Just starting out

[jlspartz]

I'm completely new to investing.  My background is in commercial architecture, general contracting, and construction management.  I do not own any investment properties right now, just my primary residence.  I would like some advice in getting started.

There are so many investment strategies out there, which ones should I look into given my current situation.  I've been reading up of different strategies, but none actually tell you how much you need to get started.  They just assume you have the money, so I'd like to hear from people that do it.  I have free cash per month now, my credit is great so financing is no problem, but I don't have money to put down on places currently.  So which strategies can be covered by just financing. or little money down?

Some places near me are on the general market well below the assessed value, and maybe this is a way to get money to put down, by moving (since we're looking anyway), then doing a refi or HELOC and pulling out some equity.

Also, what could you point me to to learn more about contracts, rehab item ROIs (knowing what's most to least important), and taxes (keeping the most profits)?  Websites, posts, books?  Where's the best, straight to the point, down to earth advice on these?

I know I'm asking a lot.  Thanks in advance.

Jamie

[furnishedowner]

Jamie,

Here are my thoughts on your questions. First, you have found this incredibly good site, REI CLUB, with a huge breadth and depth of investors who make their living in real estate. You are lucky!  There are many paths. As far as I know I am the only one who exclusively rents out furnished homes. There are hands-off cash investors, rehabbers, landlords of all kinds, Realtors, attorneys, CPA's, lenders.

1.  You can not yet know what part of real estate will be the most enjoyable for you. Begin by spending 1-2 hours every day reading this site. You can click on the bottom of the page and follow many threads back for months. This is your free home study course with mentors.

2.  Get your spouse or significant other on board with your planning.  Real estate is a lot of hard work, long hours, usually started while you have another job. You're gonna need help. Do a lot of talking together.

3.  Shop for a multiple unit building for your next move. Look for a real bargain fixer in a great area. With your architectural and construction skills this is where you can increase your equity.  And owner-occupied financing is always easier to get. Enjoy your new space.

4.   Rent out your fixed-up units. Evaluate how you like that part of the business. You can furnish those units if you want to double or triple the rents.

5.  Now you will be able to evaluate the next step in your real estate investment plan.

Keep us informed of your progress. You are at the beginning of a big journey!

Furnishedowner

[justin0419]

I strongly suggest you call around to (or better yet - visit) banks in your area and ask them what their terms currently are for lending on NOO (non-owner occupied) properties.  You'll find that some of them have pulled out of that aspect of lending completely for now while others may want 15-30% of the purchase price as a down payment.  Your statement of having good credit so financing isn't a problem would have held true the past few years, but not having money to put down is going to limit you in this environment. 
Our first deal was a 6-unit apt building for $51,500.  The bank required 25% down.  Between that and the initial rehab/repairs we had to do to rent the two vacant units, we initially put in about $20K of our own money.  Depending on your market, you may be able to get into a SFH (single-family house) rental for much less money.  Most of the ones we're picking up now are in the $20-30K range and we were getting in for 15% down until our bank halted NOO loans.  We went bank shopping and found we needed 30% down with one bank and another is working up a proposal for us.  Those were the only two who would even work with us out of all the banks in our town of about 45k people.  We have 750+ FICO, stable verifiable income, and run about 28% DTI.
Furnishedowner made some great points.  Find the areas that interest you and start reading the threads from oldest to most current.  That way you'll get the most exposure to the material and then be able to keep up with current posts.  It is great if you can get your spouse / significant other to help you with things.  My wife went along with this when we started, but didn't really want to have anything to do with it.  Now she's completely into it and is a great help with everything.  Depending on your family size, it could be a great thing to find a building to buy and live in one of the units.  If it was just my wife and I, we could've moved into one of our apartments and still had the building take care of itself financially.  If you're going to do rentals (especially lower income ones), clean and functional is way better than ceramic and granite.  Don't over-improve for what it is. 
Since you don't have down payment money, either see if you can get some money from family (not my preferred or utilized method) or see if you can get owner financing.  The last guy we bought a house from didn't hesitate saying yes to owner financing when we asked about one of his other rental houses.

[mogulcomm]

what do you say to guy who is also getting started and has no ownership no downpayment or income .

[justin0419]

Now is the time to start educating and positioning yourself to be able to buy your own properties in the future.  You can bird dog and find deals for other people, but your opportunities otherwise will be limited because of no assets/income.  What kind of skills do you possess?  Can you provide rehab labor for another investor and work together on a house?  Maybe they have the financial assets, but you have the skills to bring that old house back to life and turn a profit.  If you want to start REI, get your own finances in order first.  Study and save all you can while you're doing that and then you'll have both the education and the financial ability to start doing deals in the future. 

[phlemboy]

Hi Jamie. Getting your financing options is a good place to start. Try to get requirements for different lending scenerios ( owner/non-owner occupied, multifamily, etc..) I'm assuming you have a decent idea of the cost of rehab/renovations. You may find some motivated and flexible sellers of rehab properties. You may be able to do a lease option, land contract or owner financing to gain control of the property. You could rent the properties and then refinance after the improvements. You may be able to tap into some of the equity in one property to invest in another. Just be sure the property can still TRULY cashlow after the added debt. This could help get you started and in time you should start investing the cashflow from other properties as a down pmt. to any new properties you acquire. You don't want 10 properties with no equity. The less you owe, the better off you'll be. You'd probably have to buy properties at a 50% minimum discount and probably have a LTV of about 75% after the improvements and refi.  Here are some books I've helpful in rental properties. There are many others but you should read these before investing any money.

1. "1 Minute to Rental Property Riches" by Mike Rossi, (aka Propertymanager)
2. " Find it Fix it Sell it!", Ken Meyers. Good ideas on rehabbing, flipping, financing etc.. You could use the ideas to either fix and sell or rent it out.

3. "The Millionare Real Estate Investor" by Gary Keller.

I hope this helps. Good luck.

[AJ290]

My advice to most new real estate investors is to give options and lease options a good look.  They are easy to understand, require little to no capital to get started, and are virtually risk free.

[jlspartz]

Thanks for all the creative thoughts.  I am planning on getting my wife involved.  Since I make 85% of our income, it wouldn't be bad to get her doing it full time, once we get going.  A place that's 20K-30K is almost non-existent where I'm located.  Starter homes within a 30 minute radius of me are around 150K, anything less is in high crime areas, and that's why it's hard to come up with a down payment.  So, I might need to go a little further, maybe 45-50 minutes (where they are half that price) to start, as long as the area's market is good, but it's more of a hassle with the distance.

Phlemboy, I will check out those books, thanks!  And the website Donrock.

So, what it looks like I need to do next in research is:
1.  Check NOO loan percentages and financing options.
2.  Look into options, lease options, and owner financing.
3.  Learn from all the knowledgeable people on this website.

I do my own taxes right now, and I have an LLC started because I know you can save a lot going through that instead of direct, but don't know all the strategies and deductions that can be done.  Does anyone here do that, or does everyone go through a personal accountant?

[Jeff Corpuz]

Getting started in real estate with little money ($100-$1,000) will require you to
master creative structuring.

I would advise that you start out with creative real estate and "in and out" type
of deals. This will allow you to get creative and to figure out how to make deals
work.

Start with learning how to wholesale, do lease/option flips, then move into other
methods and techniques.

You want to eventually become a transaction engineer. You will eventually be the
rainmaker for your area doing deals on a monthly, if not weekly basis!

The important part is to take ACTION. You won't get anywhere without taking
action...

[justin0419]

I do my own taxes right now, and I have an LLC started because I know you can save a lot going through that instead of direct, but don't know all the strategies and deductions that can be done.  Does anyone here do that, or does everyone go through a personal accountant?

An LLC won't save you any money, but it will likely cost you more money.  You'll have your annual fees on it as well as you may not get as good of an interest rate on your loan.  Some banks won't even loan to an entity.  Your expenses on a rental property can be deducted regardless of if you have an entity or not.  You can still depreciate too.  Standard depreciation schedule is 27.5 yrs on residential real estate (4 or fewer units) and 39 yrs on commercial (5 units or more).  You can only depreciate the portion of your cost basis attributed to the value of the structure.  You cannot depreciate the land.  Save all your receipts for expenses associated w/ the property and claim applicable expenses.  Keep track of your mileage going anywhere related to your property (to the hardware store, bank, work on property, etc).

[jlspartz]

For clarification on doing lease options, do you mean I buy lease options from the owners and then turn around and rent them out myself, or do a lease to own contract with others?  At the end of MY lease what happens?  I would need to get a loan to purchase it or lose it?  And obviously if the owner is doing a lease he must know something about investing, so how do you get a good deal?  Not that I doubt any of it, but I don't know how it really works from an investment side, only the buyer and seller sides.

Justin, thanks for the insight into the down side of a LLC.  As far as depreciation of property on taxes;  at sale time, do you have to pay those taxes back since you are claiming it depreciated, but the sale says otherwise?

[slipring]

what do you say to guy who is also getting started and has no ownership no downpayment or income .

mogul,

In my opinion, sub2 or owner financing would be the way to go. Literally no money or income required but would be helpful. You may want to listen to $Cash$'s interview in the audio section and read his articles and post's. I probably spent a year on the reiclub boards educating myself before attempting to do my first deal. After you've educated yourself, go out and do it! Education/knowledge is useless if not applied.

[justin0419]

Justin, thanks for the insight into the down side of a LLC.  As far as depreciation of property on taxes;  at sale time, do you have to pay those taxes back since you are claiming it depreciated, but the sale says otherwise?

Depreciation lowers your cost basis for the property - meaning you'll get taxed on more capital gains when you sell.  You can raise your cost basis to offset this by property improvements.  Even if you opt not to depreciate, there's still a recapture when you sell whether you depreciated or not so you may as well save some on your taxes from year to year.  Others on here can probably explain this more clearly...

[Gold River]

Become a partner with a couple of other investors who have money (Cash), good credit and potentially need a partner with construction experience.

I flip properties as one of my methods of investment. Buy, rehab and sell.
 I am a partner with a number of cash and credit partners.

[Makin2million]

Has anyone done any subject to deals? I have a possible deal in the works and I don't know what contracts to use.
Thanks!