Plan to not fail.

[soholingo]

My first post: 

I have been researching this stuff for years, my life is finally in a place and so is my mind, that I believe and can see myself collecting rents and grabbing my $100 of cashflow a month.  My first plan is to simply buy 1 home and collect rent.   I would like to do this by the end of next year.  Second goal would be to learn the business and and buy a total of 10 homes during the next year or so.  After that I will reevaluate my situation and decide if I shouild go commercial, stick with single family homes or buy multi unit buildings.  Time frame for all of this is 5 years.
I can see it as if it were happening today.

Here is where I am today:
$15000 in revolving debt (only debt)
$100k in equity in my primary residence.
credit score of 593
Steady job that pays all my bills that allows me to save $200 a month.

Here is where I want to be in a year BEFORE I buy my first house.
$0 revolving debt
$105k in equity in my primary residence
credit score 650
Steady job that pays all my bills that allows me to save $500 a month
Enough money in the bank to invest in rental properties $100k??

How I plan on getting there:
Credit score: Pay everyone on time and pay off all debt and dispute the two erroneous collections on my report.
Investment money in the bank: That's the tough one, but I can bird dog and invest my money with another realestate investor that gives great returns and turn arounds on my invested with him.  Part time work and try to save $1000 month from my job.

I am clear that no money down is a technique that I am going to need to learn.  My primary goal is to find a property that will allow me to meet the mortgage payment with 50% of the rent.  I want enough reserves that I can survive the initial learning curve.

How sound is this plan, and what would you tweak?

Jay

[Bluemoon06]

Your plan is fine.  You don't need to wait until your revolving debt is 0.  You will need a credit score of at least 650.  Don't spend the cash (you need to have 6 months PITI in the bank but all they will do is look at it you don't spend it). 

Where are you?  Real estate is local.  We can give you better advice if we know where you are.  Our advice is different is you are in Oklahoma City than if you are in Oakland California.

[soholingo]

I am in the Baltimore/DC area.

I needed to hear the 6 months PITI in the bank tip credit score of 650. It would be nice to have a check off list of items that would need to be in place before trying to purchase rental property.  That becomes your goal until you are ready to purchase.

[gilbequick]

Quit planning not to fail.  Plan to win!  There is a difference....it's all in the mindset. 

Just because you don't have all of your "goals" in place yet, don't let that stop you from starting.  Sometimes getting that first deal takes a while, so be proactive and keep your eyes and ears out.  If you haven't already, join your local REIA, it'll help more than you think.

[GOD WNZ]

Quick thinking Gil,
 And good too. Plan to win, fill in that report and then you will be half way there.
Soho.......You have an awesome plan. Now remove the parts that are keeping you from actually investing or creating wealth.
When I did my first deal Iwas making $6.50 an hour picking weeds for a friend,maybe 30 hrs a week, under the table, I had no phone in my apartment.couldn't afford one.  So I negotiated my first deal at a pay phone, nothing down, owner contract and made 93 thousand dollars. Yes 93k.
My Plan was:
1. Find cheap under valued owner contract home.
2. Sign contract.
3. Resell property ASAP
4. Repeat.

You may find some of the Items on this list helpfull......
Once you do one deal that throws off money/profit you will realize the snails pace which is in your original plan. With respect, move your second goal to first position and add the words "implement Now"
 There are so many properties to purchase from motivated sellers ! With an aggresive advertising program to get motivated sellers to call you...You will be able to cherry pick and design the contracts in your favor.
And stop scaring the other investors by saying dirty words like "steady Job"Part time Work"and "my job"
 We have all been there and have gone through rehab to help us forget those days.
 Have fun, Darin

[soholingo]

Thanks Guys.

I chose the phrase "not to fail" specifically because I am not sure what it is too succeed in real estate.  So I won't fail in buying a property, and renting it out for $100 cash flow within a year.  I am driving around looking at properties, etc...  But I thinking joining the REIA in my area will help a lot I will do that today.

My primary concern is getting and having enough money/resources so that I can survive vacancies and damage in the first rental.  Buying and selling and buying and selling only interests me in as much as it helps me buy rentals.  (Perhaps it will change but that's where I am today).

Jay

[soholingo]

Well I have been working on my plan, and today I found out I have an unexpexted bill $10k.  I am more than a bit miffed as i had planned on doing something by this time next year.  This is one of the reasons why I want to be out of debt first, and have cash reserves.  I was about to pay off two credit cards(after using 15% of my salary to pay down debt) and put a bit of money away, but now that plan is shot.

What do you guys do to overcome these unexpected bills? 

(I shudder to think what would have happened if I had a second mortgage payment)

[soholingo]

Not sure if I should continue to post to this thread, If anyone is reading it let me know... 

[Rich_in_CT]

Not sure if I should continue to post to this thread, If anyone is reading it let me know... 

Keep posting, we're interested to see how you do.

[soholingo]

Plan is working just as I was hoping...  Today I received notice that my credit score is up to 617!!!  Not where I want to be, but its progress.  I will have two more credit cards paid off by the end of this year, maybe sooner.  At any rate the plane is to be ready come summer of 2008.

[soholingo]

Ok, Now I am a bit confused.  I just pulled my credit report from a different place.  A place that will let me monitor all three credib bureaus, and my credit is 633, 666 and 693.  The credit bureau that has me listed as 633 is the same that lists 617. 

Anyone have any idea as to what's going on?  Which should I believe?

Thanks,

Jay

[soholingo]

Moving right along.  Credit score is now up to 630 with experian.  (I have been monitoring all 3 agencies and my score is the lowest there PLUS they seem to be more active).

I will be paying off my credit cards within the month, and will soon be saving $500 a  month. 

Next step will be to get a HELOC for 100k.  (if possible).

[harriet]

 good going soholingo. hang in there . have you cinsidered wholesaling, to help speed up your progress? 
harriet(fl)

[Mdhaas]

Being on the mortgage side of the business I would caution putting a lot of weight on your "consumer" credit scores.  They are great for tracking your upward progress.  However, they are not necessarily indicative of your "true" qualifying credit score.

More often than not, the numbers that we see are lower than those pulled by the consumer.

[Dave T]

Here is where I am today:
$15000 in revolving debt (only debt)
$100k in equity in my primary residence.
credit score of 593
Steady job that pays all my bills that allows me to save $200 a month.

Here is where I want to be in a year BEFORE I buy my first house.
$0 revolving debt
$105k in equity in my primary residence
credit score 650
Steady job that pays all my bills that allows me to save $500 a month
Enough money in the bank to invest in rental properties $100k??

Soholingo,

Just a couple of observations.

I am guessing that you already have the steady job that pays all your bills and allows you to save $500 per month.  The problem is your credit card debt.  Eliminate that debt and I bet that once you get those credit card payments out of the way, you will have more than $500 discretionary income to put in savings each month.

If you have $100K in equity in your home, how much debt do you have?  Just for discussion let's say your home is worth $300K and you have a $200K mortgage loan balance.  The ratio of your loan balance to your home's appraised value is what the lenders call loan to value (LTV).  In this example, the LTV is 67% (with rounding).   My bank will only give me   a HELOC up to 80% combined LTV.  This means that the total of my first mortgage balance and my HELOC loan can not exceed 80% of the appraised value of my property.  If your bank also has this limitation, then in this example,  80% of your home's value is $240K, so with a $200K mortgage balance, you would be limited to an additional $40K in a HELOC. 

In today's lending climate you may find that lenders are becoming much more restrictive in their lending.  There is only so much money available to lend these days (CountryWide ran out last month), so what money is being loaned is first given to the borrowers with better credit scores than 650.  I would shoot for a 720 or better -- make yourself a "A" credit borrower to get the best loan terms available. 

I am not saying that a 650 score can't get a loan but they are getting more scarce.  Loans given to a 650 score may have higher interest rates, higher loan points, and higher downpayment requirements than a borrower with an A credit score.

If you have any credit card offers that have 0 interest on balance transfers for some introductory period of time, then get that card.  Transfer as much of your credit card balance to that zero interest rate card as you can pay off in full within the zero interest rate period.  Do that by applying the maximum amount of money that you can to your zero interest rate card, while making just minimum payments on your other credit card debt.

While you are paying off that zero interest balance transfer, don't use that credit card for anything else.  If you still have credit card debt after you have paid off your zero interest balance transfer, take each of your higher interest credit cards and divide each card balance by the minimum payment required.  Use as much discretionary income as you can to pay off the card with the fewest number of minimum payments first.  With that card out of the way, then you will have even more discretionary income to attack the card with the next fewest minimum payments. 

For example, let's say you have $500 discretionary income you can use to pay off three credit cards.  The first has a balance of $5000 and a minimum payment of $200 per month, the second has a balance of $2000 and a minimum payment of $50, and the third has a balance of $8000 and a minimum payment of $350 per month.  If you divide the balance by the minimum payment, then you will need 25 payment to pay off the $5000 card, 40 payments for the $2000 card, and 23 payments to pay off the $8000 card.  You would just make the minimum payments on the $2000 and $5000 credit card balances while applying all of your $500 discretionary income to the card with the $8000 balance.  In about ten months that balance is paid off.  Then you have $850 to apply to the next credit card since you won't have to make that $350 minimum payment any more.

Just something to consider if you don't already have a plan.