Newbie to Real Estate Investment?

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nogames1999
Posts: 29
Joined: Tue Apr 05, 2016 10:52 am

Newbie to Real Estate Investment?

Postby nogames1999 » Mon Jan 09, 2017 4:36 pm

I am very new at investing and looking to earn a second income. I have been approve for financing to buy an investment property aside from my own home. But the way it looks, I am not going to make any money off of the deal. I estimated the following:

180k finance from bank with 6% interest rate
monthly mortgage 1200 - 1300 per month until it is rehab and sold
purchase price less than 130k
Rehab is included in the loan of 180K. rehab would be 50k or less
down payment 5% down that averages out to be 9k
about 15k spending at settlement at the end of the project

I would have to sell the house for over 260k. I don't have a house in mind yet just the financing and looking for something in Maryland, PG County

Am I realistic?

brad.clarkston
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Joined: Fri Jan 03, 2014 8:31 pm
Location: Kansas City, MO

Re: Newbie to Real Estate Investment?

Postby brad.clarkston » Mon Jan 09, 2017 4:50 pm

Honestly if I couldn't pay full or at least 50% in cash down I can't see it as being easily profitable.

brad.clarkston
Posts: 451
Joined: Fri Jan 03, 2014 8:31 pm
Location: Kansas City, MO

Re: Newbie to Real Estate Investment?

Postby brad.clarkston » Mon Jan 09, 2017 4:52 pm

I just had another thought (sorry) have you looked into crowdfunding real estate ?

A couple I've looked at are https://www.realtymogul.com & https://www.realtyshares.com but I haven't pulled the trigger yet.

White Coat Investor would be the guy to hit up on that as he's doing it now. Check out his blog.

evilityb
Posts: 126
Joined: Wed Jul 02, 2014 10:16 am
Location: The District of Columbia

Re: Newbie to Real Estate Investment?

Postby evilityb » Mon Jan 09, 2017 6:01 pm

Check out biggerpockets for real estate stuff. There are lots of people on there who can give you good advice but I personally find it to also be a lot of sales (eg. 25% of the webinar time is dedicated to selling you books).

Also, 6% interest rate?! That's high for the current financial climate.
Make sure the fortune that you seek is the fortune you need - Ben Harper

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Sandtrap
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Location: 19th hole.

Re: Newbie to Real Estate Investment?

Postby Sandtrap » Mon Jan 09, 2017 6:41 pm

nogames1999 wrote:I am very new at investing and looking to earn a second income. I have been approve for financing to buy an investment property aside from my own home. But the way it looks, I am not going to make any money off of the deal. I estimated the following:

180k finance from bank with 6% interest rate
monthly mortgage 1200 - 1300 per month until it is rehab and sold
purchase price less than 130k
Rehab is included in the loan of 180K. rehab would be 50k or less
down payment 5% down that averages out to be 9k
about 15k spending at settlement at the end of the project

I would have to sell the house for over 260k. I don't have a house in mind yet just the financing and looking for something in Maryland, PG County

Am I realistic?


This is a "flipper" speculation vs long term rental income.
You don't mention renting it after rehab/renovation so, given the description, there's no backup plan (secondary income).

Think of real estate investment property purchase as a 3 legged stool. Here's the test.
1
Can you buy a property and immediately sell it (before rehab or funds invested into it) for more than you bought it for?
If not, you did not purchase it for a good price.
2
Can you immediately rent it out for 4-6% minimum CAP, net? (think of this as ROI before rehab).
2b
In this case you're pondering a "flipper", so. . . . can you rent it out for 4-6% min. net CAP after rehab? This means "after" loans, etc.
3
Addresses curb value and not overpaying for a property.
Does the property and adjacent properties have a favorable history of property value appreciation?
In other words, how much % appreciative value per year over the past "x" years.
4
Optional consideration to investment property purchases: Do you have the "staying power" (large asset base and income stream) to weather the market fluctuations of value by renting the property out until you are assured to resell it for maximum value?

Play the "what if" game and play "devil's advocate".
What if "rehab costs" exceed my estimates? (they will)
What if this "flipper" takes longer to "flip" thus extending my debt? (it will)
What if . . . . . ?

renue74
Posts: 606
Joined: Tue Apr 07, 2015 7:24 pm

Re: Newbie to Real Estate Investment?

Postby renue74 » Mon Jan 09, 2017 6:59 pm

There are a number of XLS worksheets over at biggerpockets.com that will allow you to run your analysis.

I started buying rental property 2 years ago and have 4 properties and 2 seller financed "deals," for rental revenue streams.

The best advice I have:

1.) You gotta have backup cash. Things will break. The price to rehab something will always be more and take longer...always.
2.) Stay patient. Don't think every deal is a "deal."
3.) Look for the homerun. All my properties average 20% or more cash on cash. I would buy super low, throw $15K to $30K into the rehab and then cash out refi with an investor friendly bank. My last mortgage was 4.25%. They allow investors to take 75% cash out in a refi.

I'm not sure if you are flipping or renting...but with the new president coming into office, I'm not sure taking chances in 1st qtr. 2017 is the best choice.

travellight
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Location: San Diego

Re: Newbie to Real Estate Investment?

Postby travellight » Mon Jan 09, 2017 7:06 pm

You make money on the buy, not the sell. i.e., you have to buy really well at an amazing price.

Are you prepared to do the work and have cash reserves for all problems? If this was easy work, and made loads of money, everyone would be rich.

Almost Every remodel takes longer and costs more; plan for that.

Those who lost their shirts in the last economic downturn were those who were maximally leveraged, treading water, without great backup plans. Don't be one of them.

nogames1999
Posts: 29
Joined: Tue Apr 05, 2016 10:52 am

Re: Newbie to Real Estate Investment?

Postby nogames1999 » Tue Jan 10, 2017 3:44 pm

You all have excellent advice. I didn't realize how you all are so knowledgeable on this board. I did a flip about a year ago and ended up putting too money in it. I walked away with 15k. The house was 115.00 I paid too much money for it. put in 45k work of work. It was an end unit town house in Maryland originally listed for 107K. I had a bad contractor that demo the kitchen that really didn't need to be demo. I brought another contractor in that had to redo some stuff.. I definitely learned from that experience. This time, I wanted to try financing and use the bank money instead of my own just didn't know how could really make a profit. I have about 90% in savings of what the bank is willing to approve me for. This would be a flip project. I've ready reads books and so forth to blush up on what I know. I've just been having difficulties finding a contractor and good realty agent and building a good team who I can trust.

nogames1999
Posts: 29
Joined: Tue Apr 05, 2016 10:52 am

Re: Newbie to Real Estate Investment?

Postby nogames1999 » Tue Jan 10, 2017 3:56 pm

Brad Clarkson,
Thank you for the information. Never heard of crowd funding, what is it?

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Sandtrap
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Joined: Sat Nov 26, 2016 6:32 pm
Location: 19th hole.

Re: Newbie to Real Estate Investment?

Postby Sandtrap » Tue Jan 10, 2017 5:19 pm

travellight wrote:You make money on the buy, not the sell. i.e., you have to buy really well at an amazing price.

Are you prepared to do the work and have cash reserves for all problems? If this was easy work, and made loads of money, everyone would be rich.

Almost Every remodel takes longer and costs more; plan for that.

Those who lost their shirts in the last economic downturn were those who were maximally leveraged, treading water, without great backup plans. Don't be one of them.

+1
Yes. Thus the 3 legged stool on purchase of investment R/E whether a "flipper" or long term rental (hold).
1. Can you turn around and sell it "as is" and still make money? If not, you did not buy it at a great deal.
2. Can you rent it out before, during, or after it is rehab at at least 6% CAP after loans and debts? (Flippers have to be rented if market falls)
3. Will the property appreciate in value while you own it? That is your back end profit stream. Adjust for capital gains tax or 1031 exchange.

And, as "travelight" mentioned, do you have "large" cash reserves. Because that gives you "staying power". Vital to R/E investments.

"leveraging" ie: using other people's money vs your own . . . aka "easy money". . . . sells a lot of books and seminars.


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