Need Help Getting Started (long)
Here's the situation. I have basically no money and okay credit (credit score in mid 600's). I am just itching to get my first real estate investment, but I'm fighting fear and indecision. I am currently bird dogging to raise capital, but I don't want to wait. After studying these forums daily for the past couple months, I have decided that reliable monthly cash flow is definitely more important to me than making big lump sums occasionally. I am bird dogging for one investor that does lease options and rehabs and one investor that invests in multi-family properties. Both have deals pending. I need more cash flow than what I'm getting bird dogging, and one thing I've read repeatedly on these forums is that there is always a way to make a deal work, even if you can't finance it yourself. Also, it's going to take an awfully long time to build up enough capital on my own through this method, especially if I want to invest in multi-family properties.
Having said that, I have concluded from my experiences with my investors and from everything I have read here, that I would really like to start my own investing career in multi-family properties. From what I've gathered (please correct me if I'm mistaken), commercial loans are easier to get (such as for 5+ units) than residential (such as for 2-4 units), except that you need more to put down in commercial loans. I definitely plan to use a property management company rather than manage the property myself.
I'm a single parent against my will, and I am having a hard time making ends meet for myself and my four kids, which is why I want to do something soon. I do have $10,000 equity in my home, which I'm not unwilling to tap into for investment capital, but I've only owned my home for three months and don't know how easy it will be to do this. Now, for my questions.
1. Many of you have mentioned finding a partner to fund the downpayment. What are some good ways to find and approach a potential partner, and can any of you give me some examples of real-life partnership arrangements that have worked well (i.e. what does each partner gain from the deal?)
2. I've already figured out that I won't be able to find a 100% loan for apartments. How hard is it to find a lender that that will allow a seller carryback to be used as the sole source of downpayment? Do most lenders allow this? I'm assuming it would be better to go to a mortgage broker than a bank?
3. Do I wait until I have found the property before finding financing, or do I get my financing set up first?
4. I have read that many of you feel that bigger properties are better due to lower prices per unit and management of one large vs. several small. Is this even true for a newby such as myself?
5. Should I search only within a certain price range, or does it matter as long as I do the numbers right? I do know how to do the numbers. I used Hibby's article to create a spreadsheet for this purpose. So my question is, if there is going to be a good positive cash flow, does it matter what the cost is? Will it be harder to get a loan for a higher-cost building, in spite of great cash flow?
6. Does anyone have any other suggestions for funding multi-unit apartments? So far, my ideas are as follows: keep bird dogging until I have a huge nest egg, find a partner, use home equity or seller carryback to fund the downpayment, start with single family properties such as rehabs and use that money for downpayment. I would love to hear other suggestions. I have decided that I am going to do whatever it takes to make money in real estate. Just looking for some good direction.
Thanks,
Candace
Partnerships for me have worked with either a 50/50 split through the term of ownership with an LLC, or a short term investment that is paid for at closing. For commercial enterprises, no less than 12% profit on monies made available gets there attention.
Seller carrybacks are rare, but not impossible to find. A good mortgage broker will be able to fund your deal with 10% down of your buy price, given your credit score and given your 10K in equity you can tap for a short term, anything under a million is available to you.
It is a catch 22 situation you usually cant get financing unless you have a deal. A prequalification from a lender comes in handy, but it will be filled with contingencies. The truth is you want your credit pulled as little as possible, so make sure your mortgage broker pulls it once. Also make sure that your mortgage broker has access to the underwriters. This way he can tell you yes or no, or what else you need to do before they pull your credit.
The reason the larger properties are better is that one vacancy for a 4 unit is a 25% loss. One unit vacancy for a 100 unit is only 1%. Also it is easier to manage as all of the units are together, in turn saving you money with landscaping, upkeep etc. This is a decision that you will need to make personally. I like bigger properties for ease of use.
Over a million is easier to fund than under a million. Under 10 million is easier to fund than over 10 million. Under 100K is near impossible to fund.
Your search should be within your buying power. If you partner, ask what they have liquid. If you dont then figure out what you can have liquid, and make your decision. This will also be dictated by what your mortgage broker can do for you as far as a down payment needs.
I would also like to hear some suggestions as far as getting funded. There are many ways, but am curious to see if anyone has any new ones.
You are definitely on the right track. And at the risk of swelling Hibby's head any larger, he is one of the better article writers on this site. So following his advice would be a good idea.
Good Luck,
Kyle