, you'd do well by taking a 2-pronged approach: both paying down debt and increasing your earnings as aggressively as you're able to, at the same time.

Here's an idea: sell your house and use the proceeds to buy a multifamily to house hack. That accomplishes both of these things at once: your debt is reduced because you've paid off everything from your old house (and I consider your primary residence to be not-so-good debt because it doesn't pay you money, like an investment property should) and also you'll be generating income from the other units you'll be renting to tenants.

This way you'll learn to do repairs and manage tenants and a whole host of important skills that'll serve you well going forward with this business.

Don't sell out of your 401k, because paying that much in taxes is seriously a bad deal. Instead, see if you can take a loan from it (ask whoever sponsors it - probably your employer. Usually you can borrow up to 50% of its value.) The downside is that you have to pay yourself back within 5 years with interest, so don't go overboard with this one, but if you're contributing to it anyway then that might take care of itself.

With the loan proceeds, pay off your highest-interest debt. Get rid of that ASAP - maybe the credit card debt? That stuff is toxic.

If you drive an expensive car, sell it and buy a cheap one. I'm your age and have a professional job as I guess you do, and my car is a 2003 Toyota Matrix with 100k miles on it. Paid $3600 for it, cash, and that drops your insurance payments each month in a serious way. You'll be less fancy but more rich. It's worth the tradeoff for Future You. That guy'll have an awesome car with no payments.

My 2 cents. Good luck!

Hi Kelly!

A credit score over 700 is sufficient. That's basically just a pass-fail metric, so it sounds like that's nothing that'll hold you back.

I think you should look for a house hack! That way you can put a small amount down and learn to manage tenants, do or coordinate repairs, and all the sorts of skills that will bring you success in the long term.

If you can get a place and still have a bit of cash reserves (at least $5k might work, but to be clear, that is NOT a conservative approach) then you might be off and running. Build that cash cushion back as soon as you can!

Good luck!

Taylor's got it right - you need to talk with as many people as you can who might be interested, but without soliciting anyone. Basically, act as a knowledgable and personable guy who makes people feel at ease and like maybe you will actually return their money to them under the terms of your contract. There's plenty of money out there, and lots of people who would be happy to invest passively in real estate with someone knowledgable like yourself.

And find a good RE attorney who can guide you with the SEC stuff.

@Taylor L.  if you have a minute, could you tell me what characteristics define a deal where a preferred return does or doesn't make sense? I'm trying to work through this myself right now.

Thanks in advance!!

Hi Brian!

I'd wait till it's fully occupied. Since it's a 7-unit, it's considered a commercial property, and therefore the value will be calculated using the income it generates.

This means that if it generates more income, it will appraise for a higher number. The amount the bank will loan you is based on the appraisal number, so if it appraises higher then you can pull more cash out of it.

Good luck!

Hi Joy!

If you can get through the paperwork for the 203k and you are or know contractors who know how to work with that program, then do that.

The 203k loan has favorable terms only allowed for owner-occupants, and I think that this can be very valuable for you because it'll let you avoid the high interest rates and points from the HML.

Use the HML for deals where you won't live there!

Good luck!

I have an opinion about this! My situation is similar, and I'm partway through the following steps myself. It's going well so far!

Steps in chronological order:

1. Find a house hack. Get a 2-4 unit building, live in one unit yourself and rent the rest out. Put as little money down as the lender will allow, and keep the rest for cash reserves and your next deal. This way you'll get into a deal for cheap and you'll learn to do repairs and manage tenants. Read How to Invest in Real Estate by Josh Dorkin and Brandon Turner.

2. Once you're comfortable with that (for me, 3-6 months later) go out and find your next deal. Ideally it would be a BRRRR, so you could buy the deal with cash and rehab it. Then you rent it to somebody and do a cash-out refinance with the bank, so you pull all your money out of that deal to use again. Read the book Buy Rehab Rent Refinance Repeat by David Greene.

3. Repeat step 2 until you're either too rich or too tired. Read Tax Strategies for the Savvy Real Estate Investor by Amanda Han and Matthew McFarland.

4. Once you've got a few deals under your belt, go out and find partners and investors - in other words, raise money for your business. If you can get good at this, your potential is unlimited. Read Raising Private Capital by Matt Faircloth.

5. Expand your farm area. Read The Book on Long-Distance Real Estate Investing by David Greene.

6. Retire and fund other people's deals. Read The Book on Real Estate Note Investing by Dave Van Horn.

Good luck!

One thing you could do is an equity deal, where you start an LLC with a partner and you jointly own the company. Make sure you have a rock-solid operating agreement. But if you can find someone who has some cash to do that with you, they could fund it and you could find and manage it - and possibly do some rehab as well. They'd be happy to get money for no work, you'd be happy to do the same work you were going to do anyway and be able to close on the deal!

Hard money loans that I've seen often are limited to 6 months, or maybe 12 months. That wouldn't work for a buy and hold, and also it'd kill your cashflow completely.

BRRRR is a great strategy, and if you're lucky and personable and can meet enough different people, you might be able to find someone who'd fund a deal 100% for you on a short-term hard money or private money loan. Then you pay them back after you refi. If you can't find that perfect lender, then you might have to scrape together 10-20% of the purchase price (but not the rehab price). That's inconvenient but better than conventional financing.

If you have equity in either of your other places, you could get a HELOC or refi one of them.

Just a few ideas. I've had similar situations, and I've had good luck with meeting a lot of people at REIAs and anyone else that I might talk to, discussing what I do and sounding like I know what I'm talking about (which is true). Money appears from unexpected places with people who want to diversify their investments. Be likeable and knowledgeable and sociable and you never know who will fund a deal with you!

Congratulations on starting to build equity for yourself! 

And if you're feeling industrious in a few years, you could always move to a new place and keep this one as a rental - or make it super nice and do a live-in flip! Live-in flippers save a lot on capital gains taxes.

A lot more options than renting!!

It depends on what you're good at, and how much you want to specialize.

A great flipper could have lots of off-market leads coming in, which would save the fees but keep the deals.

A specialist flipper might not want to handle the load of paperwork that comes with closing on and selling houses. I really hate that part of the process myself, and that's one of the reasons I haven't got my license (though I am still considering it.)

Also, if a flipper's specialty is finding, analyzing and negotiating deals, maybe he can get a better ROI on his time only doing those things, instead of doing showings and paperwork and coordinating with the title company and lender and all that sort of thing that's involved on the agent's side.

You could make the same argument for "why isn't every flipper his own GC? He'd save so much!" but that doesn't account for him getting really good at an aspect of the business, and getting others who are really great at their parts of it to help out.

Not a bad idea having your license as a flipper though!!! I'm only playing devil's advocate here. It really depends on how you think your time is best spent, and what you're good at.