TL;DR: If you were just starting out, with basically zero debt and costs, a low six-figure salary, and $140,000 to invest, with a desire to get into real estate, “connections” to a team of contractors and a great real estate agent specializing in distressed investment properties… What would you do?
Background:
I have a low six-figure salary and managed to save $140,000 over the last four years. This $140,000 is after leaving a safety cushion, etc, for myself. I want to get into real estate and already looked at a few houses the other day, with an agent who I trust and is on the same page. I’m receiving advice and help from family members, the agent, my financial advisors, and I’m reading books, watching YouTube videos, listening to podcasts, reading BP forum posts and other websites, etc. I’ve been “studying” real estate investing for a few years now.
I'm close to making a purchase - as soon as I find a deal that financially "makes sense", I want to "pull the trigger". I've got my accounts set up to send the money into a title company's escrow account, and I'm in the process of setting up an LLC. With that aside, I'm not quite sure just how I should strategize. In a few months I’ll be living with family and paying $0 rent, which will boost my savings by over $2000 a month, though eventually I’ll want my own space - I’ll probably house hack, once I’ve picked an area I’d like to live in for a few years.
What I’m not sure on is, how I should handle financing my first (and subsequent) property purchases. I have enough money to buy a property in cash ($140,000), but the problem I foresee is that my capital will all be tied up in equity. I'd like to be able to borrow against that equity, by either using a HELOC or getting a low interest rate mortgage against the property, however from my research I've found that it's not very "easy" to get one's capital out of a property "quickly". It seems I either have to wait half a year for "seasoning" (that Fannie Mae thing) so that I can apply for financing and get a mortgage on the property, or I take a financial hit with deferred financing, leaving 25% of my capital as equity and recouping only 75% - this seems to especially suck since I wouldn't be able to take advantage of a hypothetical higher-than-purchase-price ARV.
Another strategy I saw, by one of the Kwak brothers, was to buy a "nicer" home, then use the equity from that in the form of a HELOC, in conjunction with savings, to buy several rentals. Then divert the income from the rentals to pay down the HELOC, and then focus on paying down the principal on the various investment properties' debts, ideally creating a snowballing effect where multiple properties help pay each other off.
Do people just “bite the bullet” and accept slower business timelines when they only have enough capital to purchase a single property at a time? Obviously if I could use leverage to buy distressed homes, I’d be in a much better position, as my $140,000 could then be split among several down payments. But from all the research I’ve done, it seems I really want to be making cash offers with 100% of the home value. Which, I can do, but then, like I said above, will leave all my capital tied up for quite some time.
I would appreciate any tips and all advice!
