Beginning With Nothing But Credit
As a person who has the motivation to be an REI, how do you know if you are equipped with enough knowledge to enter into your first deal. The market I live in is filled with very educated investors that do not want to part with their knowledge. I have "A" credit but less than 10K in cash. I was going to buy a house for myself but am thinking about finding an investment to rent out.
You never have enough knowledge, but when you close your first deal you know your on your way.... If you have 10k and good credit you are definately on your way....
Join an REI club and rubs some elbows
You best bet...talk with lenders. Find out details. Maybe get preapproved for a mortgage of x dollars. Then go look. Submit offers. Ask the seller to carry a second mortgage. If the seller is motivated and/or your price is right they might be willing to do that. Asking a seller to carry a mortgage takes some power away from your offer, but make it worthwhile. In my offer for a duplex I had the owner carry a second mortgage- 8% interest on $10000, principle due in 5 years. A bit much, but the property has a 30% net profit on rent per month, so I could afford it. I was able to but the house (including closing costs) fro about 7% of the asking price.
Man, you are so much better off than most here, even including myself when started out.
Truthfully your possibilities are endless because you do have great credit and some cash. I wouldn't go dumping the cash or credit onsomething you don't know how to do, but grab one topic that appeals to...just one and learn it. Then try it out for a year or so, if you don't like it then learn the next one. You will make money, but the point is that you will give yourself a chance to find different avenues that will work for you.
The Solutions Kid
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It took me 27 years to realize that every time I was picked on, called names, tormented, and lauged at, it was all because I was one-of-kind and unique. Through all my torment, I never noticed that no one ever picked on the "normal" kids...no one.[ Edited by rajwarrior on Date 10/27/2003 ]
You'll probably never feel that you have enough knowledge to "make your first deal." However, there will be a point where you know that you have enough to do one, you just have to push thru the fear of doing a deal.
Also, if you don't own your own home yet, I'd suggest making that you first "deal." You can look as you would for investments, but have the freedom of 1)better loans for owner occuppied and 2) a cushion if the deal wasn't as good as you thought (if your living there, anything bought below FMV is good enough).
You could also buy as a owner with the intention to sell after 2yrs. Any profits an owner occupant gets after this is not federally taxed. Of course, this may not be the best method if you have a family.
Roger
"Also, if you don't own your own home yet, I'd suggest making that you first "deal.""
I've been considering this option to learn how REI works also, but I have concerns as to the impact this will have on my ability to secure financing to purchase the first rental property.
Obviously, I'll be using up part of my savings to get into a house, so I'll have less cash on hand for a down payment on my first rental property. Also, my DTI ratio will be higher, since I'll have a 75k mortgate tacked onto my credit. Is this impact negligble? Or is this where things like HELOC come in?
Obviously I could sell the home after 2 years and use the tax free profit to move into new rental properties, but 2 years is a long time to wait on RE appreciation to kick in, and the gains from that are negligible (I have no talent at rehab) when closing costs are factored in.
So would sitting on the house till the mortgage seasons then converting it into a rental property work well? From what I've seen, interest rates are better to buy your own home than for your business to buy a rental property, and generally you can get away with less money down AFAIK.
Any advice on converting a primary residence into a rental, or the impacts that has on finacing would be appreciated.
have you considered a 103% mortgage for your first house and save the cash on hand for later investments
I would suggest making your first purchase a "primary" residense that you could convert to rental later. You can do 100% financing and get great rates now. Your ideal situation is to find a duplex or triplex as you primary then in 2 years move out and have a rental.
Concerning the topic of making your own home your first deal.
Read Rich Dad Poor Dad by Robert Kiyosaki.
Basically we are looking to become rich in REI. That is likely our modivation. Well the spending habits of the rich involve buying assets and using the assets for income.
Well if you look at it this way: assets are something that puts money into your pocket while liabilities take money from your pocket, then your own home is definatly a liability.
Using this path, you are off to a bad start, in my opinion.
There may be exceptions. For myself personally I am jumping into REI. I plan to own over 1.5 million dollars in real estate my first year. For the person who plans to take it slow over several years, your home could appreciate favorably.
Many have a famous quote that you make your money when you buy. I've been in a bind (am currently) in that if you purcahse a property hoping it will resell or hoping that it will go up in value, you don't have a very secure investment. This is the same mentality of those in the stock market. This involves a greater expertise than someone in rentals, for example. If the numbers work and you keep the units maintained and rented, its pretty simple to make money the day you buy. PLUS you can get the benefits of appreciation, etc.
My two cents worth! GOOD LUCK
frogger,
An asset is anything that increases in value (like a home). A liability is anything that decreases in value (like a car). What you are referring to is cashflow, and either an asset or a liability can be incoming producing (cashflow). It's been awhile since I've read the Rich dad book but I believe that this is covered in it.
I also seriously doubt that the $3M mansion that Kiyosaki's lives in is incoming producing. Likwise with his other homes. They are however, appreciating. Apprieciating properties give equity. Equity can be exchanged for $$$. And money of course, is what buys properties which in turn produce more equity, $$$, etc.
Personally, I'd be hard pressed as a buyer to buy from someone who doesn't yet own their own home. IF owning a home is such a good idea, why don't you?
And if you don't already have a home, as I said, looking for at as you would an investment will get you a) good experience b) a really good deal and c) the good deal gets you the equity needed to purchase more.
Roger