Looking To Get Started
Hello everyone. I have been reading over the board and its archives for the past several days after coming across it online. I am looking at getting started at Real Estate investing as soon as possible. I currently am working full time in the computer industry so I will begin this process as a side to my current job, until hopefully at some point down the line, I will be able to focus all of my time on this venture. I am currently 26 years old and recently purchased my first home. I have many questions from those who have experience. I will start by explaining my situation and asking for pointers or suggestions from anyone. I am 26 and engaged. I have just recently purchased my first home, but did so without considering it as an investment property, moreso as house that my future wife and I could live in for 5-7 years, and then upgrade...much of my knowledge on the subject has come through recent reading up and learning about the different strategies that are out there. I currently would like to partner with my best friend to get started in real estate investments. We both bring benefits to the table, and have worked with each other over the past 12 or so years, so the trust and partnership is solid. I have access to money for down payments/closing costs, whereas my partner has good credit rating. I currently have my first house mortgage in my name, so I am not sure how much 'credit' I can bring to the table. We are looking at starting small to get ourselves in the game, possibly start with looking for a rental property to hold, then sell in 2-3 years. Is this a good place to start? We have also considered getting into wholesaleing, but we want to start somewhere we can get comfortable and move from there. Would we have to get a loan for No Owner Occupant if we are solely going to use the property for renting? My partner currently rents and would rather remain renting until we get some property under our belts. What disadvantages does NOT living in the first property give us? If he were to decide to occupy the property instead of paying rent, what would be a good way to purchase our next property if we decide to then rent that first property out? How long would he have to occupy the house before we could then rent it out, if our loan was an Owner Occupant loan? Thanks again for any help or suggestions, we are excited to get started!
Way too many questions for me to answer them all. I will cherry pick.
Good points:
1. You are doing research
2. You bought a home so you get to see a deal up front
3. You seem to have reasonable expectations for starting
4. You have a position that provides extra funds investing
Weak points (most are totally expected at this stage
1. You do not understand the process lenders when they look at OO vs. NOO
2. You are unsure of your present credit situation
3. You have no landlord experience but you want to own rentals
All the weak points are entirely expected and just fine if you pace yourself.
To follow a lead you provided...
One option would be to buy a rental that your partner moves into. He would be seen as the OO and therefore the loan deal would be better. If he was to rent 1 or more bedroom you get a hybrid situation and his cash flow would be better.
You need to be very clear about how each deal will be handled. Plan for things going badly. This could be a minor disagreement about paint colors or it could be something much more serious. It might not even be something intended (death, job relocation, other health issue, change of marital status) so have exit strategies. Assume that is something serious happened you might have a complete stranger reading the agreement as part of an estate or similar so make it clear. Not a complex legal agreement but something that works in most all situations.
John
[addsig]
Thanks for the quick reply! At this time we are both reading up and doing research before we move on any deal. We also plan on forming an LLC or S-Corp, depending on which strategy we decide on. I am just learning the ins and outs of OO and NOO loans, we want the best possible loan possible, but we don't want to miss out on a chance to increase cashflow/ gain more properties should other opportunities arise.
My current credit situation is really just uncertain because of the fact that I just closed on my first house. I know I was able to get a A loan on my first house, possibly because I put 20% down. I am just not sure where this leaves me when it comes to obtaining more financing on additional properties.
We are both open to other strategies besides buying and holding for rental purposes, we just want to get started in a manner that will provide the best path for success.
Another caveat of our situation is my fiance is currently studying to become a licensed real estate agent. I have read some pros and cons to being licensed when focusing on investing. Any opinions or advise on this for our situation?
Thanks again,
Eric
Eric,
You've got lots of things to think about. I would begin by thinking what particular niche you are interested in. Is it rentals, multifamilies, rehabbing, wholesaling or maybe a combo of all the above. From your situation it sounds like you have some decent options. Are either of you handy and able to do basic remodeling? One thing to consider which is something I'm personally doing is to find a 2 or 3 family that needs some rehab work on it. The shape of the property is to be determined by your abilities. If you can buy it properly as OO and rehab a couple of units, you should be able to cover all or most of your expenses from the increase in rents you can now get. Have your partner live in one unit almost free and manage the building. You'll gain valuable knowledge on rehabbibg, rentals, propert management , etc. From there you still have a variety of options.Do an exchange, sell the building with higher value due to higher rents, hold the property and use the equity to purchase another similar building, refi and pull equity out for the next project etc. I'm currently doing this and it's amazing the options it has allowed me to pursue. I would also tell you to read, read, read some more. There are lots of good books out there.
Good Luck! and feel free to e-mail me if you have any questions.
Mike
Thanks for the replies. Considering the possibility of starting out with a rental to get our feet wet, if we were to secure financing as "Owner Occupied" and my partner moved into the property so that we can fix it up, etc; for how long would my partner have to live in the property before we could start renting it out and moving onto next property?
Also, don't forget that you can borrow against your home in the future. You can refi cash out for investments, just in case you weren't aware of that. Where I work, alot of investor loans are cash out refis on their primary residence, next thing we know, several months later they are then able to cash out refi on several properties
Any ideas on how long a home has to be 'owner occupied' before you can safely start renting the house out?
Zaxdad hit it on the head get a 2-3-4unit with renters already in place, one empty ,and OO, moving your partner in, keep reading, reading, asking questions, rehab if needed, or just get use to mange.prop for starters. in which case i would be looking for a desirable area in which your partner would be comfortable living in for awhile,gain a little equity,then pull and reinvest trying to go NOO, renters already in place,just a suggestion,from Noob himself that started that way with his brotheras partner,we are now 3unit, 4 rows strong with positive cash.
Good luck in your endevours
austintxeric good to meet you.
I don't think there is any time frame for renting it out. You just have to intend to live there. After a while when the next one comes up you can move to that one and rent the other one out. I would wait 6mos. to 1 year between moves so that the bank doesn't think that you do not intend to live there. I have done this many times with low downpayment using first time buyers and then a FHA loan, etc.
As for your credit, it sounds like you are on your way to fine credit. Buying a house will help your credit and increase your chances of getting another one. Just walk into that bank thinking it can be done and it will probably happen I have found.
Good Luck!
Jeff
Can I make a suggestion here? Break these long paragraphs up into smaller chunks with a carriage return or two. Some of us have eye's that aren't too good, and when we see long paragraphs that aren't broken up, we tend to skip those posts, even though we'd really like to read them and learn with everyone else.
Thanks from and old man
Robert
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Quote:
On 2004-06-08 15:32, austintxeric wrote:
Thanks for the quick reply! At this time we are both reading up and doing research before we move on any deal. We also plan on forming an LLC or S-Corp, depending on which strategy we decide on. I am just learning the ins and outs of OO and NOO loans, we want the best possible loan possible, but we don't want to miss out on a chance to increase cashflow/ gain more properties should other opportunities arise.
My current credit situation is really just uncertain because of the fact that I just closed on my first house. I know I was able to get a A loan on my first house, possibly because I put 20% down. I am just not sure where this leaves me when it comes to obtaining more financing on additional properties.
We are both open to other strategies besides buying and holding for rental purposes, we just want to get started in a manner that will provide the best path for success.
Another caveat of our situation is my fiance is currently studying to become a licensed real estate agent. I have read some pros and cons to being licensed when focusing on investing. Any opinions or advise on this for our situation?
Thanks again,
Eric
Eric,
Sure, I have some advice....(My wife is a Realtor also).
Look into HUD properties. Pick and choose and you can often get these properties under market value. Do a L/O on the property at full value, hold it for a year, then let you wife list it if the option is not exercised.
Now, the best part of this situation is HUD pays the Realtor 5%, and the majority of closing costs, even rate buy-downs. Your wife will make 5% of everything you buy from HUD, and you'll also get it sold for virtually free.
Now imagine doing one or two a month. Life is good.
Note: Your wife would be better off going with a company that only charges a desk fee as opposed to a cut of her profit.
Good luck, check www.firstpreston.com for a list of HUD properties in your area.
Matt
Thanks again for the replies.
I like the idea of HUDs, is this an area recommended for beginners?
Also, my partner and I will set up an LLC, but we are unsure on how to get our first property into the LLC. If we go with our plan of me fronting any cash needed for downpayment, then both of us cosigning on the loan and my partner moving in as Occupant for first year, could we purchase as an LLC?
Or should we just purchase the property with both of us signing, then worry about getting the property into the LLC when we decide to rent? Will lenders give us problems buying as Owner Occupied with both our names on the mortgage?
Thanks guys in advance!
Hey, Eric.
You don't actually have to "occupy" the home to get an OO loan.
You simply tell the lender that your partner is moving in. Lenders usually don't question intent to move in unless the buyer has additional investment properties.
And even if the lender raises concerns about OO, they only ask that you write the underwriter a quick letter of intent to move.
There's nothing illegal about this. There are no mortgage police that follow-up to see if your partner is living there.
[addsig]
Texas with there homestead laws will not let you cashout refi in the house that you are living in. I would look into what can be done to use equity, you may have to sell in order to get ahold of cash! Texas has strange laws when it comes to mortgages.